TaxTMI 
TaxTMI 
2008 (2) TMI 501
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....ome at Rs. 43,63,796 after making additions, inter alia, as under : --------------------------------------- Particulars (Rs.) --------------------------------------- Loan processing fees 2,50,000 --------------------------------------- Interest to HDFC 6,45,846 --------------------------------------- Provision for brokerage 98,715 --------------------------------------- 4. The CIT(A) deleted the aforesaid additions and his order has been challenged by the Department in the present appeal. Ground Nos. 1, 2 and 4 "1. On the facts and in the circumstances of the case the CIT(A)-I erred in deleting the addition made to the total income on account of interest paid to HDFC of Rs. 6,45,848 on loan taken for Manohar Nagar Project but not included in arriving at cost of work-in-progress. 2. On the facts and in the circumstances of the case the CIT(A)-I erred....
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....s not utilized for a particular project. - that the bank statements, submitted by the assessee, showing the utilization of loans raised, substantiate the above point. - that though the loan of Rs. 1 crore from HDFC was raised for funding the Manohar Nagar Project, these funds were not solely utilized for the said project but were used for other business purposes. - that the amount of said loan was credited in the cash credit account of the assessee with Nashik People's Co-operative Bank and was utilized for various business purposes. - that the expenditure of interest was consistently claimed by the assessee as period cost in the P&L a/c. - that the funds were so mixed up that the interest paid thereon could not be identified and allocated to individual projects. - that the above method, consistently followed by the assessee during earlier years, was never disturbed by the AO. - that reliance was placed on the decision of Tribunal, Hyderabad in the case of T.C.I. Finance Ltd. v. Asstt. CIT [2005] 92 TTJ (Hyd) 238 : [2005]274 ITR 69 (Hyd) (AT) - that the facts in the case of Wall Street Construction Ltd. were distinguishable and therefore the decision of the ....
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....e directly linked to a particular project, is to be allowed from year to year or is to be added to the value of work-in-progress ? (c) What is the impact of AS 7 issued by the ICAI ? (d) Whether the Bombay High Court decision in the case of CIT v. Lokhandwala Construction Inds. Ltd. [2003] 180 CTR (Bom) 136 : [2003] 260 ITR 579 (Bom) concludes the controversy ? (e) Whether in the case of a builder following project completion method, the work-in-progress is to be considered as stock-in-trade or capital assets ? (f) Whether a system of accounting consistently followed by the assessee and accepted by the Department in earlier years can be discarded by the Department having regard to the ratio of the Bombay High Court in the case of CIT v. Goodlas Nerolac Paints Ltd. [1990] 90 CTR (Bom) 184 : [1991] 188 ITR 1 (Bom)." 10. It was reiterated by the learned Authorised Representative before the Special Bench that the issue stood concluded by the decision of the Bombay High Court in the case of CIT v. Lokhandwala Construction Inds. Ltd. [2003] 180 CTR (Bom) 136 : [2003] 260 ITR 579 (Bom). In paras23 to 25 of its order, the Tribunal (Special Bench), after discussing the facts ....
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....sp; 1999-2000 96,22,976 -------------------------------------------- 5 2000-01 1,68,48,535 -------------------------------------------- 14. The bank-wise break up of above interest claimed in the P&L a/c was as under : ---------------------------------------------------------------------- S. Particulars Interest (Rs.) No. ---------------------------------------------------------------------- Asst. yr. Asst. yr. Asst. yr. Asst. yr. Asst. yr. 1996-97 1997-98 1998-99 1999-2000 2000-01 ------------------------------------------------------------....
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.... a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statement by an assessee.' Thus, when the Revenue could not demonstrate that the consistent method of accounting followed by the assessee is in violation of AS I, the disallowance made on that ground cannot be sustained." 17. The AS I and II were notified by the Central Government in pursuance of s. 145(2) vide Notification No. S.O. 69(E) dt. 25th Jan.,1996 : [1996] 130 CTR (St) 33 : [1996] 218 ITR (St) 1]. This notification came into effect from 1st April, 1996 and accordingly applies to asst. yr.1997-98 and subsequent assessment years. The AS I mandates that 'consistency' is a fundamental accounting assumption. 18. In our considered opinion, the AO's action not only suffers from inconsistency but smacks of arbitrariness. It is not the case of the AO that since the assessee was following the 'project completion method' the entire interest cost should be identified and allocated to different projects and added to the value of the work-in-progress in respect of those projects. But, curiously enough, the ....
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....t and self-contradictory, stand taken by the AO, which gave rise to an anomalous situation. During the previous year relevant to asst. yr. 1998-99, the total expenditure on interest incurred by the assessee for all its projects was Rs. 49,95,284, which was debited to the P&L a/c as period cost, but the AO wanted to apply the decision of Wall Street Construction Ltd. only to one component of Rs. 6,45,846, and he had no objection to the balance, having been claimed in the P&L a/c as period cost, being allowed. 22. Admittedly, in earlier years, the claim of the assessee in respect of the expenditure of interest was allowed by the AO without any interference. Also, we are conscious of the fact that the issue involved before us, in this year, is only about interest of Rs. 6,45,846 and processing charges of Rs. 2,50,000, and that there is no dispute about the balance of the interest expenditure of Rs. 43,49,438, which was claimed by the assessee as period cost, by debiting it to P&L a/c, and allowed by the AO. If we sustain such an inconsistent action of the AO we will be giving our approval to a totally anomalous situation, which is devoid of any logic. 23. To conclude, our decisi....