2021 (6) TMI 235

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....ed to as the ld AO] under section [u/s] 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the 'Act'] dated 29.3.2016 for the Assessment Year 2013-14. 2. The only issue to be decided in this appeal is as to whether the ld. Commissioner of Income Tax (Appeals [for short 'the CIT(A)] was justified in upholding the disallowance of prior period interest expenses of Rs. 7,61,59,332/- which relates to work-in-progress in the facts and circumstances of the instant case. 3. We have heard the rival submissions and perused the materials available on record. We find that assessee-company is engaged in the business of real estate development and had derived loss from business during the year. The return of income for the Assessment Ye....

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....& Loss Account i.e. "changes in inventory". 6. We have gone through the detailed break up of items included in the closing work-in-progress which admittedly include this interest expenses of Rs. 761,59,332/-. For the sake of convenience, the said working is reproduced hereunder: Reconciliation of Expenses transferred to P&L A/c and Capitalised to Inventory Group & Account Heads P&L WIP Opening WIP   56,17,74,204 Add: Additional Expenses 22,86,369 11,95,88,418 Admin OH     Balances Written back (1)   Contm. To PF & Other Fund   1,34,504 Depreciation   2,74,264 Directors fees & Travelling 5,52,036 14,40,000 Donation   ....

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....15,06,56,370 Less: Transferred to COGS   (7,75,26,913) Closing WIP   63,49,03,661 7. Admittedly, this interest expense of Rs. 7.61 crores though pertains to AY 2012-13 was never claimed as deduction by the assessee. If due provision has been made on mercantile basis then the same would have got included in the opening work-in-progress of Rs. 56.17 crores and the opening work-in-progress thereon would have increased by Rs. 7.61 crores being the interest expenses. Since no provision was made by the assessee in AY 2012-13 for this interest expense, it was not included in the opening work-in-progress at Rs. 56.17 crores. 8. We find that assessee had included the same in the closing work-in-progress in AY 201....

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....or the year 2,89,01,857 Note: 1. Extract of Profit & Loss Account without interest cost amounting to Rs. 7,61,59,332/- (capitalised and not forming part of Profit & Los Acount) 2. Interest cost amounting to Rs. 7,61,59,332/- capitalized to cost of inventory and is not passed through Profit & Loss Account. Statement of Profit and Loss for the year ended 31st March, 2013 (with interest expense) Particulars Amount (Dr.) Particulars Amount (Cr.) To Opening inventory 56,17,74,204 By Revenue from operations 5,11,62,091 To Cost of Construction 4,52,87,138 By Share of profits/ (loss) from joint ventures and partnership firms   To Employee benefit Expense 54,25,544 &nbsp....