2019 (8) TMI 405 - AT - Income Tax

Addition on account of interest expense capitalized in real estate under development - interest free advance given to subsidiary - CIT(A) has deleted this addition on the basis of SA Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT - HELD THAT - CIT(A) has rightly allowed this issue with a detailed finding as well as by discussing the case laws referred by the Assessing Officer - views of the AO appear to be reverted and distorted. The appellant company and its parent company are into different businesses like appellant company doing real estate work and parent company is India Bulls Real Estate Ltd., a real estate company. Both the interest of the company are to earn profits but within the framework of corporate law and other allied laws. Therefore, do not support the view of AO and advice AO to always apply fresh case laws of recent years as appearing in last 5 to 10 years by different High Courts and Supreme Court. With the change of time and advancement of science and technology and development of the country, the situation in which company run their business also differs. Therefore as officers of the department, we should be more practical and pragmatic while making assessment of the companies. Having concluded that the interest paid by the assessee is duly allowable under Income Tax Act as the loan to the subsidiaries has been given for the purpose of its business, it is also directed that the disallowance of the interest cost - Decided against revenue Addition of all expenditure debited to profit and loss account - alleged non commencement of business - payment of brokerage and commission for booking of flats - HELD THAT - AO ignored the crucial fact that there is payment of brokerage and commission for booking of flats to different brokers and in the next AY 2011-12, the assessee had shown total income of ₹ 209.92 crs. on which paid taxes of ₹ 75.41 crs. Thus, we are in the 4th year of business of the assessee company but the Assessing Officer wrongly mentioned that the assessee did not started its business on AY 2010-11 (4th year of filing return).Thus, the CIT(A) has rightly deleted this addition - Decided against revenue

Summary

Issues involved:
Appeal against order passed by CIT(A)- VIII, New Delhi for Assessment Year 2010-11 and 2011-12. Grounds of appeal include deletion of addition of interest expense capitalized in real estate under development and all expenditure debited to profit and loss account.

Analysis:

Issue 1: Addition of interest expense and expenditure debited to profit and loss account
The Assessing Officer made additions in respect of disallowances on account of expenditure debited to profit and loss account and interest claimed on the basis of percentage completion method in subsequent assessment years. The CIT(A) partly allowed the appeal of the assessee. The Ld. DR argued that the additions should not have been deleted. However, the CIT(A) relied on the Hon'ble Supreme Court decision in the case of SA Builders Ltd. to support the deletion of the additions. The CIT(A) provided detailed reasoning based on commercial expediency and case laws to support the allowance of interest expenses. The CIT(A) correctly interpreted the law and case laws to allow the deductions, dismissing the arguments of the Ld. DR. The CIT(A)'s decision was well-founded and in line with legal principles.

Issue 2: Commencement of business and expenditure claimed in profit and loss account
The Assessing Officer questioned the commencement of business by the assessee in the 4th year of filing returns, leading to disallowance of expenses claimed in the profit and loss account. The CIT(A) provided a detailed analysis of the business activities of the assessee, highlighting the nature of real estate development projects and the time required for completion. The CIT(A) correctly pointed out that the Assessing Officer's assumption regarding the business commencement was incorrect. The CIT(A) also highlighted the payment of brokerage and commission for booking flats, indicating active business operations. The CIT(A) relied on relevant case laws to support the deletion of the addition of expenditure claimed in the profit and loss account. The CIT(A)'s decision was well-reasoned and supported by facts and legal principles.

In conclusion, the appeals were dismissed by the Tribunal, upholding the decisions of the CIT(A) in allowing the deductions related to interest expenses and expenditure claimed in the profit and loss account. The Tribunal found the CIT(A)'s reasoning and analysis to be correct, based on legal principles and factual circumstances. The judgments delivered by the Tribunal were in line with established legal interpretations and case laws, providing a comprehensive analysis of the issues raised in the appeals.