Tribunal Decision: Interest & Expenses Allowed, Deemed Rent Remanded for Recomputation

The Tribunal allowed the entire interest expenditure as revenue expenditure and upheld commission and brokerage expenses as revenue expenditure. The issue of deemed rent on unsold flats was remanded back to the AO for recomputation based on specific guidelines.

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Issues Involved:
1. Capitalization of Interest Expenditure
2. Disallowance of Commission and Brokerage Expenses
3. Deemed Rent on Unsold Flats

Summary:

1. Capitalization of Interest Expenditure:
The primary issue was whether the interest expenditure of Rs.7,55,87,118/- claimed by the assessee as revenue expenditure should be capitalized as part of work-in-progress (WIP). The Assessing Officer (AO) disallowed the interest cost and added it to the WIP. The Commissioner of Income Tax (Appeals) [CIT(A)] partly reversed this by allowing Rs.5,29,71,264/- as revenue expenditure and capitalizing Rs.1,40,18,981/-. The Tribunal noted that the assessee followed Accounting Standard (AS)-16 and capitalized interest directly attributable to the project, debiting the remaining interest to the profit and loss account. The Tribunal found no reason to interfere with the assessee's method and directed the AO to allow the entire interest expenditure of Rs.7,55,87,118/- as revenue expenditure.

2. Disallowance of Commission and Brokerage Expenses:
The AO disallowed Rs.9,81,384/- out of the total commission and brokerage expenses of Rs.17,43,949/- debited to the profit and loss account, arguing that these should be capitalized. The CIT(A) allowed the entire amount, noting that selling and marketing costs, including commission and brokerage, are revenue in nature and should be allowed in the year they are incurred. The Tribunal upheld CIT(A)'s decision, confirming that these expenses are revenue in nature and should be allowed in full.

3. Deemed Rent on Unsold Flats:
The AO added deemed rent of Rs.28,73,543/- on unsold flats with occupancy certificates, treating it as income from house property. The CIT(A) deleted the addition, relying on the amendment brought by Finance Act 2017 and judicial precedents, stating that no notional rental income can be assessed for unsold flats held as stock-in-trade prior to AY 2018-19. The Tribunal, however, set aside CIT(A)'s order and directed the AO to compute the Annual Letable Value (ALV) based on municipal ratable value or 2% of the closing stock value, whichever is less, and to exclude units with advances received or shown as work-in-progress from this computation.

Conclusion:
- The Tribunal allowed the entire interest expenditure as revenue expenditure.
- Commission and brokerage expenses were upheld as revenue expenditure.
- The matter of deemed rent on unsold flats was remanded back to the AO for recomputation based on specific guidelines.

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