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TMI Blog2017 (11) TMI 1657X X X X Extracts X X X X X X X X Extracts X X X X ..... re which is neither in consonance of method of accounting nor the practice/accounting policy followed by the assessee." 3. Counsel for the appellant has taken us to the order of AO as well as he is praying that the issue is covered by the decision of this Court in the case of D.B. Income Tax Appeal No. 82/2014, Commissioner of Income Tax, Jaipur-II Vs. M/s. Aditya Propcon (P) Ltd. Pushp Enclave, Pratap Nagar, Sector-5, Jaipur, decided on 10.10.2017 which reads as under:- "1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. In appeal No.164/2017, the application (21970/2017) for amending the substantial question of law is allowed. 3. The said appeal (164/2017) has not been admitted which is now admitted on the following amended substantial question of law:- "Whether on the facts and in circumstances of the case, the assessee can claim as interest expenditure of Rs. 2,32,13,786/- as business expenditure which is neither in consonance of method of accounting nor the practice/accounting policy followed by the assessee?" 4. By way of these appeals, the appellant has assailed the judgment and order of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inventory must be valued in accordance with the method regularly employed by the assessee. Now question comes what is the method of valuing the inventory employed by the Assessee? Schedule 9 attached to the Balance sheet contains significant accounting policies and relevant policies employed by the assessee with respect to the valuation of inventories as follows:- A. ACCOUNTING POLICIES & PRACTICES The financial statements are prepared on......... Sales Revenue, Related cost and Inventory Valuation (a) Revenue is recognized..... (b) Stock of land, Land development is valued at cost. Cost comprises of those cost that relates directly to a specific project of cost that can be attributed to the project activity in general and can be allocated to specific projects." It shows that assessee is consistently valuing inventories at cost and further the term cost also includes the cost attributed to the project in general and can be allocated to specific project. Further, while valuing the inventory of Project-1, Assesse has included the interest cost also which confirms that Assessee is following the method as stated in the Schedule 9 as (5 of 11) [ITA-82/2014] discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are necessary to prepare the asset for its intended use or sale are in progress." "Para-16:- The activities necessary to prepare the asset for its intended use or sale encompass more than the physical construction of the asset. They include technical and administrative work prior to the commencement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction. However, such activities exclude the holding of an asset when no production or development that changes the asset's condition is taking place. For example, borrowing costs incurred while land is under development are capitalized during the period in which activities related to the development are being undertaken. However, borrowing costs incurred while land acquired for building purposes is held without any associated development activity do not qualify for capitalization." 8. He contended that CIT(A) has committed serious error in observing as under:- "It was contended by the Revenue that the ITAT had grossly erred in law as well as in facts while holding that the revised AS-2 (7 of 11) [ITA-82/2014] issued by the ICAI was mandatory for char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealisable value/market value had been determined on the basis of certain estimate. It is to be noticed that the Assessing while holding that the inventories valued by the assessee at 5 percent was excessive, did not care to estimate the net realisable value of the store and proceeded to disallow the amount of Rs. 68,59,108 written off as obsolete stores and claimed in profit and loss account altogether. It had come on record that the assessee had valued the inventories such as nut, bolt, glass fuse, bearing, bushes, lock pin, pipe, screw etc., which were rusted non-moving and unusable on account of obsolescence/damage/deterioration by efflux of time at cost and net realisation value, whichever was lower. It had also come on record that these items were 5-6 years old. It was also not disputed that the assessee had made the requisite efforts to dispose of the same. That apart, some of these items were actually sold in subsequent years at a price 8.43 percent of the cost. Thus, considering the totality of the facts and circumstances, it was held by the Hon'ble Jurisdictional High Court that the value of the stores inventory written down taken at 10 percent of the cost by (9 of 11) [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting treatment, the interest on capital borrowed for the purpose of business is allowable u/s 36(1) (iii). A proviso has been inserted w.e.f. 1.4.2004 which reads as under:- "Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction". The proviso specifically referred to the interest paid in respect of capital borrowed for acquisition of any asset for extension of existing business. The present case is of acquisition of land for its development in course of real estate activity of the assessee. Assessee is about to complete one project and to continue the activities has purchased another land to develop another project. The argument of the ld. DR that the proviso would apply to the assessee's case cannot be accepted. We are of the considered opinion that the purchase of inventory is continuation of the same business activity in routine cours ..... X X X X Extracts X X X X X X X X Extracts X X X X
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