AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 237
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....e inventory held by it. Accordingly, he took the view that the assessee has used the loan funds for purchasing the inventory. In view of the same, the A.O. took the view that the interest expenditure should have been considered by the assessee while valuing inventory as at the year end, i.e., the assessee should have capitalized part of interest expenses in the value of inventory. The A.O. has so taken the view by observing that the interest attributable to bring the inventory to its present location and condition should be included in the cost of inventory. Accordingly, he computed the interest attributable to the inventory by adopting prime lending rate of 12.75% determined by the State Bank of India and accordingly computed a sum of Rs. 1,53,37,415/-, as the interest attributable to the inventory and disallowed the same. 3. The Ld. CIT(A) deleted the disallowance and hence the revenue has filed this appeal before us. 4. We notice that the Ld. CIT(A) has deleted disallowance with the following observations: "5.8 Ground no. 13 and 14 pertains to disallowance of interest expenses of Rs. 1,53,37,415/- by attributing it to inventory. In brief, during the assessment pro....
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....hase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition... * "Other costs 11. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. 12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories. Para 12 of the AS 2, excludes the borrowing cost from the scope of other cost. Similar exclusion has been provided in the Income Computation and Disclosure Standard (ICDS) recently notified by Central Government for the purpose of valuation of inventory as per ICDS - II. Further the interest accrued on loan for meeting working capital needs are in the nature of administrative overheads same should be specifically excluded from the cost. Therefore, based on the above, the appe....
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....e does not arise. He also placed reliance on the decision rendered by coordinate bench of ITAT in the case of DCIT Vs. JSR Constructions Pvt. Ltd. (2016) 71 Taxmann.com 184 and submitted that the coordinate bench has, after considering Accounting Standard - 2 relating to valuation of inventories, has held that the question of including interest expenditure for current assets does not arise. The Ld. A.R. also submitted that the newly introduced ICDS though applicable in the subsequent year also supports the methodology adopted by the assessee. 7. Having heard the rival submissions, we find merit in the contentions of the Ld. A.R. For the sake of convenience, we extract below the decision rendered by the coordinate bench on an identical issue in the case of M/s. JSR Constructions Pvt. Ltd. (supra). "20. We have perused the record and heard the rival contentions. There is no dispute that work-in-progress shown by the assessee was a part of its current assets. Such work-in-progress and inventory did not represent any capital item or capital asset being constructed or acquired by the assessee for its own use. Assessee was doing road work based on contracts awarded to it. Int....
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....iod in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are assigned to each unit of production on the basis of the actual use of the production facilities. 10. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a byproduct. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most byproducts as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the m....