TaxTMI 
TaxTMI 
2025 (5) TMI 97
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....inafter referred to as 'the Act') on 22.12.2017 determining the total income of the assessee at Rs. 1,07,78,02,630/- where the Assessing Officer made addition of Rs. 16,24,476/- on account of notional rent from house property. 3. Subsequently, the Assessing Officer reopened the case as per the provisions of section 147 by issuing notice u/s 148A(d) of the Act on 25.07.2022 by recording as under: "GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 7, PUNE To KOLTE-PATIL INTEGRATED TOWNSHIPS LIMITED SURVEY NO. 74, MARUNJI HINJEWADI MARUNJI, KASARSAI ROAD, TAL MULSHI PUNE PUNE 411057, Maharashtra India PAN: AABCI5807K Assessment Year: 2014-15 Dated: 25/07/2022 DIN & Order No ITBA/COM/F/17/2022-23/1044045890(1) Sir/Madam/M/s Subject: Proceedings u/s 148A(d) in consequence to Hon'ble SC Order dated 04.05.2022-Order 01. Brief Facts:- The assessee, Mis Kolte Patil Integrated Townships Ltd. (PAN AABCI5807K) is a Company. In this case, a notice u/s 148 for AY 2014-15 was issued on 23/06/2021. On the basis of information in posse....
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....struction No. 01/2022 dated 11/05/2022 and ITBA step-by step document No 1 dated 12-05-2022 related to implantation of the decision of Hon'ble Supreme Court of India, the information and the material was provided to the assessee on 24/05/2022 and time of two weeks was provided to the assessee for submitting the response/reply. The time was given upto 08/06/2022 for filing the response/reply. 04. Reply of the assessee:- In response to the notice dated 24/05/2022 the assessee filed his reply on 06.06.2022. In its reply the assessee had raised various technical issues and quoted the various case laws regarding proceeding u/s. 148. In this connection it is submitted that in this case notice u/s. 148 was already issued after recording reasons for reopening. However the current proceeding initiated in view of the decision of Hon'ble Supreme Court in the case of Union of India & Others Vs. Ashish Agrawal in Civil Appeal No. 3005/2022 and the decision of Hon'ble Bombay High Court in the case of Emcure Pharmaceuticals Ltd. Vs. ACIT, Central Circle 2(1), Pune and others in Writ Petition No. 5293 of 2022 and further instruction no. 01/2022, F. No. 279/, Misc./M-5....
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....ed to complete the assessment. During the course of assessment proceedings it was submitted that in the instant case the funds borrowed were used for the business of the assessee and therefore, u/s 36(1)(iii) the interest paid on the funds borrowed is allowable as deduction. The decision of the Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. 260 ITR 579 (Bom) was relied upon. It was submitted that in view of the above decision, borrowed funds, which are utilized for the purpose of business of the assessee, has to be allowed in the year in which the interest expenditure has been incurred. It was further submitted that since the interest is a period cost it is rightly debited as expenditure in the year in which it is incurred. 5. However, the Assessing Officer was not satisfied with the arguments of the assessee. Distinguishing the decision of the Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (supra) and observing that after introduction of ICDS the assessee is required to recognize the revenue, cost and profit from transactions of real estate, he disallowed the interest of Rs. 15,11,87,548/- by observing as und....
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....by the appellant etc. were already available from the financials. The appellant in Ground No. 1 has rightly presented the case that there was no fresh tangible material was brought on record to reopen the case. As per the appellant it was merely change of opinion. This Ground is valid as there was no fresh material were brought on record by the AO to claim that the income has escaped the assessment. All the issue dealt in the reassessment orders were already before the AO at the time of original assessment. Hence, it is a clear-cut case of change of opinion. Hence this ground is allowed. 6.2. In Ground No. 2 the appellant challenged the notice u/s 148 of the IT Act dated 25.07.2022 by claiming that it was issued beyond 6 years from the end of relevant assessment year. This Ground is also valid on the fact that 6 years from the end of relevant assessment year AY 2014-15 ended on 31.03.2021. If so, issue of notice u/s 148 of the IT Act was beyond the time limit. This Ground is valid and it is allowed. 6.3 In Ground No. 3 the appellant raised another issue that there was no escapement of income in the form of asset exceeding Rs. 50,00,000/- that warrants reopening of....
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....X introduced in AY 2016-17. Accordingly, these Grounds are also allowed." 9. Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds: 1. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2014-15 was invalid as there was no fresh material available with the Assessing Officer ? 2. Whether on the facts and circumstances of the case and in law, the CIT(A) is justified in holding that the reopening of assessment in the case of the assessee for A.Y. 2014-15 was barred by limitation of time? 3. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the quantification of disallowance of interest expenditure at the time of reopening of assessment was beyond the scope of provisions u/s 149 of the Act? 4. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in granting relief to the assessee by relying upon the decision of the Hon'ble Bombay High Court in the case of Hexaware Technologie....
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....mitted that the entire interest expenditure was debited to the P & L Account. He submitted that the Assessing Officer has reopened the case on the ground that the claim of the assessee of debiting the entire interest expenditure to the Profit and Loss Account is not correct. He submitted that the Assessing Officer, while reopening the case, has referred to the Balance Sheet and was of the opinion that the assessee has closing work-in-progress as well as sales and accordingly part of the interest expenditure should have been allocated to WIP. 12. He submitted that the original assessment was completed u/s 143(3) on 22.12.2017, copy of which is placed at pages 41 to 43 of the paper book. It is also clear from the Profit and Loss Account itself that the assessee has debited entire interest expenditure. Therefore, on the same set of facts, the Assessing Officer could not have reopened the assessment u/s 148 in absence of any fresh tangible material and therefore, the reopening of the assessment is not justified. Further, it is a change of opinion and on this ground also, the reopening is invalid. 13. Referring to para 6.1 of the order of Ld. CIT(A) / NFAC, the Ld. Counsel for the....
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.... sub section (1) of section 149. He submitted that clause (b) provides that the notice can be issued by the Assessing Officer if three years but not more than 10 years have elapsed only if the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax in the form of an asset has escaped assessment amounts to or is likely to amount to Rs. 50,00,000/- or more for that year. He submitted that as per the relevant provisions prevailing at the time of issue of notice, the notice u/s 148 could not have been issued since the reopening is after a period of 3 years but within 10 years, the assessee has debited the entire expenditure to the Profit and Loss Account and there is no reference of any income in the form of asset exceeding Rs. 50,00,000/- which has escaped assessment. He accordingly submitted that since there is no reference to any income represented in the form of asset which has escaped assessment, the notice issued by the Assessing Officer under clause (b) of section 149 is invalid. 16. Further, the Assessing Officer has issued notice on the ground that the entire interest expenditure has been debite....
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....viso to section 149(1)(b) of the Act, no notice u/s 148 shall be issued at any time in a case for the relevant asst. year beginning on or before 1st of April, 2021 if a notice u/s 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub section (1) of section 149 or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021. 19. The Ld. Counsel for the assessee submitted that in the present case, the assessee has disclosed fully and truly all material facts necessary for completion of the assessment. Thus, the case of the assessee could not have been reopened under the old provisions of section 147. Now, as per the proviso to section 149(1)(b), if the case of the assessee could not have been reopened under the old provisions of section 147, then no notice could be issued under the new regime of section 147. This principle has been accepted by Hon'ble Supreme Court in the case of Rajeev Bansal [167 taxmann.com 70]. In paras 48 to 72, Hon'ble Supreme Court has discussed this issue and has held tha....
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....ee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under section 148 of the new regime will end on 18 August 2022. 22. He submitted that it is abundantly clear from the above decision that the time between the issue of original notice u/s 148 under the old regime and the time upto 30.06.2021 is the time limit available which needs to be added to the date on which the reply of the assessee was received. Hon'ble Supreme Court has referred to this time limit as the surviving time limit available. Now, applying the same principle, as laid down by Hon'ble Supreme Court in the case of Rajeev Bansal, for A.Y. 2014 15, the Assessing Officer should have issued notice u/s 148 by 13.06.2022 and for A.Y. 2016-17 by 26.06.2022. For both the years, the learned A.O. has issued notice u/s 148 subsequent to those dates i.e. 25.07.2022 and 26.07.2022 respectively and therefore, the notices issued u/s 148 in the new regime for both the years are barred by limitation. 23. So far as the merit of the c....
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....r in which the interest expenditure is incurred. 25. Referring to the provisions of section 36(1)(iii), he submitted that once the borrowed funds are utilized for the purpose of business of the assessee, interest is allowable as deduction. He submitted that in the present case the funds borrowed are used for the business of the assessee and therefore u/s 36(1)(iii), the interest paid on the funds borrowed is allowable as deduction. 26. Referring to the decision of Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. [260 ITR 579), he submitted that in that case also, the assessee was engaged in the real estate business and it had purchased a plot for construction of flats. The assessee had borrowed money for purchase of plot and the interest on the said borrowed funds was claimed as deduction. The Hon'ble Bombay High Court held that u/s 36(1)(iii), the interest expenditure is allowable in the year in which it is incurred provided the borrowed funds are used for the purpose of the business of the assessee. The Hon'ble High Court further held that simply because the project was not started on the said plot doesn't mean that the inter....
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.... the same were not applicable to assessment year 2014-15 and secondly, when the provisions of ICDS conflict with the provisions of the Act, the provisions of the Act would prevail. For this proposition, he relied on the decision of the Pune Bench of the Tribunal in the case of Bajaj Finance Ltd. [152 Taxmann.com 216]. 30. The Ld. Counsel for the assessee submitted that as per the provisions of ICDS IX, the interest is to be capitalised only in a case where the money borrowed is for a qualifying asset. He drew the attention of the Bench to the definition of term 'qualifying asset' which is as under: "Qualifying asset" means: (i) land, building, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets; (iii) inventories that require a period of twelve months or more to bring them to a saleable condition." 31. He submitted that clauses (i) and (ii) of above definition refers to fixed asset which is not the case of the assessee. Clause (iii) refers to inventories that require a period o....
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....ll within the definition of qualifying asset at all. Thus, as per clause 8 of ICDS, the borrowing cost is ceased to be capitalised when substantially all the activities necessary to prepare such inventory for its intended sale are complete. Since in the instant case, at the time of passing the plan itself the said activities are complete, therefore, there is no question of capitalisation of interest. He accordingly submitted that even as per ICDS IX, the assessee company was not required to capitalise the interest and therefore, the Assessing Officer is not justified in capitalization of the part of the interest expenditure in WIP. He also relied on the following decisions: i) Bajaj Finance Ltd. vs. PCIT (2023) 152 taxmann.com 216 ii) DCIT vs. Sanathnagar Enterprise Ltd. (2022) 139 taxmann.com 557 (Mumbai - Trib.) iii) `DCIT vs. Lodha Developers Ltd. (2022) 143 taxmann.com 442 (Mumbai - Trib.) 35. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee....
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....r. Pardiwalla that if change of opinion concept is given a go by, that would result in giving arbitrary powers to the Assessing Officer to reopen the assessments. It would in effect be giving power to review which he does not possess. The Assessing Officer has only power to reassess not to review. If the concept of change of opinion is removed as contended on behalf of the Revenue, then in the garb of re-opening the assessment, review would take place. The concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer. As held in Dr. Mathew Cherian (supra), whether under old or new regime of reassessment, it is settled position that the issues decided categorically should not be revisited in the guise of reassessment. That would include issues where query have been raised during the assessment and query have been answered and accepted by the Assessing Officer while passing the assessment order. As held in Aroni Commercials Lad (supra) even if assessment order has not specifically dealt with that issue, once the query is raised it is deemed to have been considered and the explanation accepted by the Assessing officer. It is not necessary that an as....
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.... has escaped assessment." 37. The Assessing Officer does not have any power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3) of the Act dated 23rd December 2018. Petitioner had debited an amount of Rs. 6,41,87,931/- on account of software consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings vide a letter dated 6th December 2018. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner's case the Assessing Officer having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion.....
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....t should be set aside when the reassessment was initiated on a change of opinion where the same was discussed and verified by the Assessing Officer at the time of original assessment proceedings." 38. We find the Hon'ble Bombay High Court in the case of Knight Riders Sports (P.) Ltd. [2023] 155 taxmann.com 11 (Bombay)] at para 16 of the order has held that the reopening of assessment on the basis of change of opinion from that held earlier during the course of assessment proceedings that led to the passing of the assessment order does not constitute the justification to believe that the income chargeable to tax has escaped assessment. 39. We find the various other decisions relied upon by the Ld. Counsel for the assessee in the case law compilation also supports his case to the proposition that the re-assessment proceedings without any fresh tangible material and on account of change of opinion is not valid when the original assessment was completed u/s 143(3) of the Act and where all the details were available with the Assessing Officer and on the basis of the same material if he wants to reopen the assessment. 40. We further find the assessment year involved in the insta....
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.... the notice u/s 148A(b) in consequence to the Hon'ble Supreme Court order dated 04.05.2022 was issued on 24.05.2022, copy of which is placed at page 44 of the paper book. As per the said notice, the Assessing Officer is referring to the balance sheet and record of the assessee to contend that the assessee has debited entire finance cost to the P & L Account. He has further mentioned that as per the P & L Account, the assessee has debited the entire interest expenditure of Rs. 32,20,50,317/-. Further, in the order passed u/s 148A(d), dated 25.07.2022, copy of which is placed at pages 49-50 of the paper book, the Assessing Officer is referring to the same facts and the Profit and Loss Account to hold that there is escapement of income. In the instant case, absolutely there is no allegation by the Assessing Officer of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. As per the provisions of section 149(1)(b), no notice u/s 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st of April, 2021 if a notice u/s 148 or section 153A or section 153C could not have ....
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.... the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021. 109. If this Court had not created the legal fiction and the original reassessment notices were validly issued according to the provisions of the new regime, the notices under section 148 of the new regime would have to be issued within the time limits extended by TOLA. As a corollary, the reassessment notices to be issued in pursuance of the deemed notices must also be within the time limit surviving under the Income-tax Act read with TOLA. This construction gives full effect to the legal fiction created in Ashish Agarwal (supra) and enables both the assesses and the Revenue to obtain the benefit of all consequences flowing from the fiction. See State of A P v. AP Pensioners Association [....
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....submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limif for issuance of a notice under section 148 of the new regime will end on 18 August 2022 113. In Ashish Agarwal (supra), this Court allowed the assesses to avail all the defences, including the defence of expiry of the time limit specified under section 149(1). In the instant appeals, the reassessment notices pertain to the assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017-2018. To assume jurisdiction to issue notices under section 148 with respect to the relevant assessment years, an assessing officer has to: (1) issue the notices within the period prescribed under section 149(1) of the new regime read with TOLA; and (if) obtain the previous approval of the authority specified under section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under section 148 of the new regime, which are in pursuance of the deemed notices, o....
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...." 45. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra), it is clear that the time between the issue of original notice u/s 148 under the old regime and the time upto 30.06.2021 is the time limit available which needs to be added to the date on which the reply of the assessee was received. The Hon'ble Supreme Court has referred to this time limit as the surviving time limit available. Applying the same principle as laid down by Hon'ble Supreme Court in the case of Rajeev Bansal, for A.Y. 2014-15, the Assessing Officer should have issued notice u/s 148 by 13.06.2022 and for A.Y. 2016-17 by 26.06.2022. However, for both the assessment years, the Assessing Officer has issued notice u/s 148 subsequent to those dates i.e. 25.07.2022 and 26.07.2022 respectively. Therefore, the notices issued u/s 148 in the new regime are barred by limitation for both years. We, therefore, hold that the notice issued u/s 148 of the Act being barred by limitation, such re-assessment proceedings are not in accordance with law and have to be quashed. 46. Even otherwise on merit also, we find the assessee has debited the entire interest exp....
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....he year in which it is incurred provided the borrowed funds are used for the purpose of the business of the assessee. It has been held that simply because the project was not started on the said plot does not mean that the interest expenditure cannot be allowed as deduction. The relevant observations read as under: "4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. In bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was er....
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....ssessing Officer is bound by the decision of the Hon'ble jurisdictional High Court. Therefore, the action of the Assessing Officer for assessment year 2014-15 is clearly against the settled principle laid down by the Hon'ble Bombay High Court in the case of Lokhandwala Construction Industries Ltd. (supra). Further, as per the provisions of section 36(1)(iii), there is no provision in the said section to apportion the interest cost between the work-in-progress and the sales. The interest expenditure being a period cost, the same has to be allowed in the year in which it has been incurred. In our opinion, when the provisions of ICDS conflict with the provisions of the Act, the provisions of the Act would prevail. As per the ICDS IX, it is clearly mentioned that in case of conflict between the provisions of the Income Tax Act, 1961 and the ICDS IX, the provisions of the Act would prevail to that extent. This view of ours is fortified by the decision of Pune Bench of the Tribunal in the case of Bajaj Finance Ltd. [152 Taxmann.com 216]. 52. We find the Mumbai Bench of the Tribunal in the case of DCIT vs. Sanathnagar Enterprises Ltd. (2022) 139 taxmann.com 557 (Mumbai - Trib.) has hel....
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....ed by the coordinate benches, we approve the detailed and well-reasoned approach adopted by the CIT(A) and decline to interfere, in principle, in the matter. As regards the learned Departmental Representative's apprehension of double deduction, however, we consider it fit and proper to add that once these amounts are allowed as deduction in the year of incurring the expenditure, the same shall not be eligible for being allowed as deduction yet again as a part of the work in progress being debited to the profit and loss account in any subsequent year. The double deduction will thus not be permissible. The conclusions arrived at by the learned CIT(A), subject to this observation, are approved.‖ 53. We find the Mumbai Bench of the Tribunal in the case of DCIT vs. Lodha Developers Ltd. (2022) 143 taxmann.com 442 (Mumbai - Trib.) has held as under: "11. We have carefully considered the rival contention and perused the orders of the coordinate bench as well as the decision of the ITA T in assessee's own case for assessment year 2014 - 15 wherein the revenue challenged the deletion of the disallowance of Rs. 891,171,622/- made by the learned assessing officer u/s 36 (1) ....
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....the assessee. Since the assessee had received loan for obtaining stock-in-trade, it was entitled to deduction under section 36(1)(iii). While adjudicating the claim for deduction u/s 36(l)(iii), the nature of expenses, whether the expenses are on capital account or revenue account is irrelevant as the section itself says that interest paid by the assessee on the capita! borrowed by the assessee is an item of deduction. The utilization of the capital is irrelevant for the purpose of adjudicating the claim for deduction u/s 36(l)(iii)." The SLP filed by the Department against the Bombay High Court judgment has been rejected by the Supreme Court. The Hon'ble ITAT Mumbai in the case of M/S Ashish Builders Private Ltd vs. ACIT ITA number 310/M/2012 held as under: "A) Interest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed finance cost on the borrowed capital. The claim of the assessee should be allowed in full in view of the various decisions on this issue. To start with, we perused the order of the Tribunal in the case of Rohan Estates Pvt. Ltd. (supra)....
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....a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus neither in doubt nor in dispute, Further, it may also be in place to state that section 36(l)(iii) stands since amended by Finance Act, 2003 w.e.f, 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance." We have also perused the said binding ....
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.....2 With regard to the interest expenditure, though the Accounting Standard -2 (AS-2) on the valuation of inventories issued by the Institute of Chartered Accountant of India (ICAI) would suggest that the interest expenditure ought to be taken into account in the valuation of inventories where and to the extent there is a direct nexus, the said standard is not mandatory under the Act. In fact, even following AS-2 a direct nexus has to be established for the interest cost to form part of the cost of production or construction, as the case may be, and, thus, a part of the valuation of the unsold inventory or work-inprogress as at the year-end. This is as, to cite by way of an example from the civil construction itself, the work on a project may not be underway at all for the whole or a part of the year, or say as its optimum or normative level, on account of various business exigencies. The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. ....
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.... which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(l)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance. In fact, even going by the Revenue's stand, another issue would arise and, accordingly, need to be determined apriori. Considering the said cost as includable in the project cost may have a direct bearing on the gross profit rate, and which may therefore stand to decline from the reported and accepted rate of 23%, and cannot be presumed be remain as such, i.e., unchanged." The Hon'ble ITAT Pune in the case of M/S Kolte Patil Developers Ltd erstwhile Corola reality Ltd merged with Kolte Patil Developers Ltd) also held as under: "Further, we find the Mumbai Bench of the Tribunal in the case of M/s Ashish Builders Pvt. Ltd. (supra) has decided an identical issue in favour of the assessee. Relevant Paragraphs are being reproduced hereunder for better appreciation of the issue: "6. Ground No. 1 of the appeal relates to the addition of some of the expenses to the WIP account i.e. interest on unsecured loan/fixed deposit (....
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....As such, what in our view would prevail Is the method of accounting being regularly followed by the assessee, i.e. on a year basis, The same also has the sanction nf law Inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that....
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....ess purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset....../' Considering the above settled position In the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital borrowed and utilized for business purposes in the year under consideration, Resultantly, we disapprove f decision of the Assessing Officer/CIT(Appeals) in transferring the interest expenditure to WIP account. Therefore, assessee is justified in debiting the same to the P&L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee." 14. From the above, it is evident that any amount of the interest paid in respect of capital borrowed for the business purposes constitutes an allowable deduction. The said clause (Hi) of section 36(1) of the Act supports the assessee's claim in the present case. This view is upheld in the case of CIT vs Lokhandwala Construction Industries Ltd. (....
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....d the same and did not raise objection in relation to interest claimed in the report u/s 245D (3) report filed before the ITSC. Further no disallowance/ adjustment was made by ITSC in relation to such interest claimed while passing the order. The addition made by the AO is directed to be deleted. These grounds of appeal are ALLOWED." 7. On a careful perusal of the order of Ld.CIT(A), we do not see any infirmity in allowing the claim of the assessee as the claim of the assessee is in tune with the decision of the Hon'ble Jurisdictional High Court in the case of Lokandwala Construction (supra) wherein it has been held that when the project constructed by the assessee is its stock in trade and not a fixed asset of the assessee the interest paid on loans obtained for stock in trade is an allowable deduction u/s. 36(1)(iii) of the Act. We also find that in the proceedings before the settlement commission the assessee claimed interest expenses and as per the order dated 28.07.2014 of the settlement commission and during verification proceedings u/s. 245D(3) of I.T. Act, the assessee informed the Assessing Officer that interest of Rs..124.02 crores as claimed in the computati....
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....ing costs Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head "Profits and gains of business or profession" or "Income from other sources" and not for the purpose of maintenance of books of account. In the case of conflict between the provisions of the Income-tax Act, 1961 ('the Act') and this Income Computation and Disclosure Standard, the provisions of the Act shall prevail to that extent. Scope 1. (1) This Income Computation and Disclosure Standard deals with treatment of borrowing costs. (2) This Income Computation and Disclosure Standard does not deal with the actual or imputed cost of owners' equity and preference share capital. Definitions 2. (1) The following terms are used in this Income Computation and Disclosure Standard with the meanings specified: (a) "Borrowing costs" are interest and other costs incurred by a person in connection with the borrowing of funds and include: (i) commitment charges on borrowings; (ii) amortised amount of discounts or premiums relating to borrowings; (iii) amort....
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....revious year; (ii) in case the qualifying asset does not appear in the balance sheet of a person on the first day, half of the cost of qualifying asset; or (iii) in case the qualifying asset does not appear in the balance sheet of a person on the last day of the previous year, the average of the costs of qualifying asset as appearing in the balance sheet of a person on the first day of the previous year and on the date of put to use or completion, as the case may be, excluding the extent to which the qualifying assets are directly funded out of specific borrowings; C = the average of the amount of total assets as appearing in the balance sheet of a person on the first day and the last day of the previous year, other than assets to the extent they are directly funded out of specific borrowings; Explanation - For the purpose of this paragraph, a qualifying asset shall be such asset that necessarily require a period of twelve months or more for its acquisition, construction or production. Commencement of Capitalisation 7. The capitalisation of borrowing costs shall commence: (a) in a case referred to in paragraph 5, from t....
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....commenced. Further, the inventory also includes the units under construction. Since in case of open land, which is held by the assessee is for more than 12 months and the land is in a saleable condition even without any construction thereon, therefore, in view of the definition of 'qualifying asset', the same does not fall within the said definition. The assessee in the instant case can sell the open land at any time without doing any construction and therefore it does not fall within the definition of 'qualifying asset'. 57. Further, in the instant case, when the development is undertaken after obtaining necessary approval from the local authorities, the assessee can sell the units. Undisputedly, the assessee is following the percentage of completion method, according to which the revenue is accounted for in respect of units sold depending upon the percentage of work completed. Once the development plan is obtained, the assessee is entitled to sell any unit in the building under construction, even though, the possession is given subsequently and the revenue of the units to the extent of work completed is accounted for. It is not necessary that the flat or unit is complete in ev....