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2023 (11) TMI 1181 - AT - Income TaxNature of expenses - Allowability of Penal Interest paid to NOIDA - capitalization of interest - AO made disallowance in of penal interest out of project expenses (work in progress) by holding that the interest being penal in nature is clearly not allowable under the provisions of the Act - assessee submitted that the impugned interest claimed by the assessee is neither related to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority - CIT(A) deleted addition and directed the AO not to reduce the said amount and allow it to be capitalized under project expenses - HELD THAT - As there is no findings by the AO nor any submission by the ld Sr. DR to show that the interest paid by the assessee was penal in nature. Per contra, from the findings and observations of ld CIT(A), as has been reproduced hereinabove, it is clear that the after evaluation of documentary evidence including agreement with the Noida Authority, CIT(A) noted that the interest claimed by the assessee neither relates to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority and thus parable as per the agreement @3% of the default amount for the period of delay in such payment. With these observations CIT(A) correctly allowed the assessee to capitalize the interest paid by the assessee to Noida Authority. CIT(A) also observed that the said interest amount have been incurred towards project expenses and not liable to be reduced from the project expenses, being part and parcel of the project cost as additional interest payment due to delay in payment of lease charges. We are inclined to agree with the conclusion of the ld CIT(A), where he directed the AO not to reduce the amount of interest from the work in progress and allow the same to be capitalized under the project expenses. Therefore, no interference is called for the in the first appellate order. Decided against revenue.
Issues involved:
The appeal filed by the revenue against the order of the ld CIT(A)-5, New Delhi dated 27.11.2018 for AY 2015-16 concerning the disallowance of Rs. 8,35,81,377/- on account of Penal Interest to New Okhla Industrial Development Authority and its capitalization under project expenses. Details of the Judgment: 1. Issue 1: Disallowance of Penal Interest - The revenue contended that the penal interest paid to New Okhla Industrial Development Authority is not allowable under the provisions of the Act. - The assessee argued that the interest was compensatory in nature, not penal, and was capitalized as work in progress. - The ld CIT(A) allowed the capitalization of the interest, noting that it was not penal in nature but additional interest due to delayed payment, as per the agreement with Noida Authority. - The AO did not provide evidence to show that the interest was penal in nature. - The ld CIT(A) directed the AO not to reduce the interest amount from work in progress and allowed its capitalization under project expenses. 2. Conclusion: - The Tribunal dismissed the revenue's appeal, upholding the ld CIT(A)'s decision to allow the capitalization of the interest paid by the assessee to Noida Authority as part of project expenses. - The Tribunal found no merit in the revenue's grounds for interference, affirming the direction not to reduce the interest amount from work in progress. 3. Judges: - SHRI C.M. GARG, JUDICIAL MEMBER - SHRI M. BALAGANESH, ACCOUNTANT MEMBER 4. Legal Representatives: - For the Assessee: Ms. Shweta Bansal, CA - For the Revenue: Ms. Raja Rajeshwari R, Sr. DR 5. Date of Order Pronouncement: - 11/07/2023
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