Revenue's Appeal Dismissed; Interest Deduction Upheld Under Section 36(1)(iii) of the Income Tax Act

The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the interest deduction claimed by the assessee. The Tribunal agreed that the assessee complied with the conditions under Section 36(1)(iii) of the Income Tax Act, and the proviso disallowing interest for capital borrowed did not apply. The CIT(A)'s order was supported by the consistent treatment of similar claims in other assessment years, with no evidence of double benefits claimed. The AO's change in stance for AY 2016-17 was not justified, leading to the dismissal of the appeal.

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Issues Involved:
1. Deletion of additions made by the Assessing Officer (AO).
2. Consideration of facts by the Commissioner of Income Tax (Appeals) [CIT(A)].
3. Tenability of the CIT(A)'s order on facts and in law.

Summary:

Issue 1: Deletion of Additions Made by the AO
The AO disallowed the interest paid on borrowed capital amounting to Rs. 28,98,09,649/- by treating it as capital expense. The assessee had capitalized part of the interest under "inventory" and claimed it as revenue expenditure through computation. The CIT(A) deleted this addition, which led to the Revenue's appeal.

Issue 2: Consideration of Facts by CIT(A)
The assessee, engaged in real estate, followed the percentage of completion method for revenue recognition as per Accounting Standard-7 (AS-7). The AO questioned the interest deduction claimed under Section 36(1)(iii) read with Section 43B of the Income Tax Act, 1961. The CIT(A) considered the assessee's compliance with the conditions under Section 36(1)(iii) and found no adverse comments from the AO regarding the non-compliance of these conditions. The CIT(A) also noted that the proviso to Section 36(1)(iii), which disallows interest for capital borrowed for asset acquisition until it is put to use, did not apply to the assessee's case.

Issue 3: Tenability of the CIT(A)'s Order
The CIT(A) observed that similar claims by the assessee had been allowed in previous and subsequent assessment years, including AY 2011-12, 2012-13, 2013-14, 2014-15, 2017-18, and 2020-21, without any adverse inference. The AO had accepted the assessee's claims in those years, indicating consistency in the assessee's treatment of interest expenses. The CIT(A) found no evidence of double benefit claimed by the assessee and concluded that the AO had not justified the change in stand for AY 2016-17.

Conclusion:
The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The Tribunal found that the assessee met the conditions under Section 36(1)(iii) and that the proviso to this section did not apply. The consistent treatment of interest expenses in previous and subsequent years supported the CIT(A)'s order. The appeal of the Revenue was dismissed, affirming the allowability of the interest deduction claimed by the assessee.

Order Pronounced in the Open Court on 17/10/2023.

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