TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 686
X X X X Extracts X X X X
X X X X Extracts X X X X
....flected in the closing stock and shown in the profit and loss account which had not been done by the assessee and therefore the AO had rightly made the additions? 2.Is not the finding of the Tribunal bad especially when the interest expenditure pertaining to MRC Nagar project is under-development and current year development expenses had been added to the closing work in progress which makes it a qualifying assets for the borrowing cost to be capitalized and since the same was not done by the Assessee, the AO had rightly disallowed the cost pertaining to MRC Nagar project?" 3.The assessee filed its return of income for the Assessment Year under consideration, AY 2015-16, on 27.09.2015, admitting Nil Income. The case was selected for scrutiny and notice under Section 143(2) of the Act, dated 31.08.2015, was served on the assessee and thereafter, by another letter dated 25.04.2016, details were called for. The details were furnished and the assessment was completed by order dated 26.12.2017 under Section 143(3) of the Act. 4.The issue before the Assessing Officer was that the assessee was running a Hotel and Real Estate business and offered a total income of Rs. 120.27 Crores fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to the project, have to be accounted as 'Work-in-Progress' and only when the income is generated and offered from the project, the expenditure can be claimed. Further, the Assessing Officer observed that no income was offered from the MRC Nagar Project, therefore, any expenditure relatable to the Real Estate project 'Atlantic', Egmore, could be allowed for AY 2015-16, and not the expenditure related to MRC Nagar Project. 8.Further, in the Assessment Order, the Assessing Officer has noted that the assessee accounted 'Property Development and Construction Workin- Progress' under the head "Inventories". An amount of Rs. 845.67 Crores was shown as 'Property Development and Construction Work-in-Progress', the break-up of which was relatable to Atlantic project and MRC Nagar project. The assessee was called upon to explain and they have stated as to how the asset in MRC Nagar was put to use. The Assessing Officer did not agree with the submissions made by the assessee, since the assessee was following Mercantile System of Accounting. According to the Assessing Officer, as per the Accounting Standard 16 ("AS-16" for brevity), borrowing costs that are dir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RC Nagar Project. Further, it is submitted that the Tribunal committed an error in not considering the fact that, in the Balance Sheet for the year ended 31.03.2015, the assessee had accounted the 'Property Development and Construction Work-in-Progress' under the head "Inventories" and an amount of Rs. 845.67 Crores was shown as 'Property Development and Construction Work-in-Progress', out of which, Nil profits were offered in MRC Nagar and Closing Work-in-Progress was shown, which clearly shows that the project at MRC Nagar had not even commenced. Further, it is submitted that, no distinction under Section 36(1)(iii) of the Act could be made between the capital borrowed for revenue purpose and capital borrowed for the purpose of business. Further, the Revenue seeks to rely upon the Director's Report and would submit that, in terms of the report, it has been stated that the MRC Nagar project had not commenced its operations during the relevant previous year and therefore, the expenses claimed by the assessee cannot be treated as inventory and ought to be treated as pre-operative expenses, which are required to be capitalised. 13.The learned counsel appearing fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred to in Section 28 of the Act. For the purpose of the case on hand, Clause (iii) could be relevant, which states that the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession would be allowable as deduction. The proviso in Section 36(1) states that, provided that any amount of the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. 17.Therefore, the question which was examined by the Tribunal was the allowability or otherwise of the interest paid on the loan borrowed by the assessee from IFCI Limited and whether it would fall within the scope of Section 36(1)(iii) of the Act. 18.As rightly noted by the Tribunal, the loan which was obtained by the assessee from IFCI Limited is for the purpose of business of the assessee and having accepted the said fact, the deduction of interest was disallowed only on the ground ....