DHAVAL CONSTRUCTION & DEVELOPERS P.LTD,MUMBAI vs. ITO 4(1)(4), MUMBAI

Ground no.1, being general in nature does not require adjudication.

Ground no.2, is not pressed, hence, dismissed.

Brief facts are, the assessee a company is engaged in the business of development of plots and construction of building. For the assessment year under dispute, the assessee filed its return of income on 28th September 2009, declaring nil income. The return of income filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 (for short “the Act”). Subsequently, the Assessing Officer having found that in the assessment order passed under section 143(3) of the Act for Assessment Year 2008–09 interest paid of ` 8,09,716, was disallowed and reduced from the work–in– progress, re–opened the assessment under section 147 of the Act. During the assessment proceedings, the Assessing Officer observed that the interest paid of ` 8,09,716, was neither allowed to be capitalized nor allowed as revenue expenditure in the assessment order passed in the assessment year 2008–09. Therefore, he wanted to examine the allowability of interest paid in the impugned assessment year. Examining the Balance Sheet of the assessee, the Assessing Officer found that that the outstanding loan taken as on 1st April 2008 was ` 1,77,71,437. He further found that out of the said amount an amount of ` 1,69,08,410, was obtained from a partnership

Being aggrieved of the assessment order so passed, the assessee preferred appeal before the first appellate authority. However, the learned Commissioner (Appeals) following the order of his predecessor–in–office for the assessment year 2008–09 upheld the deduction of interest paid from work–in–progress.

The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted, in the relevant previous year the assessee has carried out construction work in 4 Dhaval Construction & Developers P. Ltd. respect of only Manori Project. He, therefore submitted, there is no justification in disallowing the interest cost of ` 12,96,496. He submitted, when the Department is not doubting the genuineness of the loan taken and interest expenditure incurred by the assessee and there is no allegation by the Department that the loan was utilised for non–business purpose, either the interest expenditure incurred by the assessee is to be capitalised or allowed as deduction under section 36(1)(iii) of the Act. Drawing my attention to the Balance Sheet of the assessee as on 31st March 2009, the learned Authorised Representative submitted, sundry debtors have reduced and work–in– progress has increased. Further, the assessee has not availed any fresh loan. Therefore, it is proved beyond doubt that the borrowed fund was utilised towards construction of the project. He submitted, if only the cost of land is ` 90 lakh, then it cannot be said that the assessee has not any expenditure for construction of the project.

The learned Departmental Representative relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals).

I have considered rival submissions and perused materials on record. It is evident on record, the assessee was constructing two projects viz. Sunrise Project and Manori Project and in respect of both these projects the assessee was following Project Completion Method

In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 12.10.2018