TaxTMI 
TaxTMI 
2022 (10) TMI 1093
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....pitalized towards project development. For these two issues, assessee has taken as many as nine grounds which are not reproduced for the sake of brevity. 3. Ground nos. 3 to 6 relate to the first issue and ground nos. 7 and 8 relate to the second issue. Ground no. 2 is in respect of challenging the jurisdictional issue for the assessment order passed u/s. 143(3) of the Act which in the course of hearing has been submitted as not pressed by the Ld. Counsel. Accordingly, ground no. 2 is dismissed as not pressed. 4. Brief facts of the case are that assessee is in the business of developing property. It filed its return of income on 23.11.2013 reporting a total income of Rs.44,30,689/-. During the course of assessment, Ld. AO, inter alia, noted that assessee has claimed a deduction in respect of interest on borrowed funds amounting to Rs.43,57,770/- out of which a sum of Rs.2,50,880/- was disallowed u/s. 14A of the Act and the balance of Rs.41,06,890/- was considered to be in respect of 'Sunny Fort' construction project undertaken by the assessee at Rajarhat, New Town, Kolkata which according to Ld. AO had to be capitalized with the cost of the project. Ld. AO noted in this respe....
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....ent order in the assessee's own case for the immediately subsequent year i.e. AY 2014- 15 wherein also, interest income of Rs.2,30,53,976/- was reported against which interest payment of Rs.35,47,183/- and other expenses of Rs.12,79,153/- were claimed. Return was filed at a total income of Rs.1,82,27,640/-. He pointed out from the assessment order, the observation made by the Ld. AO that "although during the year, the company had not given any property on rent, but is developing a project named as Sunny Fort at Rajarhat, New Town." He thus submitted that Ld. AO has accepted returned income of the assessee comprising of interest income earned on ICD after claiming interest and other expenses. Only small amounts of additions were made by the Ld. AO relating to corporation tax and interest on service tax. He thus submitted that department has accepted the claim of the assessee in respect of interest income as well as interest expenses under the head "business income" in, both the immediately preceding as well as subsequent years. 6.3. Ld. Counsel stated that in the impugned year Ld. AO has wrongly re-characterized the interest income as income from other sources and disallowed the ....
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....of all kinds and also to trade and deal in shares, debentures and securities of other companies." 8. In this respect Ld. Counsel placed reliance on the decision of Coordinate bench of ITAT, Mumbai in the case of Chhangalal Khimji & Co. Pvt. Ltd. Vs. DCIT in ITA No. 7674/Mum/2013 dated 23.09.2015 wherein it was held that "It is clear from the findings recorded by the CIT(A) that the assessee company was engaged in the business of construction as well as lending of money, both constitute its main business activity. Both these objects were clear from the Memorandum and Articles of Association of Assessee Company. From the record we found that the investment and lending activity was a separate stream of business apart from the business activity in real estate, is per clause 55 of Memorandum and Articles of Association, assessee was authorised to carry business of money lending. The detailed finding to this effect has also been recorded by CIT[A) as per reproduced above, which has not been controverted by Ld. DR by bringing any positive material on record. Accordingly, we do not find any infirmity in the order of CIT(A) for directing the A.O. to treat the interest income as business ....
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....gly, directed to treat the same as business income. Thus, grounds relating to this issue are allowed. 11. Coming to the next issue relating to disallowance of interest expenses for the purpose of capitalization into the working in progress of the construction project, ld. AO has noted that since the unsecured loans have been utilized for capital WIP, the interest thereon has to be disallowed and capitalized with the project cost. He noted that during the year, assessee has obtained unsecured loans from three parties, amounting to Rs.1,26,50,000/- which have been used for the development work of the construction project and, therefore, interest thereon amounting to Rs.41,06,890/- is to be capitalized. We noted that Ld. Counsel has evidently demonstrate from the cash flow statement that there were substantial funds available with it from the advance received on flat bookings amounting to Rs.32.18 Cr. out of which capital WIP has been of Rs.16.48 Cr. during the year under consideration leaving with surplus funds of Rs.15.70 Cr. Thus, interest expenses claimed by assessee is in respect of funds which were not deployed on the development project but were otherwise available to the as....