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TMI Blog2023 (7) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ame period, irrespective of actual out-flow of cash. In the instant case, it is an admitted position that the assessee has not offered revenue from the project to tax on the grounds that it is the first year of operations and less than 15% of the project is completed. Therefore, applying the matching principle, the interest incurred needs to be transferred to WIP and would be liable to be claimed in the year that revenue is earned We deem it fit to remand the matter to the file of the A.O. and the assessee is directed to provide the details of interest that has been capitalized in work in progress (WIP) and the interest that has been deducted in the Profit and Loss Account. After receiving the assessee s submission, the A.O has to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT(A) erred in not appreciating that Accounting Standards are relevant for the preparation of Financial Statement, not for allowability of interest expenses incurred for the purpose of business and allowable Under Section 36(1)(iii) of the Act. 3. That the Learned CIT(A) did not consider the submission of the Appellant that Tax Accounting Standards are not applicable in the relevant Assessment Year under Appeal and Hon'ble Jurisdictional High Court held that ICDS notified by CBDT are ultra-vires the Act. 4. On the facts and circumstances of the case, the Order of the Learned Assessing Officer and ld. CIT(Appeals) are not based on correct facts and relevant law, hence both the Orders are illegal, deserve to be set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a loss of Rs. 7,97,95,666/- in the computation of income. Assessment proceedings were initiated against the assessee and the assessment order was passed u/s 143(3) read with Section 144C of the Act dated 23.03.2016. The AO made an addition on account of arm s length adjustment of interest u/s 92CA(3) of the Act amounting to Rs. 7,07,06,250/- and disallowance of interest amounting to Rs. 8,44,36,408/- claimed u/s 36(1)(iii) of the Act, capitalizing the same as work in progress under the head inventories in the balance sheet of the assessee as on 31.03.2012. Since there was overlapping of section 92CA(3) and Section 36(1)(iii) of the Act the AO adopted the higher figure of Rs. 8,44,36,408/- for the purpose of disallowance of interest and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e finding of the A.O. that the assessee has not recognized revenue in the profit and loss account in the year under consideration cannot be a ground for disallowance of interest claimed as business expenses under the head income from business . The ld. Counsel further submitted that the assessee cannot recognize revenue during the process of civil project since the customers are paying installments of booking of the flat in the projects, and as per the prudent accounting norms, the same can be accounted only as liability in the balance-sheet and the same cannot be shown as income. The ld. Counsel also submitted that the assessee is following percentage completion method and shall start recognizing proportionate revenue on 15% completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Of this, the assessee capitalized interest of Rs. 93,13,592/- proportionately in work-in-progress on construction activities (as per Schedule of Project Implementation Expenses) and an amount of Rs. 8,44,36,408/- was claimed in Profit and loss Account. 13. It is the specific case of the assessee the Assessee had used the entire Rs.75 Crores for the purpose of business as the same has been advanced to JDA partner Ramprastha Promoter and Developers Pvt. Ltd. for execution of real estate projects and in the said process no capital asset has come into existence. Since the customers are paying installments for booking of the flat in the project and as per the prudent accounting norms the same can be accounted only as liability in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual cash in-flow, is required to be compared with expenses incurred during the same period, irrespective of actual out-flow of cash. In the instant case, it is an admitted position that the assessee has not offered revenue from the project to tax on the grounds that it is the first year of operations and less than 15% of the project is completed. Therefore, applying the matching principle, the interest incurred needs to be transferred to WIP and would be liable to be claimed in the year that revenue is earned. However, of the total interest of Rs. 9,37,50,000/- paid to Decolexus Ltd., the assessee has transferred only a portion of the interest (Rs. 93,13,592/-) to WIP and claimed the remaining interest expense (Rs. 8,44,36,408/-) in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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