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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Rajesh Kumar & Shri Amarjit Singh
This appeal filed by assessee is directed against the order of the CIT(A)-53, Mumbai dated 31.08.2016 and it relates to A.Y. 2013-14.
At the time hearing the learned A.R. submitted that the grounds appeal raised in the memorandum of appeal are not pressed and therefore the same should be dismissed as not pressed. However, the assessee has also filed additional ground of appeal wherein the assessee has challenged the order of the CIT(A) for directing the AO to allow capitalization of interest expenses amounting to `81,89,933/- to be capitalised and included in the work-in-progress of the project.
3. After bearing both the parties and perusing the material on record we find that the issue raised by the assessee by way of additional ground vide application dated 2nd July, 2018 is arising out of the record which was before the authorities below and does not require any further verification of facts and therefore we are inclined to admit the same for adjudication by M/s. Joyous Housing Ltd. relying of the decisions of the Hon'ble Supreme Court in the cases of National Thermal Power Corporation vs. CIT 229 ITR 383 and Jute Corporation of India Ltd. vs. CIT 187 ITR 688 and the decision of the Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd. vs. CIT 199 ITR 31 (Bom) (FB) and the same is admitted for adjudication in the ensuing paragraphs.
At the outset the learned counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the order of the Tribunal in assessee's own case in for A.Y. 2012- 13 vide order dated 10th March, 2017 wherein similar issue has been restored back to the file of the AO for further examination of utilisation of funds for the purpose of business and the nexus of interest expenses incurred on such borrowed funds and if so the same needs to capitalised as part of the work-in-progress and if not so the AO can draw adverse inferences. The learned A.R. requested the Bench that the issue may be kindly restored to the file of the AO with the same direction.
The learned D.R. fairly agreed with the contention of the learned A.R. that similar issue was restored to the file of the AO and expressed no objection if the same is decided as per law and facts by the AO.
We have heard the rival contentions and perused the material on record. The undisputed facts are that the assessee has charged to the Profit & Loss Account the interest expenses of `81,89,933/- and also credited the interest income of `48 lakhs. Before the AO the assessee has claimed that there is nexus between interest expenses and interest income and therefore the same should be netted against each other. However, the AO disallowed the interest expenses on the ground that the same were not wholly and exclusively incurred for the purpose of business of the assessee as there is no nexus between the income earned and the expenditure incurred. The ld CIT(A) also upheld the order of AO. The main grounds of appeals are not pressed and therefore we are adjudicating the additional ground raised by the assessee. On the issue of restoration of issue to the file of AO , we find from the order of the Tribunal in ITA No.
M/s. Joyous Housing Ltd. 5507/Mum/2015 for A.Y. 2012-13 that similar issue, which was raised by the assessee by A.Y. by way of alternative ground before the Tribunal qua capitalisation of interest in work-in-progress of the project was restored to the file of the AO by the Tribunal. The operative part of the order of the Tribunal is as under: - “6. After considering the aforesaid submissions and relevant findings in the impugned orders, we find that it is an undisputed fact that the assessee during the relevant assessment year was in the processing of development of project and the ‘opening work-in- progress’ was Rs.190.55 crores and the ‘closing work-in-progress’ stood at Rs.224.77 crores, thus, it had shown construction cost of Rs.31.22 crores on the said on-going project during the year under consideration. In the Profit & loss account the assessee had claimed following expenditure:- Sr.No. Particulars Amount i Interest cost (apportioned towards advance 62,52,905 given to Radiant Tradevest Pvt. Ltd.) ii Transport Charges (HO) 1,24,626 iii Professional Fees 1,81,995 iv Expenses written off 81,153 v Advertising Expenses 22,385 vi Statutory Audit Fees 1,68,540 vii Limited Review Fees 33,090 viii Office Expenses 500 ix Professional Tax 2,500 x Bank Charges 35,123 xi Interest on delayed payment of taxes 34,140 Total 69,77,957 Out of the aforesaid expenditure, those given at Sr. nos. ii to v have been allowed by the ld. CIT (A) to be capitalized and those at Sr. nos. vi to x have been allowed as revenue expenditure. The item at Sr. no. xi has been disallowed by the assessee itself. The major issue before us is mainly the interest cost, which has been apportioned towards advance given to Radiant Tradevest Private Limited in the form of ICD for sums aggregating to Rs.62,52,905/-. The learned CIT (A) has given a very categorical finding that this interest expenditure has no co-relation with the earning of Rs.48 lakhs of interest income from ICD, because the funds advanced for ICD was out of the interest free fund of Rs.11.25 crores received from the associate company. Now the only contention, which has been raised by the learned counsel Shri Vijay Mehta before us is that, this interest expenditure Rs.62,52,905/- should be capitalized, because it pertains to the on- going project. It is purely a new plea/ground, which has been taken for the first time at this stage, but at the same time it goes to the root of the issue involved because, whence, this interest expenditure is not attributable to ‘income from other sources’, then it indicates that the M/s. Joyous Housing Ltd. same may have been for the purpose of construction business/ ongoing project. Being a core issue which goes to the determination of correct tax liability of the assessee, we therefore deem fit to admit the additional ground. Since this aspect has neither been contented by the assessee before the AO nor has been examined by the AO, therefore, in the interest of justice, we remit back the matter to the file of the AO, who shall examine the utilization of the borrowed fund for the purpose of business and the nexus of interest expenditure which has been incurred on such borrowed funds. If the interest expenditure is on the borrowed funds, which has been utilized for the business purpose, then the same need to be capitalized as part of work-in- progress, if not, then AO can draw adverse inference. Accordingly, we agree with the contention of the learned CIT-DR and set aside this issue to the file of the AO to decide the same in the light of the directions given above.”
We, therefore, respectfully following the decision of the Coordinate Bench, restore the issue back to the file of the AO with the direction that the AO shall examine utilisation of funds for the purpose of business and the nexus of interest expenditure incurred in connection with the borrowed funds and decide the same on the same lines as in the AY 2012-13.
In the result, the additional ground filed by the assessee is allowed for statistical purposes.