TaxTMI 
TaxTMI 
2018 (6) TMI 1613
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....in the value of closing stock / work in progress and capitalized it in its books of account. However, in the computation memo, the assessee claimed such interest as an expenditure. On due examination of the assessee's submissions etc, the AO found that the assessee is still in the process of acquiring and developing the land, it is very correct to capitalize the cost of interest exclusively incurred for the purchase and development of inventory, where in no sales have been executed during the impugned a ys and hence, held that the method followed by the assessee in its books of account is correct and needs no adjustment as it is in accordance with principles of accountancy. Thus, he did not allow the interest expenditure claimed by the assessee in the computation memo, separately, for these a ys. Further, in the assessment made for ay 2011-12, the AO found that the assessee had invested Rs. 13 crores in Mahindra Integrated Township Ltd which is its subsidiary. On due examination, the AO held that the return on such investments can only be dividends which are not taxable and therefore he arrived the expenses pertaining to such investments u/s 14A rw r 8D (iii) at Rs. 6,56,750/- and ....
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....rk-in-progress of inventories, does not prevent the assessee from claiming the interest as an allowable expenditure under Income tax provisions. The assessee has offered Rs. 85,08,080 (reversal of interest claimed as deduction in the previous years -Ay 2010-11, AY 2011-12) in the computation of income. We also wish to bring to your attention that the assessee has sold the land (in which the interest claimed in the previous years were inventorised) during FY 2015-16 and by virtue of the said sales, the assessee is offering during FY 2015-16, the reversal of Rs. 67.78 crores of interest claimed as deduction in the computation of income in the previous years. Moreover, interest being period cost has to be claimed under section 37(1) in the year in which the same is incurred and attributable to the operations / business of the company and further that the same expenditure is wholly and exclusively laid out for the year's operations and hence rightfully claimed. Based on the submission the Appellant prays that appeal be allowed." 5. The Ld. AR submitted that the business of the assessee primarily involves development of land that would normally take substan....
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....t of the Accounting Standard 16. Therefore, the assessee's claim is neither in accordance with the Accounting Standards nor with the statutory provisions of the Income Tax Act and hence, the DR pleaded that the orders of the Lower Authorities be upheld. 7. We heard the rival submissions and gone through relevant material. The relevant portion of the "Notes to the accounts for the year ended, 31st March, 2007&31st March, 2010 are extracted as under : "Schedule 13 Name to the accounts for the year ended 31st March, 2007 Significant accounting policies (a) Basis of accounting The accounts have been prepared to comply in all material aspects in accordance with applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Indian Companies Act, 1956. (b) Revenue recognition a. Land lease premium is recognised as income upon creation of leasehold rights in favour of the lessee or upon an agreement to create leasehold rights with handing over possession. b. Income from operation & maintenance charges and water charges are ....
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........................................................ ................................................................................................................................. ...................................... (g) Inventories Inventories are valued at lower of cost and net realisable value. Cost represents cost of land and all expenditure incurred in connection with, or attributable to the project, and, being a long-term project, includes interest. 7. The cost of land and related development expenditure is disclosed as work-in-progress as the company expects to incur further costs on land and infrastructure development. 8. The company is in the business of land development for industrial, commercial and residential use. The company acquires land and incurs expenditure on its development and related infrastructure facilities for lease/sale. The company also maintains the Industrial Park for which it collects creation and maintenance charges from the lessees. During the year, the company has leased 16.082 (previous year 91.140) acres of land on long term basis. .....................................................
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.... Delhi High Court decision in the case of Commissioner Of Income-tax - IV, New Delhi. vs Insilco Limited. 320 ITR 322 (Del) is extracted as under: "16.5 It is to be noted that these Accounting Standards are mandatory in nature and applied to accounts prepared after 1-4-1999. In that sense the submission of the assessee has to be accepted that the change in the accounting policy had been brought about by virtue of the issuance of the revised accounting standards issued by the Council of the ICAI, which was, applicable for the assessment year under consideration. Furthermore, the provisions of sub-sections (3A), (3B) and (3C) of section 211 of the Companies Act, 1956, clearly provide that every profit and loss account and balance sheet of a company shall comply with the Accounting Standards prescribed. Where the accounts of the company do not comply with the Accounting Standards it is required to disclose in the profit and loss account and the balance sheet: (a) the deviation from the Accounting Standards; (b) the reasons for such deviation; and (c) the financial effect, if any, arising, due to such deviation. What is important is that; sub-section (3) of section 211 provide....
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....iling in the industry. In this context the following observations of the Supreme Court being apposite are extracted below:- "In finding the answer to the question mentioned above, we have to bear in mind that it arises in the context of profits or gains of business and the permissible deductions on account of depreciation and development rebate relating to the machinery and plant of the assessee. As the expression 'actual cost' has not been defined, it should, in our opinion, be construed in the sense which no commercial man would misunderstand. For this purpose, it would be necessary to ascertain the connotation of the above expression in accordance with the normal rules of accountancy prevailing in commerce and industry.... It would appear from the above that the accepted accountancy rule for determining the cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalized ....
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....an v. CIT [1969] 73 ITR735. In the said case it has been observed: 'For that purpose it was the duty of the Income-tax Officer to find out what profit the business has made according to the true accountancy practice.'" 7.4. If we apply the above ratios to the facts of this case, as discussed, supra, it is clear that the accounting practice followed by the assessee in its books of account, are in consonance with the general principles of accountancy as certified by their Auditors and the book results were also certified to give a true and fair view in conformity with the applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Indian Companies Act, 1956. Therefore, the assessee has not made out a case. The Lower authorities are correct in not disturbing the book results and in rejecting the assessee's claim through the income computation memo for the purposes of tax payment. Thus, the corresponding grounds of the assessee fail. 7.5 The above issue can be examined from another angle also. The assessee is not clear as to whether the impugned projects would be leas....
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....ir view in conformity with the applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and relevant provisions of the Indian Companies Act, 1956 are also in accordance with provisions of Act read with section 36 (1) (iii). Therefore, the assessee has not made out a case in these appeals. Hence, the Lower authorities are correct in their decisions that the assessee's claim through the income computation memo, is neither in accordance with the Accounting Standards nor with the statutory provisions of the Income Tax Act. Therefore, the corresponding grounds of the assessee fail for all these assessment years. 7.6 Since, the assessee's claim is rejected for these a ys, the income, if any, admitted by the assessee during these assessment years or in the subsequent years on reversal of interest claimed as deduction in the impugned years in the memo of computation of income, on due verification, be not charged to tax. 8. The next issue is, in the assessment made for ay 2011-12, the AO found that the assessee had invested Rs. 13 crores in Mahindra Integrated Township Ltd which is its subsidiary. On due examination,....