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TMI Blog2012 (8) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, in brief, are that the assessee is a partnership firm engaged in the business of construction and development. During the course of assessment proceedings the AO noted from the profit & loss account that the assessee has claimed interest expenditure of Rs. 2,13,94,745/-. On being questioned by the AO to justify the claim of such expenditure it was submitted that the assessee is following mercantile method of accounting and for the purpose of accounting, the income from construction activity they are following "completed contract method" and had claimed such interest expenditure u/s.36(i)(iii) of the Income Tax Act. It was submitted that the various secured and unsecured loans by the assessee have been utilised for the various projects completed or otherwise as well as for other business purposes and meeting indirect expenses. 4. From the various details furnished by the assessee the AO noted that the interest has been paid on loans taken as under : Nature of loan Amount of interest paid (in Rs.) Secured loan 1,49,49,470 Machinery loan 9,51,989 Unsecured loan 54,92,719 Total interest paid 2,13,94,178 So far as the interest paid on machinery loan is concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project is offered for taxation. Distinguishing the various decisions cited before him and relying on the decision of the Special Bench of the Tribunal cited (Supra), he upheld the action of the AO in disallowing the interest of Rs. 2,04,42,189/-. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 7. Learned counsel for the assessee referring to the decision of the Madras bench of the Tribunal in the case of S.I. Property Development Pvt. Ltd. vide IAC reported in 40 ITD 494 submitted that when the assessee was already engaged in the business then the funds borrowed would naturally be the capital borrowed for the purpose of business and therefore the entire interest expenditure has to be allowed as deduction. He submitted that AS-7 to AS-16 are not applicable to the facts of the present case since AS-7 refers to contract cost and the assessee is not a contractor. Similarly AS-16 which deals with borrowing cost and deals with capital asset is also not applicable to the facts of the present case. He submitted that since the nature of the loan is cash credit and term loan and since all the loans have been utilised for the purpose of business for its working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the various decision cited before us. There is no dispute to the fact that the assessee is following the project completion method. There is also no dispute to the fact that the assessee in its disclosure of accounting policies at Item No. 3 has mentioned that all costs relatable to individual projects are shown under work in progress since the firm follows completion contract method of accounting. The observation of the Auditors on account of disclosure of accounting policies are as under : During the year the project wise revenue recognition is as under : Magnum Opus : All costs relatable to this project are shown under Work in progress as the firm follows Completion Contract Method of Accounting. Echelon : All costs relatable to this project are shown under Work in progress as the firm follows Completion Contract Method of Accounting. Vantage Point : During the year revenue has been booked for this project as the conditions specified below as specified in Guidance not on Real estates have been fulfilled. There is only one unsold flat in the project. The value of the same is calculated on the basis of the average construction cost per sq.ft. Pallab : All costs r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 7 extra payments is unwarranted unjustified, and contrary to the provisions & scheme of the act and facts prevailing in the case. If further be held that the entire claim of Rs. 53,37,982/- is allowable as per provisions of the Act and facts prevailing in the case. The appellant be granted just and proper relief in this respect. 12. Facts of the case in brief are that during the course of assessment proceedings the AO noted that the assessee has debited certain expenditure which includes development charges - Rs. 5,05,982/-, extra payments Rs. 48,32,000/-, labour charges Rs. 5.30.839/- and water charges Rs. 1,11,300/- totalling to Rs. 59,80,121/. On being questioned by the AO it was explained that the expenditure on account of labour and water charges of Rs. 5,30,839/- and Rs. 1,11,300/- respectively pertained to the completed project and the AO held the same to be allowable. However, with respect to the other two heads of expenditures, i.e Rs. 5,05,982/- on account of Development charges it was stated that the same was paid in relation to a plot at Baner to the Pune Municipal Corporation and Rs. 48,32,000/- on account of extra payments was also in relation to a plot at Baner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plot. Since the assessee is following mercantile system of accounting and since under mercantile system of accounting the net profit or loss is calculated after taking into account all the income and all the expenditure relating to the period whether such income or expenditure have actually received or paid and since the assessee has not provided for any such expenditure or future obligation in the books, therefore, relying on a couple of decisions, the learned CIT(A) upheld the action of the AO. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 15. Learned counsel for the assessee submitted that the expenditure was necessary to give clear title to the purchaser of the land since the persons from whom the land was purchased did not sign the documents and were not willing to give the no objections and signed the documents only after the payments were made to them. He submitted that the genuineness of the expenditure is not disputed. The dispute is only regarding the allowability of the same. He submitted that these expenses could not have been envisaged at the time of sale of the land. Referring to the decision of the Cochin Bench of the Tribunal in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee was not in a position to furnish the break up of the probable cost of litigation even on estimate basis but had only provided an adhoc amount in its books of account. Therefore it was held that it would be reasonable to allow the cost of litigation on payment basis. In view of the above, the decision relied on by the learned counsel for the assessee, in our opinion, is not applicable to the facts of the present case. The alternate contention of the learned counsel for the assessee that the matter may be restored to the file of the AO in our opinion is a futile exercise and does not carry much force. In this view of the matter and in view of the detailed discussion by the learned CIT(A) while rejecting the claim of the assessee we find no infirmity in his order on this issue. Accordingly the order of the CIT(A) on this issue is upheld and the ground raised by the assessee is dismissed. 19. Ground of appeal No. 3 by the assessee reads as under : " On facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that, the disallowance/addition of Rs.10,11,240/- pertaining to the Audit fees is improper, erroneous and contrary to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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