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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY
Aforesaid appeal has been filed by the assessee challenging the order dated 5th April 2013, passed by the learned Commissioner (Appeals)–9, Mumbai, for the assessment year 2009–10.
Ground no.1, being general in nature does not require adjudication.
Ground no.2, is not pressed, hence, dismissed.
2 Dhaval Construction & Developers P. Ltd. 4. The only surviving ground is ground no.3, wherein the assessee has challenged disallowance/deduction of interest from work–in– progress (WIP).
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
3 Dhaval Construction & Developers P. Ltd. firm namely M/s. Hiralal Jethalal Parikh, wherein one of the directors of the assessee is a partner. He noted that interest of ` 26,26,776, was paid on the said loan @ 15% per annum and the closing balance of outstanding loan as on 31st Three 2009, was ` 1,94,81,218. From the total interest cost allocated project–wise from 31st March 2004 to 31st March 2009, the Assessing Officer found that the assessee was allocating 12.39% of the interest cost to Manori Project and 87.61% to Sunrise Project. The Assessing Officer observed that the amount of loan allocable to Manori Project is ` 90 lakh. Thus, he allowed capitalization of ` 13,30,280, towards interest cost to WIP for the Manori Project and the balance amount of ` 12,96,496 was disallowed. Consequently, he reduced the WIP of the project to ` 1,46,08,030 from ` 1,59,04,526 shown by the assessee. Accordingly, he completed the assessment.
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
5 Dhaval Construction & Developers P. Ltd. of accounting and accordingly expenditure incurred was capitalized to the respective project cost. It is also a fact on record that Sunrise Project got completed in the assessment year 2007–08 and the assessee also offered income in respect of the said project as per project completion method of accounting followed by it. It is relevant to observe that in assessment year 2008–09 as well as the impugned assessment year, the assessee was having only one incomplete project viz. Manori Project. The department has neither doubted the genuineness of of loan availed or interest expenditure incurred by assessee. A part of the interest expenditure has been disallowed only on the reasoning that in past years assessee has allocated interest expenditure on proportionate basis between two projects. Undisputedly, in the impugned assessment year there is only one incomplete project. Therefore, interest expenditure has to be capitalised to the work in progress of the incomplete project as per Accounting Standard (AS)–16. More so, when there is no allegation by the department that interest expenditure is for non business purpose. Therefore, I delete the disallowance of interest expenditure of `.12,96,496 and direct the Assessing Officer to allow assessee’s claim of capitalisation. Accordingly, grounds raised by the assessee are allowed.
6 Dhaval Construction & Developers P. Ltd.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 12.10.2018