HOUSING BOARD HARYANA,PANCHKULA vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE PANCHKULA, PANCHKULA

Since the issues involved in both the appeals are identical and the appeals were heard together, they are being disposed of by this consolidated order for the sake of convenience and brevity.

We shall firstly deal with the appeal of the assessee in ITA No. 1837/Chd/2025 for A.Y. 2013-14 wherein Assessee has raised the following grounds:

1 The Assessing Officer was of the view that the said interest expenditure was attributable to work-in-progress and advances made for the creation of capital assets and therefore was liable to be capitalised in terms of the provisions of section 36(1)(iii) of the Act. According to the Assessing Officer, despite the opportunities afforded during the course of the assessment proceedings, the assessee failed to establish the nexus between the borrowed funds and the revenue-generating business activities. The Assessing Officer, therefore, disallowed the claim of interest expenditure and added the same to the income of the assessee.

2 The Assessing Officer further noticed that a sum of Rs.7,96,11,672/- was reflected in the books under the head "Registration Deposits of Prospective Buyers". According to the Assessing Officer, the liability had remained outstanding for a considerable period of time and the assessee failed to furnish complete details regarding the identity of prospective allottees, refunds made, subsequent adjustments or evidence establishing the continued existence of the liability. The Assessing Officer accordingly invoked the provisions of section 41(1) of the Act and treated the said amount as income of the assessee.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the First Appellate Authority, it was submitted that the interest expenditure had been incurred in the course of carrying on the statutory functions

1 In respect of the addition of Rs.7,96,11,672/-, the assessee submitted before the Ld. CIT(A) that the amount represented registration deposits received from prospective buyers and continued to be reflected as a liability in its books of account. It was argued that there was neither any remission nor cessation of liability and therefore the provisions of section 41(1) of the Act had no application.

2 The Ld. CIT(A), however, was not persuaded by the submissions advanced on behalf of the assessee. The Ld. CIT(A) observed that the assessee had failed to furnish sufficient evidence demonstrating that the impugned interest expenditure was not relatable to capital assets under construction. The Ld. CIT(A) further held that the assessee had not discharged the burden cast upon it to establish that the liability towards registration deposits continued to subsist. The additions made by the Assessing Officer were accordingly sustained.

Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.

Before us, the Ld. Authorised Representative reiterated the submissions made before the lower authorities. It was submitted that both the Assessing Officer and the Ld. CIT(A) had proceeded on assumptions without properly examining the documentary material available on record. The Ld. AR submitted that the interest expenditure of Rs.1,12,67,920/- had been incurred pursuant to the directions issued by the Hon'ble Punjab & Haryana High Court vide order dated 01.05.2012 and therefore the same could not be treated as expenditure requiring capitalization. It was further submitted that the assessee had consistently followed a recognized method of accounting and the expenditure had been claimed in accordance with such accounting treatment.

1 The Ld. AR further submitted that the registration deposits represented amounts received from prospective buyers in the ordinary course of the housing

Per contra, the Ld. DR strongly relied upon the orders of the Assessing Officer and the Ld. CIT(A). The Ld. DR submitted that the assessee had failed to furnish complete evidence either before the Assessing Officer or before the First Appellate Authority. It was argued that the assessee had not established the nexus between the interest expenditure and the alleged liability arising out of the order of the Hon'ble High Court. The Ld. DR further submitted that even before the Tribunal no documentary evidence had been placed on record clearly demonstrating the allowability of the interest expenditure under section 36(1)(iii) or section 37 of the Act.

1 The Ld. DR further submitted that the assessee had also failed to furnish complete particulars in respect of registration deposits of prospective buyers amounting to Rs.7,96,11,672/- and therefore the lower authorities were justified in drawing adverse inference against the assessee.

We have heard the rival submissions and carefully perused the material available on record. We find that the principal controversy regarding the disallowance of Rs.1,12,67,920/- revolves around the nature and allowability of the interest expenditure claimed by the assessee. The specific case of the assessee is that the said interest expenditure was incurred pursuant to the directions issued by the Hon'ble Punjab & Haryana High Court vide order dated 01.05.2012 and therefore constituted allowable business expenditure.

1 However, on a careful examination of the material placed before us, we find that the assessee has not been able to establish a clear nexus between the impugned interest expenditure of Rs.1,12,67,920/- and the liability allegedly arising from the aforesaid order of the Hon'ble High Court. Even from the balance sheet and other financial statements placed before us, the precise linkage between the amount claimed as deduction and the directions of the Hon'ble High Court is not discernible.

2 We further find that neither the assessment order nor the appellate order contains a comprehensive verification of the factual assertions made by the 5 assessee. At the same time, the assessee has also not placed complete supporting evidence before us so as to conclusively establish its claim. In our considered view, the issue requires fresh examination by the Assessing Officer, having regard to the relevant records and documentary evidence.

3 Likewise, with regard to the addition of Rs.7,96,11,672/- on account of registration deposits of prospective buyers, we find that the matter requires detailed factual verification. The nature of the liability, particulars of the prospective buyers, subsequent refunds or adjustments, if any, and other relevant records have not been examined in sufficient detail. Therefore, in the interest of justice and fair play, this issue also deserves to be restored to the file of the Assessing Officer for fresh adjudication.

4 Accordingly, we set aside the orders of the authorities below on these issues and restore the matter to the file of the Assessing Officer. The assessee is directed to furnish complete details and documentary evidence establishing the nexus of the expenditure claimed under section 36(1)(iii)/37 of the Act amounting to Rs.1,12,67,920/-. The assessee shall specifically place on record complete particulars demonstrating how the said interest expenditure arose pursuant to the directions of the Hon'ble Punjab & Haryana High Court dated 01.05.2012 and how the same is allowable under the provisions of the Act.

5 The assessee shall further furnish complete details and supporting evidence in respect of the liability of Rs.7,96,11,672/- including party-wise details, supporting records, subsequent adjustments/refunds and all relevant material necessary for determining the applicability of section 41(1) of the Act.

6 The Assessing Officer shall examine the evidences so furnished, afford adequate opportunity of being heard to the assessee and thereafter decide the issues afresh by way of a speaking order in accordance with law. We clarify that we have not expressed any opinion on the merits of the issues and all contentions of both parties are left open.

Ground No.1 of the assessee's appeal in ITA No.1837/Chd/2025 is accordingly allowed for statistical purposes.

Ground No.1 raised in ITA No.1840/Chd/2025 involves identical facts and issues. Therefore, following our findings recorded hereinabove mutatis mutandis, the 6 said ground is also restored to the file of the Assessing Officer with identical directions. Accordingly, Ground No.1 in ITA No.1840/Chd/2025 is also allowed for statistical purposes.

In the result, both the above appeals are allowed for statistical purposes.

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File