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TMI Blog2022 (2) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... shops etc. For the assessment year under consideration, the assessee filed return of income on 22/09/2016 declaring total income of Rs. 31, 54, 040/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 ( in short 'the Act') were issued and complied with. The assessment under section 143(3) of the Act was completed by the Assessing Officer on 28/12/2018, wherein the interest claimed by the assessee in the profit and loss account as expenditure was disallowed to the extent of Rs. 70, 00, 370/-. On appeal, the Ld. CIT(A) upheld the disallowance made by the Assessing Officer. Aggrieved by the finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal, raising the sole ground reproduced above. 3. Before us the learned counsel of the assessee filed a paper book containing pages 1 to 11. 4. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. 5. Briefly stated, facts relevant to issue in dispute, are that the assessee had undertaken to construct a real estate project namely " Fortune Avenue" , which consisted of project 'A' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee did not explain whether it was following project completion method or percentage completion method for offering profit from the said projects for the purpose of the Income-tax. The Ld. CIT(A) after analysing the facts and submissions including the decisions relied upon by the assessee, upheld the disallowance, observing as under: 5. I have carefully considered the facts of the case, findings of the AO in the assessment order, submissions of the appellant and material placed on record. From the facts of the case it is noticed that the appellant undertook to construct a project 'Fortune Avenue' on plot bearing survey No. 120, H. No. 15 at village Kolshet, Thane. The said project consists of Project 'A' and Project 'B'. It was certified, by the Architects and Consultants that Building No. 1 (project A) was completed on 17.12.2016 and the appellant had offered certain amount of Sales on the Project A on the basis of payments received and the bookings. However, in respect of Building No. 2 (project B) neither the certificate of percentage of construction work was submitted nor any Sales/Profit were declared. In respect of project 'B the appellant had furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plot for Project 'B1 and interest expenses were claimed against the same, thereby decreasing the Net Profit. It is pertinent to mention here that till AY 2016-17 no major work had been done in respect of Project 'B', hence the interest incurred on the unsecured loans and partner's capital for the purchase of land in respect of Project 'B' cannot be allowed as revenue expenses for AY 2016-17 and the same will be allowed to be capitalized in the WIP. The AO, therefore, disallowed the interest expenses claimed in respect of Project 'B' by calculating the same on proportionate basis as under:- S.No. Particulars Project A Project B 1 Sales Rs. 3,20,73,825/- Nil 2 Closing Stock (WIP) Rs. 9,17,53,736/- Rs. 7,97,41,831/- 3 Interest on capital (Partner) Rs. 85,58,950/- 4 Interest paid (Others) Rs. 64,91,850/- 5 Ratio of Closing Stock of Project A : Project B 1.15 : 1 6 Interest on Capital Project A : Project B (on the basis of closing stock) Rs. 45,78,044/-. Rs. 39,80,906/- 7 Interest Paid (Others) Project A: Project B (on the basis of Closing Stock) Rs. 34,72,385/- Rs. 30,19,465/- 8 TOTAL Rs. 80, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred expenditure on this second phase of about Rs One crore on construction activity. Now the construction of second phase is going on. It is a 20 storey project. Cognizance of above all fact i.e. Revenue recorded on commencement, completion and profit declared is being considered by the Assessing officer. I may request and invite your attention to Para 10 and 11 of the Assessment order." From the above submission it is evident that the AR has abstained from clearly submitting whether the appellant is following the Project Completion method or Percentage Completion method. Hence I am constrained to analyse the material placed on record. It is seen that the appellant had purchased the land pertaining to Project 'A' during the AY 2014-15 and started the construction in AY 2014-15. However, the profit in respect of Project 'A' for the first time was declared in AY 2016-17 and no profit was declared during AY 2014-15 & 2015-16. From the above facts inference can be drawn that the appellant is declaring profits once the flats are constructed. The AR has placed his reliance on the ratio of decision in the case of M/s Lokhandwala Construction Industries Ltd. (Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest identifiable with that project should be allowed only in the year when the project is completed and the income from that project is offered for taxation." 8. Thus according to the Hon'ble High Court , where the assessee is following project completion method for crediting income, then the interest expenditure pertaining to a particular project is eligible for deduction only in the year in which the project is completed and income from the project is offered for taxation. 9. In the instant case before us, the assessee has not clarified before the lower authorities that whether it was following project completion method or percentage completion method for crediting income to profit and loss account. Before us, the assessee has filed a copy of submission dated 23/12/2019 before the Assessing Officer in respect of assessment year 2017-18 i.e. subsequent assessment year. In the said submission, the authorised representative of the assessee has clearly mentioned that the assessee is following percentage completion method. It is also mentioned that in the earlier year also the revenue was recognized following the percentage completion method. The learned authorised represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed and it shall be eligible for deduction in percentage terms of cost of construction debited following the percentage completion method. The decisions of Hon'ble Supreme Court in the case of Taparia Tools Ltd (2015) 55 taxmann.com 361 (SC) relied upon by the assessee, is also not applicable in the facts of the case being the facts of the said case different from the instant case . In the said case there were two options as regards payment of interest to the subscribers/debentures holders. They could either receive interest periodically over a period of five years, or else, the debenture holders could offer for one time upfront payment of Rs. 55 per debenture. In the second alternative, Rs. 55 per debenture was to be immediately paid as upfront on account of interest. The assessee was following mercantile system of accounting and this amount became payable to the debenture holder in accordance with terms and condition of nonconvertible debentures issue floated by the assessee, on the exercise of the option by the aforesaid debenture holder, which occurred in the respective assessment year in which deduction of the said expenditure was claimed. The Hon'ble Supreme Court rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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