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TMI Blog2022 (11) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... Printing Works vs CIT [ 1958 (3) TMI 59 - BOMBAY HIGH COURT] for the proposition that utilization of the capital was irrelevant for the purpose of adjudicating the claim of deduction u/s 36(1)(iii) of the Act. Ultimately the Hon ble High Court concluded that interest expenditure could not be treated as capital expenditure nor could it be added to the work in progress. All the appeals of the revenue are dismissed. - ITA No.1891/Mum/2022, ITA No.1892/Mum/2022 And ITA No.1894/Mum/2022 - - - Dated:- 21-9-2022 - Shri M.Balaganesh, Accountant Member And Smt Kavitha Rajagopal, Judicial Member For the Assessee : Shri Niraj Seth For the Revenue : Shri Ratnakar Shelke ORDER PER M. BALAGANESH (A.M): These appeals in ITA No.1891/Mum/2022,1892/Mum/2022 and 1894/Mum/2022 for A.Y.2013-14 2015-16 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-49, Mumbai in appeal No.CIT(A), Mumbai-49/10079/2016-17, CIT(A),Mumbai-49/10059/2016-17 CIT(A),49 Mumbai/10359/2017-18 dated 26/05/2022, 19/05/2022 26/05/2022 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Method. The assessee for the purposes of construction had borrowed interest bearing funds from the bank as well as from the group concerns. The ld. AO observed that the assessee is developing one project only and that the accounting of the Construction activity has been done in accordance with Accounting Standard 7 (AS-7) as well as Guidance Note on Accounting for Real Estate Transaction issued by the Institute of Chartered Accountants of India (ICAI). The assessee had paid interest of Rs 19.75 crores and after reducing the interest income of Rs 14.75 crores, net interest expenses of Rs 5 crores had been claimed as deduction by the assessee company. The ld. AO observed that as per the Guidance Note issued by ICAI, all the expenses directly related to the project have to be carried over and debited to the cost of project. Such expenses can be claimed as deduction in the year in which the corresponding income of the project is credited in the books of account and offered to tax. The ld. AO noted that the assessee had allocated all other expenses to the work in progress except interest. It was submitted that the said interest expenditure is eligible for deduction in view of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of work in progress in case of income being recognized under Percentage of Completion Method. We hold that the controversy in the case before the Hon ble High Court above is identical to the controversy before us also. Hence the findings given by the Hon ble High Court for the aforesaid question would be applicable to the facts of the assessee before us also. We find that the Hon ble High Court had held that the loan obtained by that assessee before it was for stock in trade. The project of that assessee constituted stock in trade of that assessee. Since that assessee had received loan for obtaining stock in trade, it was entitled to deduction u/s 36(1)(iii) of the Act. The Hon ble High Court also placed reliance on the decision of the Hon ble Bombay High Court in the case of Calico Dyeing Printing Works vs CIT reported in 34 ITR 265 (Bom) for the proposition that utilization of the capital was irrelevant for the purpose of adjudicating the claim of deduction u/s 36(1)(iii) of the Act. Ultimately the Hon ble High Court concluded that interest expenditure could not be treated as capital expenditure nor could it be added to the work in progress. 4.4. In the instant case be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid decision of Hon ble Jurisdictional High Court was on a different issue and thus is not applicable to the present case. The CIT(A) further held that the issue was considered by Special Bench of Tribunal in Wall Street Construction Ltd. (supra) and same is applicable to the facts of the present case. The CIT(A) also held that the fact that in case of Wall Street Construction Ltd. (supra) the assessee was following Project Completion Method whereas the assessee follows percentage of completion method is of no consequence. Thus, following the decision of Special Bench of Tribunal cited supra, CIT(A), inter-alia, dismissed appeal filed by the assessee. Being aggrieved the assessee is in appeal before us 7. During the course of hearing, Shri Niraj D. Sheth, learned Authorised Representative ( learned A.R. ) submitted that the issue is covered in favour of the assessee by various decisions of Co-ordinate Bench of Tribunal rendered in cases of group concern. 8. On the other hand, Shri T. Shankar, learned Departmental Representative by vehemently relying upon the orders passed by the lower authorities submitted that principle of matching concept is to be followed and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. In the instant case, the assessee is following percentage completion method (POCM) and therefore the judgment of Wall Street constructions Ltd. is not applicable to this case. The assessee is following percentage completion and offers a part of the revenue every year depending upon the percentage of completion. The funds have been borrowed for the purpose of construction and have gone into the projects of the assessee which are stock in trade and not capital asset of the assessee. Therefore, the amendment brought in the Act with effect from 2003 by way of introducing the proviso to section 36 (1) (iii) also does not affect the facts of the case of the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of Ashish Builders Private Ltd and Rohan Estate Private Ltd (supra) and also the various judicial pronouncements relied upon by the assessee, the interest expenditure claimed by the assessee is held to be allowable. Therefore, the AO is directed to delete the addition made of Rs.4,39,49,000/-. This ground of appeal is ALLOWED. . 5. Upon due consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Sr.No Name of Assesses 1TA No. Assessment Year Date of Order Group Entities 1 National Standard (India) Limited 3048/M/2019 2013-14 05/04/2021 2 Macrotech Developers Limited 68/Mum/2019 2015-16 28/03/2022 Macrotech Developers Limited (Successor to Bellissimo Crown Build Mart Pvt Ltd.) 2336/Mum/2019 2013-14 28/03/2022 3 MMR Social Housing Private Limited 1310/M/2021 2014-15 08/04/2022 4 Sanathnagar Enterprises Ltd. 792/M/2019 793/M/2019 794/M/2019 2013-14 12/04/2022 Sanathnagar Enterprises Ltd. 2014-15 12/04/2022 Sanathnagar Enterprises Ltd. 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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