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Income Tax Appellate Tribunal, D BENCH, MUMBAI
order
: 28.11.2022 O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal arise out of the order, dated 29.06.2022, passed by the Ld. Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2014-15, whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 23.12.2016, passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).
In the appeal preferred by the Revenue the following grounds have been raised :
Assessment Year: 2014-15 “1. Whether on the facts and circumstances of the case and in law, the Learned CIT(A) is right in deleting the disallowance of interest expenses amounting to Rs. 20,26,69,863/- without considering the fact that the auditor has allocated interest cost of Rs. 21.48 Cr to cost of project, therefore is a capital expenditure.
2. Whether on the fact and circumstances of the case and in law, the Learned CIT(A) is right in holding that the assessee is eligible for claiming the deduction on interest ignoring the decision of the special bench in the case of „Wall Street Construction Ltd.”
The relevant facts, in brief, that the Assessee is a private Limited Company forming part of Lodha Group of companies. The Assessee is engaged in the business of construction and developing real estate. During the relevant previous year the Assessee was developing a residential project names „Lodha Eternis‟ at Andheri. The Assessee was following mercantile system of accounting and had adopted percentage completion method for offering the profits of the aforesaid project to tax in the return of income filed for the Assessment Year 2014-15 on 30.11.2014. The case of the Appellant was selected for scrutiny and assessment under Section 143(3) of the Act was framed on the Appellant vide Assessment Order, dated 23.12.2016. The Assessing Officer inter alia, disallowed interest expenses of INR 20,26,69,863/- claimed to have been incurred by the Assessee in relation to stock-in-trade and added the same to the work-in- progress.
Being aggrieved, the Appellant carried the issue in appeal before CIT(A). The CIT(A) vide order dated 29.06.2022 decided the issue in favour of the Appellant.
Being aggrieved by the order of CIT(A) overturning the decision of the Assessing Officer and thereby allowing deduction for the Assessment Year: 2014-15 interest cost of INR. 20,26,69,863/- , the Revenue has preferred the present appeal following the decisions of the Tribunal in the case of M/s. MMR Social Housing Pvt Ltd. (formerly known as Lodha Buildcon Pvt. Ltd.) for A.Y. 2014-15 in pronounced on 08.04.2022.
We have considered the rival submissions and perused the material on record. We note that the CIT(A) has granted relief to the Assessee holding as under: “6.3.1 I have considered the facts of the case and submissions of the assessee. During the year under consideration, the assessee was developing a residential project named as „Lodha Eternis' at Andheri. The assessee is following percentage completion method. The assessee had borrowed interest- bearing fund from the group concerns, banks and financial institutions. On the said funds, the assessee had paid interest of Rs.27.69 Cr, and after reducing the interest income of Rs.1.04 Cr. the net interest expenditure was shown at Rs.26.65 Cr. Out of this net interest expenditure, the assessee had capitalized interest of Rs.21.48 Cr. to the Work-In- Progress, and out of the same, interest expenditure of Rs.20,26,69,863/- was claimed as deduction in the return of income. The claim of the assessee before the learned AO was that the interest expenditure was claimed as deduction in the year of incurrence for the reason that the interest is period cost, which is to be allowed in the year which it belongs to. The assessee further claimed that such interest cost is allowable u/s 36(1)(ii) of the Act as well. The assessee relied on several judicial decisions as referred to in the submission in the case of other group concerns, where the Hon'ble ITAT has decided this issue in favour of the respective assessees. 6.3.2 I had considered this issue in the case of another group concern of the assessee naming M/s. MMR Social Housing Pvt Ltd. (formerly known as Lodha Buildcon Pvt. Ltd.) for A.Y. 2014- 15. In my appeal order in the said case in appeal No. CIT(A), Mumbai-49/10582/2016-17 dated 20/05/2021, had discussed this issue in detail and held that the assessee was not eligible to claim this expenditure in view of the decision of Hon'ble Special Bench of the Mumbai ITAT in the case of Wall Street Construction Ltd. (101 ITD 156). In the said order, had discussed why, as per my opinion, the decision of Hon'ble Bombay High Court in the case of CIT v Lokhandwala Construction Industries Ltd (260 TR 0579 (Bom)] did not support 3 Assessment Year: 2014-15 the case of the assessee and the issue was to be decided in view of decision of Hon'ble Special bench of the Tribunal in the case of Wall Street Construction Ltd.(supra). The assessee, thereafter, filed an appeal before the Hon'ble Mumbai ITAT against the said appeal order passed by me in the case of M/s MMR Social Housing Pvt. Ltd, and the Hon'ble Mumbai Tribunal has decided the issue in favour of the The Hon'ble ITAT, in the order dated 08/04/2022 in (AY. 2014- 15), has given the following findings. “ 9. we have considered the rival submissions ……..
Similarly, in DCIT v/s Palava Dwellers Pvt. Ltd. in ITA No.2147/Mum./ 2018 vide order dated 20 February 2020, following the decision of Hon‟ble Jurisdictional High Court in Lokhandwala Construction (supra), another Coordinate Bench of Tribunal dismissed the appeal filed by the Revenue and allowed the claim of deduction under section 36(1)(iii) of the Act.” 6.3.3 Since, the view taken by me on this issue in an earlier order in the case of another group concern, as mentioned above, did not find favour from the Hon'ble ITAT, and that has been reversed vide the order referred to above, respectfully following the judicial discipline and the decision of the Hon'ble Tribunal in the aforesaid case and other cases relied upon by the assessee, it is held that the assessee is eligible for claiming this deduction, and the learned AO is, accordingly, directed to allow the same. Grounds No.1A and 1B are, accordingly, ALLOWED.” (Emphasis Supplied) 7. During the hearing the Learned Authorised Representative for Assessee had placed on record a copy of the common order, dated 26.10.2022, the passed by the Tribunal in ITA No. 1893/Mum/2022 for the Assessment Year 2014-15 in the case of the Assessee (as a successor to M/s Sahajanand Hi-Tech Constructions Pvt. Ltd) whereby appeal of the Revenue raising identical grounds was dismissed by the Tribunal. The relevant extract of the decision reads as under: “014. We find that this issue is squarely covered in favour of the assessee by the order of co-ordinate Bench in ITA No. 1539 & 1594/Mum/2019 for A.Y. 2015-16 in case of Lodha Developers Ltd. (successor to Palava Dwellers Pvt. Ltd) dated 30thAugust 2022. That decision was rendered following the decision in ITA
Assessment Year: 2014-15 No.2147/Mum/2018 dated 20th February 2020. The learned CIT (A) has also followed the same. Therefore, respectfully following the decision of the Honourable Bombay High Court as well as of the coordinate benches, we do not find any merit in ground raised by the learned Assessing Officer, hence, dismissed. Accordingly, ground no. 1 &2 of the appeal is also dismissed. 015. In the result, of learned Assessing Officer for A.Y. 2014-15 is dismissed.”
8. We note that in the decision of the Tribunal ITA No. 1310/Mum/2021 [relied upon by the CIT(A)] and in ITA No. 1893/Mum/2022 [cited by the Learned Authorised Representative for Assessee], reference has been made to the decision of the Mumbai Bench of the Tribunal in the case of Dy.CIT Central Circle -7 (3) Vs. M/s Pallav Dwellers Pvt. Ltd [ITA No. 2147/MUM/2018, Assessment Year 2014-15, 20.02.2020]. In that case, following the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Lokandwala Construction Industries Ltd. [260 ITR 579], it was held by the Tribunal that when the project constructed by an assessee is its stock-in-trade and not a fixed asset of the assessee, the interest paid on loans obtained for stock-in-trade is an allowable deduction under Section 36(1)(iii) of the Act. The CIT(A) has, in effect, granted relief to the Appellant by following the above decisions of the Tribunal and the Hon‟ble Bombay High Court. Accordingly, we do not find any infirmity in the order passed by the CIT(A).
Further, the decision of the special bench of the Tribunal in the case of Wall Street Construction Ltd reported in 102 TTJ 505 is distinguishable also in facts as having been rendered in a case where the assessee was offering to tax income from the project on completion of the project by following project completion method whereas in the present case percentage completion method is being followed. Identical ground raised by the 5
Assessment Year: 2014-15 Revenue stand rejected in the above decisions of the Tribunal. Thus, the decision of the CIT(A) is in line with the above decisions of the Tribunal in this regard also.
10. In view of the above, we decline to interfere with order passed by the CIT(A). Accordingly, Ground No. 1 and 2 raised by the Revenue is dismissed.
In the result, the present appeal filed by the Revenue is dismissed. Order pronounced on 28.11.2022.