DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7 PUNE, PUNE vs. KOLTE PATIL INTEGRATED TOWNSHIPS LIMITED, PUNE

The above two appeals filed by the Revenue are directed against the separate orders dated 02.08.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment years 2014-15 and 2016-17 respectively. Since identical grounds have been raised by the Revenue in both these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.

2014-15 as the lead case. Facts of the case, in brief, are that the assessee is a company engaged in real estate business. It filed its return of income on 18.08.2014 declaring total income of Rs.107,78,02,630/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 22.12.2017 determining the total income of the assessee at Rs.1,07,78,02,630/- where the Assessing Officer made addition of Rs.16,24,476/- on account of notional rent from house property.

3. Subsequently, the Assessing Officer reopened the case as per the provisions of section 147 by issuing notice u/s 148A(d) of the Act on 25.07.2022 by recording as under: ―GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 7, PUNE To KOLTE-PATIL INTEGRATED TOWNSHIPS LIMITED SURVEY NO. 74, MARUNJI HINJEWADI MARUNJI, KASARSAI ROAD, TAL MULSHI PUNE PUNE 411057, Maharashtra India

PAN: Assessment Year: Dated: DIN & Order No AABCI5807K 2014-15 25/07/2022 ITBA/COM/F/17/2022- 23/1044045890(1) Sir/Madam/M/s Subject: Proceedings u/s 148A(d) in consequence to Hon'ble SC Order dated 04.05.2022-Order 01. Brief Facts:- The assessee, Mis Kolte Patil Integrated Townships Ltd. (PAN AABCI5807K) is a Company. In this case, a notice u/s 148 for AY 2014-15 was issued on 23/06/2021. On the basis of information in possession of the AO after following the provisions of Taxation and Other laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as 'TOLA) and as per the CBDT Notification No.20 dated 31-03-2021 and subsequent Notification No. 38 dated 27-04-2021 according to which the time limit for issue of notice u/s 148 was extended to 30- 04-2021 and 30-06-2021 respectively. The above notice was issued after obtaining the prior approval of the competent Authority as per the prevailing provisions of section 151 of the IT Act, 1961. The basis for issue of notice u/s 148 was as under- "On perusal of the case record, it is seen from Balance sheet, the outstanding long term debt as on 31st March 2014 was at Rs. 197,93,18,564/- which included term loan of Rs.16,50,00,000/-. The assessee has shown work-in-progress of Rs. 396,30,86,527/- as on 31st March 2014 as against Rs. 361,84,35,789/- on 31st March 2013 indicating net increase of WIP (closing stock) of Rs. 34,46,50,738/- Further it is seen that, the assessee had incurred expenditure of Rs. 282,40,87,421/- (i.e. opening WIP of Rs. 361,84,35,789 cost incurred during the year of Rs. 327,42,32,668/- closing WIP of Rs. 396,30,86,527-cenvat credit of Rs. 10,54,94,659) on cost of sales (construction) during the year and it is exclusive of finance cost.

4. Reply of the assessee:- In response to the notice dated 24/05/2022 the assessee filed his reply on 06.06.2022. In its reply the assessee had raised various technical issues and quoted the various case laws regarding proceeding u/s.

4. The assessee objected to the issue of such notice during the course of assessment proceedings, which was rejected by the Assessing Officer. The Assessing Officer thereafter proceeded to complete the assessment. During the course of assessment proceedings it was submitted that in the instant case the funds borrowed were used for the business of the assessee and therefore, u/s 36(1)(iii) the interest paid on the funds borrowed is allowable as deduction. The decision of the Hon’ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. 260 ITR 579 (Bom) was relied upon. It was submitted that in view of the above decision, borrowed funds, which are utilized for the purpose of business of the assessee, has to be allowed in the year in which the interest expenditure has been incurred. It was further submitted that since the interest is a period cost it is rightly debited as expenditure in the year in which it is incurred.

5. However, the Assessing Officer was not satisfied with the arguments of the assessee. Distinguishing the decision of the Hon’ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (supra) and observing that after introduction of ICDS the assessee is required to recognize the revenue, cost and profit from transactions of real estate, he disallowed the interest of Rs.15,11,87,548/- by observing as under: ―The assessee also contended that the income computation and disclosure standard cannot overrule the provision of Act and in case, any conflict between ICDS and the provision of act, the provision of act would prevail. This aspect was also examined in the light of facts of the case. It would be worthwhile to mention that the interest element that would be included in the value of closing stock WIP will automatically be allowed when the revenue from sale of such closing stock would be recognized in the profit and loss account and consequently cost of inventory WIP which include the interest will also be allowed at the same time and hence there is no conflict in the provision of Act and ICDS /AS-16 as such this objection of the assessee company also get rejected. In view of the above the entire interest expenses of Rs.32,30,50,317/- incurred during the year should have been apportioned in the ratio of sale and work in progress. Accordingly the interest expenditure of Rs.15,11,87,548/- worked out @ 46.8% (Sale of Rs.450,56,25,041/- WIP of Rs.396,30,86,527/-being borrowing cost is to be included in WIP as on 31/03/2014) Incurred by the assessee as borrowing cost which is disproportionately claimed is disallowed and added back to total income of assessee. Penalty proceeding under section 271[1][c] of the Income Tax Act 1961 for concealment of income is initiated separately. Disallowance of interest u/s 36 of the I.T. Act of Rs. 15,11,87,548/-”

6. Before the Ld. CIT(A) / NFAC the assessee apart from challenging the addition on merit challenged the validity of reopening of the assessment. The Ld. CIT(A) / NFAC in the detailed order quashed the re-assessment proceedings and also deleted the addition on merit.

7. So far as the order of the Ld. CIT(A) / NFAC in quashing the re-assessment proceedings are concerned, he quashed the same by observing as under: ―6. Ground No: 1 to 3: Challenging of reopening the assessment. 6.1. Upon perusal of the facts on the record, in this case assessment u/s 143(3) of the IT Act was completed on 22.12.2017. The appellant has furnished the copy of the assessment order. In the assessment order only the issue of computation of net annual value on the unsold flats was calculated. The issue of WIP, interest expenditure debited into the Profit and Loss Account, Method of Accounting followed by the appellant etc. were already available from the financials. The appellant in Ground No.1 has rightly presented the case that there was no fresh tangible material was brought on record to reopen the case. As per the appellant it was merely change of opinion. This Ground is valid as there was no fresh material were brought on record by the AO to claim that the income has escaped the assessment. All the issue dealt in the reassessment orders were already before the AO at the time of original assessment. Hence, it is a clear-cut case of change of opinion. Hence this ground is allowed. 6.2. In Ground No.2 the appellant challenged the notice u/s 148 of the IT Act dated 25.07.2022 by claiming that it was issued beyond 6 years from the end of relevant assessment year. This Ground is also valid on the fact that 6 years from the end of relevant assessment year AY 2014-15 ended on 31.03.2021. If so, issue of notice u/s 148 of the IT Act was beyond the time limit. This Ground is valid and it is allowed. 6.3 In Ground No.3 the appellant raised another issue that there was no escapement of income in the form of asset exceeding Rs.50,00,000/- that warrants

reopening of assessment of AY 2014-15. This Ground was also raised as an objection before the AO during the course of assessment. In the present case the assessment was reopened on the main reason that the interest expenditure of Rs.32.30 Cr. was debited into the relevant assessment year whereas it has to be apportioned in the ratio of Sale and WIP. The AO reopened the assessment on this reason and quantified the disallowance of interest expenditure of Rs.15.11 Cr. This was the reason recorded. As rightly pointed out by the appellant this was beyond the scope of provisions u/s 149 of the IT Act. This Ground is also valid and it is allowed. 6.4 Additional Ground: In the Additional Ground of appeal, the appellant contended that notice u/s 148 of the IT Act cannot be issued by the JAO and it has to be issued only by the FAO. It is a legal issue raised by the appellant after the decision of Jurisdictional High Court in the case of Hexaware Technologies Vs. ACIT, Circle 15(1)(2), Mumbai and others [2024] 162 taxmann.com 225. This legal issue has been answered in favour of the appellant by Hon'ble High Court of Bombay. This Additional Ground is also valid and it is allowed.‖

8. So far as the interest expenditure disallowed by the Assessing Officer is concerned, he deleted the same by relying on the decision of the Hon’ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (supra) by observing as under: ―7. Ground No.4 to 8 on merit: 7.1 In these Grounds the appellant claimed that the interest expenditure debited into the P&L Account was a period cost and the same would be incurred by them, even though there is no increase in WIP. It is further contended that the interest expenditure is allowable even though there is no sale in the project. The appellant claimed this expenditure u/s 36(1)(iii) of the IT Act and placed their reliance on the decision of Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (260 ITR 579). 7.2. However, the AO referred provisions of ICDS-IX that was introduced later. The appellant contended that this was introduced from AY 2016-17 and not applicable to AY 2014-15 where the impugned re assessment order was passed in their case. 7.3 These Grounds also valid as the AO cannot reopen the assessment of AY 2014- 15 by following the ICDS-IX introduced in AY 2016-17. Accordingly, these Grounds are also allowed.‖

9. Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds:

1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2014-15 was invalid as there was no fresh material available with the Assessing Officer ? 2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2014-15 was barred by limitation of time? 3. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the quantification of disallowance of interest expenditure at the time of reopening of assessment was beyond the scope of provisions u/s 149 of the Act? 4. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in granting relief to the assessee by relying upon the decision of the Hon'ble Bombay High Court in the case of Hexaware Technologies Vs. ACIT, Circle 15(1)(2), Mumbai and others [2024] 162 taxmann.com 225? 5. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in granting relief to the assessee by deleting addition amounting to Rs.15,11,87,548/- while relying on the judgment of Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (260 ITR 579) by completely disregarding the observations made by the Assessing Officer?

10. Ld. DR heavily relied on the order of the Assessing Officer. He submitted that the Ld. CIT(A) / NFAC is not justified in quashing the re-assessment proceedings holding that no fresh material was available with the Assessing Officer whereas the same is not correct. Referring to the decision of Hon’ble Bombay High Court in the case of Export Credit Guarantee Corporation of India Ltd. vs. Addl. CIT reported in 350 ITR 651, he submitted that even in absence of assessee’s failure to disclose material facts where there is complete failure on part of Assessing Officer to apply his mind, during original assessment proceedings, to points on which assessment is sought to be reopened, it can be said that there is tangible material and reason to believe that income has escaped assessment. Further, he has also quashed the re-assessment proceedings on account of being barred by limitation which is also not correct. He submitted that the Ld. CIT(A) / NFAC also was not justified in deleting the addition of Rs.15,11,87,548/- by relying on the judgment of the Hon’ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (supra) by completely disregarding the observations made by the Assessing Officer. He accordingly submitted that the order of Ld. CIT(A) / NFAC be reversed and that of the Assessing Officer be restored.

Particulars Α.Υ. 2014-15 Α.Υ. 2016-17 Original notice issued u/s 148 23.06.2021 11.06.2021 Time limit as per TOLA 30.06.2021 30.06.2021 Time limit excluded to be excluded 7 days 20 days Notice issued u/s 148A(b) 24.05.2022 26.05.2022 Reply filed by the assessee 06.06.2022 06.06.2022 Surviving time limit to issue notice u/s 13.06.2022 26.06.2022 148 Actual notice issued u/s 148 25.07.2022 26.07.2022

"112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed shoe care notices will also come into effect from 1 April 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days (days between 1 May 2021. and 30 June 2021] to issue a notice under section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under section 148 of the new regime will end on 18 August 2022.

iii) `DCIT vs. Lodha Developers Ltd. (2022) 143 taxmann.com 442 (Mumbai – Trib.)

reference and/or discussion to disclose his satisfaction in respect of the query raised. The Division Bench of this court in Aroni Commercials Lid (supra) held it is not necessary that the assessment order should contain reference and/or discussion to disclose its satisfaction in respect of thee query raised Paragraph 14 of Aroni Commercials Ltd. (supra) read as under. "14. We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee t insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under section 148 of the Act during the original assessment proceedings. There can be no doubt in the present facts as evidence by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated March 2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.‖ 37. The Assessing Officer does not have any power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3) of the Act dated 23rd December 2018. Petitioner had debited an amount of Rs.6,41,87,931/- on account of software consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings vide a letter dated 6th December 2018. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner's case the Assessing Officer having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion. Various judicial precedents have held that reassessment proceedings initiated on the basis of a mere change of opinion are invalid and without jurisdiction.

38. The Apex Court in Kelvinator of India Ltd. (supra) emphasised on the difference between a power to review and the power to reassess. The Apes Court held that the Assessing Officer has no power to review but has only the power to reassess. The concept of 'change of opinion' must be treated as an in-built test to check abuse of power by the Assessing Officer. The relevant extract of the judgement is reproduced as under- ―…..However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot beper sereason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review, he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as un in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is "tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer........‖ 39. The Delhi High Court in Seema Gupta v. ITO [2022] 140 taxmann.com 463/288 Taxman 519 (Delhi) held that the order under section 148A(d) and notice under section 148 of the Act should be set aside when the reassessment was initiated on a change of opinion where the same was discussed and verified by the Assessing Officer at the time of original assessment proceedings.‖

As per the decision of Hon'ble Supreme Court in the case of Rajeev Bansal [167 taxmann.com 70], the notice under the new provision of section 148 have to be seen considering the proviso to section 149. We find in the instant case for both the assessment years the Assessing Officer had initially issued notice u/s 148 in June, 2021. Subsequently, in view of the decision of Hon'ble Supreme Court in the case of Ashish Agarwal (supra), the Assessing Officer issued notice u/s 148A(b) for both the years. The chronology of events has already been summarized in the preceding paragraphs. As per the decision of the Hon'ble Supreme Court in the case of Rajeev Bansal (supra), any notice issued beyond the survival time limit is invalid in law.

assessment years, an assessing officer has to: (1) issue the notices within the period prescribed under section 149(1) of the new regime read with TOLA; and (if) obtain the previous approval of the authority specified under section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income-tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred. G. Conclusions 114. In view of the above discussion, we conclude that: a After 1 April 2021, the Income-tax Act has to be read along with the substituted provisions, b TOLA will continue to apply to the Income-tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income-tax Act falls for completion between 20 March 2020 and 31 March 2021, c. Section 3(1) of TOLA overrides Section 149 of the Income-tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under section 148; d TOLA will extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(1) has extended time till 30 June 2021 to grant approval; e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(2) has extended time till 31 March 2021 to grant approval; f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021; g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices, and h. The assessing officers were required to issue the reassessment notice under section 148 of the new regime within the time limit surviving under the Income-tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside.‖

Since the ICDS provisions are not applicable to assessment year 2014-15, the Assessing Officer was not at all justified in making the disallowance in the hands of the assessee based on the same provisions.

―4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. In bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes deciding the claim of deduction under section 10(2)(iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act), it was irrelevant consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section Since the assessee had received loan for obtaining stock-in-trade (Kandivali 36(1)(iii) Project), the was entitled to deduction under section 36(1)(iii) of the Act. That, while adjudicating the claim for deduction under section 36(1)(iii) of the Act, the nature of the expense whether the expense was on capital account or revenue account was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction under section 36(1)(iii) of the Act-Calico Dyeing & Printing Works v. CIT [1958] 34 ITR 265 (Bom). In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case.‖

Departmental Representative’s apprehension of double deduction, however, we consider it fit and proper to add that once these amounts are allowed as deduction in the year of incurring the expenditure, the same shall not be eligible for being allowed as deduction yet again as a part of the work in progress being debited to the profit and loss account in any subsequent year. The double deduction will thus not be permissible. The conclusions arrived at by the learned CIT(A), subject to this observation, are approved.‖

raised by the learned AO are also identical worded. There is no change in the facts and circumstances of the case. The coordinate bench decided this issue as Under:- ―6. We have heard the rival submissions, perused the orders of the authorities below and case laws relied on. This aspect of the matter has been elaborately considered by the Ld.CIT(A) with reference to the averments of the Assessing Officer and considering the submissions of the assessee and also the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Lokandwala Construction Industries Ltd., (supra) and various other decision and allowed the claim of the assessee observing as under: - ―The submissions of the learned counsel have been carefully considered. According to the learned counsel the interest claimed by the assessee is a period cost and has to be allowed under section 36. (1) (iii) of the Act. The assessee has relied upon the judgment of the apex court in the case of the Taparia tools Ltd vs. DCIT (2015) 272 ITR 605 wherein the Supreme Court held that the only aspect which needed examination was as to whether the provisions of section 36. (1) (iii) read with section 43. (2) of the act was satisfied or not. Once these are satisfied there is no question of denying the benefit of deduction in the year in which such an amount was actually paid or incurred. Further, the proviso introduced by the Finance Act 2003 prohibits the allowance of interest cost only if the borrowed funds have been utilized for acquisition of a capital asset even for existing business. In this case the borrowed funds have been utilized for stock in trade which is not a capital asset. The jurisdictional Bombay High Court in the case of Lokhandwala constructions Inds Ltd 260 ITR 579 held as under:

"in the instant case, it was dear that the assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28. The assessee had undertaken the project of construction of flats. Therefore, the loan was obtained for obtaining stock-in-trade. The project constituted the stock-intrade of the assessee. The project did not constitute a fixed asset of the assessee. Since the assessee had received loan for obtaining stock-in-trade, it was entitled to deduction under section 36(1)(iii). While adjudicating the claim for deduction u/s 36(l)(iii), the nature of expenses, whether the expenses are on capital account or revenue account is irrelevant as the section itself says that interest paid by the assessee on the capita! borrowed by the assessee is an item of deduction. The utilization of the capital is irrelevant for the purpose of adjudicating the claim for deduction u/s 36(l)(iii)." The SLP filed by the Department against the Bombay High Court judgment has been rejected by the Supreme Court. The Hon'ble ITAT Mumbai in the case of M/S Ashish Builders Private Ltd vs. ACIT ITA number 310/M/2012 held as under: "A) Interest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed finance cost on the borrowed capital. The claim of the assessee should be allowed in full in view of the various decisions on this issue. To start with, we perused the order of the Tribunal in the case of Rohan Estates Pvt. Ltd. (supra) which is one of the sister concerns of the assessee. We perused the para 3.2 of the said order of the Tribunal and find it is a self explanatory and the decision of the Tribunal supports the case of the assessee. Under comparable facts of the assessee, interest cost was allowed in favor of the assessee relying on binding jurisdictional High Court judgment in the case of M/s Lokhandwala Construction Industries Ltd. (supra). For the sake of completeness of this order we extract relevant para 3.2 of the order which is reproduced as under: "3.2 With regard to the interest expenditure,...........The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in- trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus neither in doubt nor in dispute, Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f, 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance." We have also perused the said binding High Court judgment in the case of M/s Lokhandwala Construction inds. Ltd. (supra) and find the same is relevant for the following conclusion - "construction project undertaken by the assessee builder constituted its stock in trade and the assessee was entitled to deduction under section 36(l)(iii) of the Act in respect of the interest on the loan obtained for execution of said project." Relying on the another judgment of Hon'ble Bombay High Court in the case of Calico Dying and Printing Works 34 ITR 265 Bombay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(l)(iii) of the Act. The relevant lines from the para 4 reads as under; "that, while adjudicating the claim for deduction under section 36(l)(iii) of the Act the nature of expense 0- whether the expenditure was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(l)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset......." Considering the above settled position in the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital borrowed and utilized for business purposes in the year under consideration. Resultantly, we disapprove the decision of the Assessing Officer/CIT(Appeals) in transferring the interest expenditure to WIP account. Therefore, assessee is justified in debiting the same to the P&L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee‖ The Hon'ble ITAT in the case of ITO vs Rohan states ITA number 7200/MUM/2010 held as under: ―3.2 With regard to the interest expenditure, though the Accounting Standard -2 (AS-2) on the valuation of inventories issued by the Institute of Chartered Accountant of India (ICAI) would suggest that the interest expenditure ought to be taken into account in the valuation of inventories where and to the extent there is a direct nexus, the said standard is not mandatory under the Act. In fact, even following AS-2 a direct nexus has to be established for the interest cost to form part of the cost of production or construction, as the case may be, and, thus, a part of the valuation of the unsold inventory or work-inprogress as at the year-end. This is as, to cite by way of an example from the civil construction itself, the work on a project may not be underway at all for the whole or a part of the year, or say as its optimum or normative level, on account of various business exigencies. The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the Instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-intrade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance. In fact, even going by the Revenue’s stand, another issue would arise and, accordingly, need to be determined apriori. Considering the said cost as includable in the project cost may have a direct bearing on the gross profit rate, and which may therefore stand to decline from the reported and accepted rate of 23%, and cannot be presumed be remain as such, i.e., unchanged.‖

The Hon'ble ITAT Pune in the case of M/S Kolte Patil Developers Ltd erstwhile Corola reality Ltd merged with Kolte Patil Developers Ltd) also held as under: "Further, we find the Mumbai Bench of the Tribunal in the case of M/s Ashish Builders Pvt. Ltd. (supra) has decided an identical issue in favour of the assessee. Relevant Paragraphs are being reproduced hereunder for better appreciation of the issue: "6. Ground No. 1 of the appeal relates to the addition of some of the expenses to the WIP account i.e. interest on unsecured loan/fixed deposit (sic-car loan), advertisement expenses, brokerage expenses and loan processing fees. AO considered the above expenses as relatable to the WIP account and recomputed the WIP account at ₹ 5,33,28,399/-. /Assessee contends that the above said expenditure is fully allowable in the year under consideration. In this regard, assessee relied on various M/s Kolte Patil Developers Ltd., decisions. This issue is relevant for AYs/appeals under consideration. We shall take up expenditure-account wise adjudication in the following paragraphs: "A) Interest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed finance cost on the borrowed capital. The claim of the assessee should be allowed In full in view of the various decisions on this issue. To start with, we perused the order of the Tribunal in the case of Rohan Estates Pvt. Ltd. (supra) which is one of the sister concerns of the assessee. We perused the para 3.2 of the said order of the Tribunal and find it Is a self explanatory and the decision of the Tribunal supports the case of the assessee. Under comparable facts of the assessee, interest cost was allowed in favor of the assessee relying on binding jurisdictional High Court judgment in the case of M/s Lokhandwala Construction Industries Ltd. (supra). For the sake of completeness of this order we extract relevant para 3.2 of the order which is reproduced as under: "3.2 With regard to the interest expenditure............The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred, As such, what in our view would prevail Is the method of accounting being regularly followed by the assessee, i.e. on a year basis, The same also has the sanction nf law Inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being reckoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus nether in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance." We have also perused the said binding High Court judgment in the case of M/s Lokhandwala Construction inds. Ltd. (supra) and find the same is relevant for the following conclusion - "construction project undertaken by the assessee builder constituted its stock in trade and the assessee was entitled to deduction under section 36(l)(iii) of the Act in respect of the interest on the loan obtained for execution of said project/' Relying on the another judgment of Hon'ble Bombay High Court in the case of Calico Dying and Printing Works 34 ITR 265 Bombay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(l)(iii) of the Act. The relevant lines from the para 4 reads as under; "that, while adjudicating the claim for deduction under section 36(l)(iii) of the Act the nature of expense 0- whether the expenditure was on capital account or revenue account was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(l)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset....../' Considering the above settled position In the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital borrowed and utilized for business purposes in the year under consideration, Resultantly, we disapprove f decision of the Assessing Officer/CIT(Appeals) in transferring the interest expenditure to WIP account. Therefore, assessee is justified in debiting the same to the P&L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee."

14. From the above, it is evident that any amount of the interest paid in respect of capital borrowed for the business purposes constitutes an allowable deduction. The said clause (Hi) of section 36(1) of the Act supports the assessee's claim in the present case. This view is upheld in the case of CIT vs Lokhandwala Construction Industries Ltd. (supra) as well as the decision of the Tribunal in the case of M/s. Ashish Builders Pvt. Ltd. (supra) irrespective of the method of accounting of recognizing the income followed by the assessee. The present case involves the payment of interest of ₹ 8,19,23,638/-, the interest paid to debenture holders, Financial institutions, Unsecured loan etc. It is not the case of the Revenue that the interest claim of ₹ 3,00,57,566/- and related capital borrowed was not utilized by the assessee for business purposes of the assessee." However, the case of Wall Street construction is one where the assessee was following project completion method and therefore the ITAT held that the interest cost shall be debited to work in progress and allowed to be claimed as deduction only in the year in which the corresponding income is offered to tax. In the instant case, the assessee is following percentage completion method (POCM) of therefore the judgment of Wall Street construction is not applicable to this case. The assessee is following percentage completion and offers a part of the revenue every year depending upon the percentage of completion. The funds have been borrowed for the purpose of construction and have gone into the projects of the assessee which are stock in trade and not capital asset of the assessee. Therefore, the amendment brought in the Act with effect from 2003 by way of introducing the proviso to section 36 (1) (iii) also does not affect the facts of the case of the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of Ashish Builders Private Ltd and Rohan Estate Private Ltd and also the various judicial pronouncements relied upon by the assessee the interest expenditure claimed by the assessee is held to be allowable, It is also to be mentioned here that during the proceedings before the Income Tax Settlement Commission, the AO had raised specific question in relation to claim on interest expenditure made by the appellant and reply was filed by the appellant explaining the same. Wherein the assessee explained that disallowance cannot be made u/s 36(l)(iii) of the Act, in view of the jurisdictional High Court's decision in the case of Lokhandwala Construction (supra). After considering the assessee's submissions, the AO accepted the same and did not raise objection in relation to interest claimed in the report u/s 245D (3) report filed before the ITSC. Further no disallowance/ adjustment was made by ITSC in relation to such interest claimed while passing the order. The addition made by the AO is directed to be deleted. These grounds of appeal

are ALLOWED.‖

7. On a careful perusal of the order of Ld.CIT(A), we do not see any infirmity in allowing the claim of the assessee as the claim of the assessee is in tune with the decision of the Hon'ble Jurisdictional High Court in the case of Lokandwala Construction (supra) wherein it has been held that when the project constructed by the 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 u/s. 36(1)(iii) of the Act. We also find that in the proceedings before the settlement commission the assessee claimed interest expenses and as per the order dated 28.07.2014 of the settlement commission and during verification proceedings u/s. 245D(3) of I.T. Act, the assessee informed the Assessing Officer that interest of ₹.124.02 crores as claimed in the computation of income on ground of interest expenses retained in inventory is deductible under provisions of section 36(1)(iii) of the Act. It was further informed that the said amount of interest paid was in respect of capital borrowed for the purpose of business or profession. It was further submitted that the construction and development having commenced, the business is in operation, therefore, interest is allowable u/s. 36(1)(iii) of the Act. It was also further brought to the notice of the Assessing Officer that in the case of CIT v. Lokandwala constructions Industries Ltd., [131 Taxman 810] the assessee’s claim for deduction of interest, although the revenue was recognized only on project completion basis in subsequent year, was allowed in the year in which the claim of interest was made. Thus, it was contended that the interest expenditure incurred during the year is claimed and allowable as expenses even though the same has been inventorised in the Books of Accounts. These contentions were accepted by the revenue and no objection has been raised by the Assessing Officer and the settlement commission has accepted these contentions of the assessee. This fact was also taken note by the Ld.CIT(A) in allowing the claim of the assessee. Therefore, since the revenue could not controvert the findings of the Ld.CIT(A) that the project constructed by the assessee for which the loans have been taken is not a stock in trade and also the other findings of the Ld.CIT(A), we do not find any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the Ld.CIT(A) on this issue. Grounds raised by the revenue are rejected.

12. We find that the order of the learned CIT – A is also on identical lines. Therefore, respectfully following the decision of the coordinate bench in assessee’s own case, we confirm the order of the learned CIT – A in deleting the disallowance of ₹ 2,241,160,000/–. Accordingly, ground number 1 and 2 of the appeal of the AO is dismissed.‖

Definitions 2. (1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified:

(a) "Borrowing costs" are interest and other costs incurred by a person in connection with the borrowing of funds and include: (i) commitment charges on borrowings; (ii) amortised amount of discounts or premiums relating to borrowings; (iii) amortised amount of ancillary costs incurred in connection with the arrangement of borrowings; (iv) finance charges in respect of assets acquired under finance leases or under other similar arrangements. (b) "Qualifying asset" means:

(i) land, building, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets; (iii) inventories that require a period of twelve months or more to bring them to a saleable condition. (2) Words and expressions used and not defined in this Income Computation and Disclosure Standard but defined in the Act shall have the meaning assigned to them in the Act. Recognition 3. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. The amount of borrowing costs eligible for capitalisation shall be determined in accordance with this Income Computation and Disclosure Standard. Other borrowing costs shall be recognised in accordance with the provisions of the Act.

B A x---- C

Where A = borrowing costs incurred during the previous year except on borrowings referred to in Para 5 above; B = (i) the average of costs of qualifying asset as appearing in the balance sheet of a person on the first day and the last day of the previous year; (ii) in case the qualifying asset does not appear in the balance sheet of a person on the first day, half of the cost of qualifying asset; or (iii) in case the qualifying asset does not appear in the balance sheet of a person on the last day of the previous year, the average of the costs of qualifying asset as appearing in the balance sheet of a person on the first day of the previous year and on the date of put to use or completion, as the case may be, excluding the extent to which the qualifying assets are directly funded out of specific borrowings; C = the average of the amount of total assets as appearing in the balance sheet of a person on the first day and the last day of the previous year, other than assets to the extent they are directly funded out of specific borrowings; Explanation — For the purpose of this paragraph, a qualifying asset shall be such asset that necessarily require a period of twelve months or more for its acquisition, construction or production. Commencement of Capitalisation 7. The capitalisation of borrowing costs shall commence: (a) in a case referred to in paragraph 5, from the date on which funds were borrowed; (b) in a case referred to in paragraph 6, from the date on which funds were utilised.

Cessation of Capitalisation 8. Capitalisation of borrowing costs shall cease: (a) in case of a qualifying asset referred to in item (i) and (ii) of clause (b) of sub-paragraph (1) of paragraph 2, when such asset is first put to use; (b) in case of inventory referred to in item (iii) of clause (b) of sub-paragraph (1) of paragraph 2, when substantially all the activities necessary to prepare such inventory for its intended sale are complete.

(a) in case of part of a qualifying asset referred to in item (i) and (ii) of clause (b) of sub-paragraph (1) of paragraph 2, when such part of a qualifying asset is first put to use; (b) in case of part of inventory referred to in item (iii) of clause (b) of sub- paragraph (1) of paragraph 2, when substantially all the activities necessary to prepare such part of inventory for its intended sale are complete.

Transitional Provisions 10. All the borrowing costs incurred on or after 1st day of April, 2016 shall be capitalised for the previous year commencing on or after 1st day of April, 2016 in accordance with the provisions of this standard after taking into account the amount of borrowing costs capitalised, if any, for the same borrowing for any previous year ending on or before 31st day of March,2016. Disclosure 11. The following disclosure shall be made in respect of borrowing costs, namely:— (a) the accounting policy adopted for borrowing costs; and (b) the amount of borrowing costs capitalised during the previous year.‖

ITA No.2011/PUN/2024 (A.Y. 2016-17)

by the Revenue are as under:

1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2016-17 was invalid as there was no fresh material available with the Assessing Officer ?

2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2016-17 was barred by limitation of time?

3. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the quantification of disallowance of interest expenditure at the time of reopening of assessment was beyond the scope of provisions u/s 149 of the Act? 4. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in granting relief to the assessee by relying upon the decision of the Hon'ble Bombay High Court in the case of Hexaware Technologies Vs. ACIT, Circle 15(1)(2), Mumbai and others [2024] 162 taxmann.com 225? 5. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in granting relief to the assessee merely on technical grounds without going into the merits of the case and completely disregarding the observations made by the Assessing Officer?

Order pronounced in the open Court on 10th March, 2025.