2022 (4) TMI 962 - AT - Income Tax

Disallowance of deduction of interest under section 36(1)(iii) - HELD THAT - In the present case, the assessee has followed percentage of completion method for the purposes of recognising the revenue from its project. We find that in similar facts and circumstances, the Co-ordinate Bench of Tribunal in M/S. NATIONAL STANDARD PVT. LTD. 2021 (4) TMI 1308 - ITAT MUMBAI dismissed the appeal filed by the Revenue and allowed the claim of deduction under section 36(1)(iii). Similarly, in DCIT v/s Palava Dwellers Pvt. Ltd. 2020 (4) TMI 842 - ITAT MUMBAI , following the decision of Hon ble Jurisdictional High Court in Lokhandwala Construction 2003 (1) TMI 93 - BOMBAY HIGH COURT another Co-ordinate Bench of Tribunal dismissed the appeal filed by the Revenue and allowed the claim of deduction under section 36(1)(iii) - Appeal of assessee allowed.

Summary

Issues: Disallowance of deduction of interest under section 36(1)(iii) of the Act.

Analysis:
1. The appeal was filed against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2014-15, specifically challenging the disallowance of deduction of interest under section 36(1)(iii) of the Act.
2. The assessee contended that the interest expenses claimed were allowable deductions as they were incurred during the relevant year and pertained to stock in trade. The Assessing Officer disagreed, citing incorrect accounting methods and referring to relevant guidance notes.
3. The CIT(A) upheld the disallowance, stating that the decision of the Special Bench of the Tribunal in a similar case was applicable, despite the assessee following a different method of accounting.
4. During the hearing, the assessee's representative argued that decisions of Co-ordinate Bench of Tribunal favored the assessee's position on the issue.
5. The Tribunal considered the facts and precedents, including the decision in CIT v/s National Standard Private Limited, where deduction under section 36(1)(iii) was allowed for interest expenditure related to business purposes.
6. Referring to the consistent accounting treatment and the nature of the funds borrowed for business purposes, the Tribunal concluded that the interest expenditure claimed by the assessee was allowable under section 36(1)(iii) of the Act.
7. Citing the decision in DCIT v/s Palava Dwellers Pvt. Ltd. and following judicial precedents, the Tribunal directed the Assessing Officer to allow the deduction of interest expenditure as claimed by the assessee.
8. Consequently, the appeal by the assessee was allowed based on the findings and judicial precedents cited during the proceedings.