What did the Tribunal hold?

The Tribunal, following its own earlier decision in the assessee's own case for AY 2009-10, held that the interest expenditure should be allowed as revenue expenditure. Accordingly, the addition made by the Assessing Officer was deleted.

The assessee, a construction firm, debited interest expenditure on unsecured loans. The Assessing Officer observed that no work was carried out during the year and the closing work-in-progress from the previous year remained intact. He therefore disallowed the interest expenditure and added it to the work-in-progress.

What were the issues?

The primary issue was whether interest expenditure on unsecured loans used for business purposes, when no work was carried out in the current year, should be disallowed and capitalized to work-in-progress or allowed as a revenue expenditure.

M/S Satyam Builders vs DCIT | ITAT Mumbai 2021

Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI

Before: SHRI SAKTIJIT DEY

For Respondent: Smt. Smita Verma (DR)

Pronounced: 25/02/2021

O R D E R This is an appeal by the assessee against order dated 23-05-2019 of learned Commissioner of Income-tax (Appeals)-32, Mumbai for the assessment year 2011- 12.

The dispute in the present appeal is confined to disallowance of interest expenditure amounting to Rs.34,02,902/-.

Briefly the facts are, the assessee, a partnership firm, is engaged in the business of construction of building. For the assessment year under dispute, assessee filed its return of income on 18-07-2011 declaring loss of Rs.35,67,872/-. In course of assessment proceedings, the Assessing Officer noticed that the assessee has debited interest expenditure of Rs.38,89,191/- on unsecured loan. During the year under consideration, the assessee has not carried out any work. Further, he observed that the assessee has shown unsecured loan of Rs.3,38,90,019/- as on 31-03-2010 and claimed that it has been used for business. However, since the closing work-in-progress of earlier year has remained intact for the current year, the Assessing Officer was of the view that interest expenditure claimed of Rs.34,82,118/- cannot be allowed as expenditure, but has to be added to the closing work-in-progress. Accordingly, he disallowed and capitalized the interest expenditure of Rs.34,82,118/-. Though, the assessee contested the aforesaid disallowance; however, learned Commissioner (Appeals) confirmed the addition.

When the appeal was called for hearing, no one was present on behalf of the assessee. However, considering the nature of dispute, I proceed to dispose of the appeal ex parte qua the assessee after hearing the learned Departmental Representative and on the basis of material on record.

Heard the learned Departmental Representative and perused the material on record. As could be seen from the ground raised by the assessee, identical issue relating to capitalization of interest came up for consideration before the Tribunal in assessee’s own case in assessment year 2009-10. While deciding the issue in dated 26-10-2016, the Tribunal has allowed assessee’s claim by holding that the interest should be allowed as revenue expenditure. Facts being identical, following the aforesaid decision of the Tribunal, I delete the addition. Ground 1 is allowed.

Grounds 2 & 3 being consequential and premature are dismissed.

In the result, appeal is partly allowed.

M/S SATYAM BUILDERS,MUMBAI vs. DY. CIT 17(2) PRESENTLY WARD 20 (3)(2), MUMBAI

What did the Tribunal hold?

What were the facts?

What were the issues?

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