ACIT-3(1)(1), MUMBAI vs. M/S BRIGHTSTAR INFRASTRUCTURE PRIVATE LIMITD , MUMBAI

The Revenue has filed this appeal challenging the order dated 22/08/2022 passed by ld. CIT(A)-National Faceless Appeal Centre (NFAC), Delhi and it relates to the A.Y.2014-15. The Revenue is aggrieved by the decision of ld. CIT(A) in deleting the disallowance of interest expenses claimed by the assessee.

The facts relating to the case are stated in brief. The assessee company is engaged in real estate business. It has undertaken a project of construction and development of an integrated residential township named “Ruchi Lifescape” in Bhopal (M.P.) for the MIG and HIG sections of the society. During the F.Y.2007-08 and 2008-09, it had issued fully convertible debentures to a company named M/s. Kukama Venture Ltd. and the debentures carried interest @15%. The assessee had capitalised (included in the „work in progress‟) the interest expenses up to A.Y.2012- 13. However, during the year under consideration, the interest expenditure of Rs.9.38 Crores was debited to profit and loss account, i.e., it has been claimed as Revenue expenditure instead of including the same in “work in progress”. The AO asked explanations with regard to change of accounting treatment given to interest expenses. It was submitted that the substantial portion of the project has been completed and hence, as per Accounting Standard-16 issued by ICAI, the borrowing cost have been claimed as „Revenue expenditure‟. The AO did not accept the contentions of the assessee and accordingly, disallowed the interest claimed of Rs.9.38 Crores.

Before the ld. CIT(A), the assessee submitted that the interest has been claimed by it as revenue expenditure on the basis of Generally Accepted Accounting Principles (GAAP) and also as per Accounting Standard – 16 issued by ICAI. It was further submitted that, in A.Y.2013- 14 also the assessee had claimed the interest expenses as „Revenue expenditure‟ instead of charging the same to „work in progress‟. The AO had accepted the claim of the assessee in that year. However, the ld. PCIT initiated revision proceedings u/s.263 of the Act and directed AO to disallow the interest expenditure. The assessee challenged the said revision order passed by ld. PCIT and the same has been quashed by ITAT vide its order dated 05/03/2018. Following the decision rendered by ITAT, the ld. CIT(A) deleted the disallowance. Aggrieved, the Revenue has filed this appeal.

Both the parties placed reliance on various case laws in support of their respective contentions. However, we notice that the ld. CIT(A) has granted relief to the assessee on the basis of order passed by the Tribunal in A.Y.2013-14 against the revision order passed by ld. PCIT. On a careful perusal of the order passed by the Tribunal, we notice that the Tribunal has taken the opinion that the view taken by the AO to allow interest expenses as revenue expenditure is one of the possible views. It was further held that it is a question of change in accounting year and hence, it is Revenue neutral, i.e., no prejudice is caused to the revenue. There should not be any dispute that the criteria for examining the revision order passed u/s 263 of the Act is different, i.e., if the view taken by the AO is one of the possible views, then the assessment order cannot be termed as erroneous merely because the Ld PCIT has got different view. Similary, if no prejudice is caused to the revenue, then also the revision order passed u/s 263 of the Act is liable to be quashed.

In the instant case, in effect, the ITAT has not adjudicated the issue on merits. Accordingly, we are of the view that the ld. CIT(A) was not justified in granting relief to the assessee by placing reliance on the order passed by the ITAT in the revision proceedings. In our view, the ld. CIT(A) should have adjudicated the appeal on merits. Accordingly, we are of the view that this issue requires fresh examination at the end of the ld. CIT(A). Accordingly, we set aside the order passed by the ld. CIT(A) and restore all the issues to his file for examining them afresh. After affording adequate opportunity of being heard to the assessee, the ld. CIT(A) may take appropriate decision in accordance with the law.

In the result, appeal filed by the Revenue is treated as allowed for statistical purposes.