2018 (3) TMI 67 - AT - Income Tax

Computation of total income - whether the order of the AO reducing the amount of brokerage and interest on loan from the WIP is correct or not? - AO was of the opinion that since the interest in question on housing loan, had already been claimed as deduction u/s 24(b), the same could not be taken into consideration for computation u/s 48 - Held that - Both AS 10 and Ind AS 16 define elements of cost in an identical manner and contain several examples of costs that are includible or excludible in the determination of cost of assets. Having examined the relevant documents, we find that the claim of the appellant that the AO should not have reduced brokerage and interest on loan from WIP has not been examined either by the AO or the Ld. CIT(A) on the basis of parameters as narrated at para 7.3,7.4&7.5. In view of the above facts, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to make a de novo order in the light of our observation at para 7.3,7.4 &7.5 hereinbefore after giving reasonable opportunity of being heard to the appellant. We direct the appellant to file the relevant accounts/documents before the AO.

Issues Involved:
1. Reduction of Work-In-Progress (WIP) by ?1,10,02,425/- towards brokerage.
2. Reduction of WIP by ?7,35,52,483/- towards interest incurred on a loan borrowed for the project.

Detailed Analysis:

1. Reduction of Work-In-Progress (WIP) by ?1,10,02,425/- towards brokerage:

The appellant argued that the brokerage amount of ?1,10,02,425/- paid to C B Richards for leasing properties should be considered as a business expense under section 37(1) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed this expense, stating that neither section 23 nor section 24 of the Act provides for the deduction of expenditure towards brokerage paid for putting the property on rent. Consequently, the AO reduced the corresponding expenditure on the project completed during the year from ?96,93,12,794/- to ?95,83,10,369/-.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, confirming that deductions for income earned from house property are limited to those specified in section 24, and brokerage on lease is not a qualifying expenditure.

2. Reduction of WIP by ?7,35,52,483/- towards interest incurred on a loan borrowed for the project:

The appellant had claimed a deduction of ?7,35,52,483/- as interest paid on borrowed funds under the head 'Income from house property.' The AO observed that the appellant had also apportioned this interest expense to various ongoing projects under the head "expenditure on projects completed during the year," making it a component of WIP. The AO reduced this amount from WIP to avoid a dual claim of the same amount, restricting the expenditure on the project completed during the year to ?88,47,57,886/-.

The CIT(A) agreed with the AO, referencing the Supreme Court judgment in Escorts Ltd. v. UOI (1993) 199 ITR 43 (SC), which held that double deduction is not permissible.

Appellant's Arguments:

The appellant contended that the brokerage fees were business expenses covered under section 37(1) and referenced the decision in Mukti Properties (P.) Ltd. v. CIT (2011) 344 ITR 177 (Cal). For the interest paid, the appellant argued that it was a cost incurred for the project and should be added to the total WIP. The appellant further claimed that the interest should be deductible from 'Income from house property' and as a cost to the building, relying on the Chennai Bench Tribunal decision in ACIT v. C. Ramabrahmam (ITA No.943/Mds/2012).

Revenue's Arguments:

The Departmental Representative (DR) supported the CIT(A)'s order, stating that since the expenses had already been claimed under section 24(b), they could not be claimed as business expenses subsequently. The DR distinguished the decision in C. Ramabrahmam on facts.

Tribunal's Decision:

The Tribunal examined relevant case laws and accounting standards (AS-10 and AS-16) and found that the AO and CIT(A) had not thoroughly examined the appellant's claim regarding the reduction of brokerage and interest on loan from WIP. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for a de novo order, directing the appellant to file relevant accounts/documents.

Conclusion:

The appeal was allowed for statistical purposes, and the matter was remanded to the AO for reconsideration based on the Tribunal's observations and relevant accounting standards.

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