CITYWOOD BUILDERS P.LTD,MUMBAI vs. DCIT 14(1)(2) , MUMBAI

This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -21, Mumbai [hereinafter referred to as the ld CITA] in Appeal No. CIT(A)-21/DCIT-14(1)(2)/IT-407/2016-17 dated 15.03.2019 against the order passed by the Learned Dy. Commissioner of Income Tax, Range 14(1)(2), Mumbai [hereinafter referred to as the ld AO] under section [u/s] 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] dated 29.3.2016 for the Assessment Year 2013-14.

We have heard the rival submissions and perused the materials available on record. We find that assessee-company is engaged in the business of real estate development and had derived loss from business during the year. The return of income for the Assessment Year (AY) 2013-14 was filed on 30.11.2013 declaring net loss of Rs. 2,68,68,902/- which was later revised on 31.03.2015 declaring net loss of Rs. 2,72,40,409/-.

We find that the Assessing Officer (AO) during the scrutiny assessment proceedings observed that assessee has debited an amount of Rs. 7,61,59,332/- towards prior period interest expenses pertaining to AY 2012-13. The assessee submitted before the AO that the said interest expenses has been debited to the cost of inventory and duly included in the closing stock of inventory of Rs. 63,49,03,661/-. In effect, the assessee pleaded that it had not claimed any expenditure or deduction towards the said prior period interest and that the same has only been debited to work-in-progress.

We find that the AO without understanding and appreciating these contentions of the assessee proceeded to make disallowance on prior period the genuineness of the incurrence of the aforesaid interest expenditure of Rs. 7,61,59,332/- has not been doubted by the revenue. We find that assessee had filed a detailed note before the lower authorities stating that it has recorded this interest expenses of Rs. 761,59,332/- as “Prior Period Adjustment” in the Profit & Loss Account i.e. after profit after tax. However, this interest expense has been debited to the cost of inventory and forms part of closing inventory of Rs. 63,49,03,661/- as shown in Note-18 of Profit & Loss Account i.e. “changes in inventory”.

We have gone through the detailed break up of items included in the closing work-in-progress which admittedly include this interest expenses of Rs. 761,59,332/-. For the sake of convenience, the said working is reproduced hereunder:

Admittedly, this interest expense of Rs. 7.61 crores though pertains to AY 2012-13 was never claimed as deduction by the assessee. If due provision has been made on mercantile basis then the same would have got included in the opening work-in-progress of Rs. 56.17 crores and the opening work-in-progress thereon would have increased by Rs. 7.61 crores being the interest expenses.

We find that assessee had included the same in the closing work-in- progress in AY 2012-13. Hence this is a clear case of omission of booking an expenditure to the closing work in progress, which was rectified during the year under consideration. In any case, we find that assessee has not claimed any deduction for the same warranting any disallowance. Hence, we also find that assessee has furnished Profit & Loss Account for the year ended on 31.03.2013 without interest expenses and with interest expenses to drive home the point that loss for the year remains the same in both the scenario at Rs. 2,89,01,857/-. For the sake of convenience both the said Profit & Loss Account are reproduced hereunder:

From the above, it can be safely concluded that loss for the year continues to remain the same and hence the contention of the assessee that it had not claimed any deduction in the return of income for the AY 2013-14 towards prior period interest deserves to be accepted and accordingly the grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.