TaxTMI 
TaxTMI 
2025 (9) TMI 431
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....of principles of natural justice as well as mandatory procedure prescribed N In "Faceless Appeals Rules 2021," is an arbitrary order and is bad in law. The same needs to be quashed and the grounds of appeal needs to be allowed. 2. Expenditure capitalized to Work In Progress of Rs. 18,05,16,647/- (and not 18,08,06,792) a. On facts and circumstances of the case and in law, Ld CIT(A) erred in confirming the action of Ld AO of disallowing the expenditure debited to P&L A/c and capitalizing it to WIP account totalling to Rs. 18,05,16,647/- being interest (Rs. 10,75,29,743/-), advertisement & marketing expense (Rs. 6,33,55,619/-), legal & professional fees (Rs. 35,41,650/-) and brokerage fees (Rs. 60,89,635/-) by merely holding that copy of bills/supporting are not submitted and appellant failed to justify how this expenditure are related to revenue expenditure. Confirming such treatment of capitalizing the expense without appreciating the submissions of the appellant and favourable decisions of Hon'ble Mumbai ITAT in appellant's own case for AY 2014-15 and AY 2016-17, is arbitrary action and without application of mind and against the judicial discipline. The e....
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....ant. b. On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the excess disallowance of Rs. 92,72,993/- u/s. 14A of the Act made by the Ld AO without appreciating and following the decision of Hon'ble Mumbai ITAT (ITA No. 2043/Mum/2022) dated 13.04.2023 in appellant's own case for AY 2016-17 wherein disallowance u/s. 14A as calculated by Ld AO was cancelled. The addition needs to be deleted. c. Without prejudice to the above and without admitting, on facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of the Ld AO of considering the interest cost of Rs. 10,75,29,743/- while calculating the disallowance u/s. 14A without appreciating the fact that same is incurred for purchase of debentures and also Ld AO had already capitalized this interest cost in WIP. Considering the interest cost twice i.e. once as part of project cost and other while making disallowance u/s. 14A, leads to double disallowance of same interest cost. 5. Addition of Rs. 6,22,821/- (net) on account of House Property income:- a. On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirmin....
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....and loss account, since these expenses directly relate to the project undertaken by the assessee. 5.1. According to the assessee, these expenses are not related directly to the construction activities but are incurred for the purpose of increasing the sales and are revenue in nature. It was also submitted that valuation of its inventory is done in accordance with the accounting standard prescribed by ICAI. In respect of disallowance of finance cost of Rs. 10,75,29,743/-, claim of the assessee is that the loan on which this interest cost was incurred was never utilised for the purpose of development of its residential project but was invested in the unsecured Optionally Fully Convertible Debentures (OFCD). Breakup of this investment in OFCD and interest income thereon is extracted below as under: Sr. No. No of Debentures Type of Debentures Amount In Rs. Interest Income in Rs. 1 5057225 15.25% Compulsorily Fully Convertible Unsecured Debentures Series I of Friends Development Corporation (Imperia) Private Limited 1,17,46,53,730 11,95,40,251 2 846260 15.25% Compulsorily Fully Convertible Unsecured Debentures Series II of Friends Development Co....
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....ited to W.I.P. in Rs. Interest Debited to P&L A/c. in Rs. 1 30-05-2014 30,00,00,000 6210206770 3,63,47,262 2 28-07-2014 95,00,00,000 6210206770 9,28,33,219 A 125,00,00,000 3,63,47,262 9,28,33,219 3 28-07-2014 B 15,00,00,000 6210206763 1,41,50,343 TOTAL A+B 140,00,00,000 3,63,47,262 10,69,83,562 5.5. It was submitted that loan of Rs. 125 crores was sanctioned by HDFC Bank vide loan account No.6210206770 for the purpose of construction of residential project "Dosti Ambrosia", Wadala vide sanction letter dated 11.03.2014. Further, the line of credit finance facility was increased from Rs. 25 Crores to Rs. 40 Crores for the account no. 6210206763 by another letter dated 11.03.2014 in which also the purpose stated is for the construction of residential project "Dosti Ambrosia", Wadala. However, according to the assessee, these amounts of credit facilities provided by HDFC Bank were utilised in making investments in OFCD, details already extracted above. In this respect, reference was made to the bank accounts from wher....
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....ome' against which it has claimed the interest expenses for the borrowed funds utilised for the same. Even if this income is considered under the head 'income from other sources', assessee would be eligible to claim deduction against the same u/s.57(iii). 5.9. The issue which remains to be addressed is that when the loan raised for one purpose has been utilised for some other purpose, whether the deductibility of the interest has to be considered based on the actual use rather than the purpose for which it was raised. We draw our force from the decision of Hon'ble Supreme Court in the case of India Cement Ltd. vs. CIT [1966] 60 ITR 52 (SC) wherein it is observed that what is important is the actual use of the loan and not the intention or the motive at the time of raising the loan. This issue was also dealt by the Coordinate Bench in the case of J.F. Laboratories Ltd. vs. ITO [2005] 96 ITD 448 (Mum), wherein it was held that if loan is raised for one purpose but the same is utilised for some other purpose, while considering the deductibility of interest of such loan, the actual use must be considered rather than the motive or intention at the time of raising the loan. Relian....
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....le Court dealt with the issue relating to allowance towards brokerage and commission expenses claimed by the assessee in the context of percentage completion method adopted by the assessee. Hon'ble Court held in favour of the assessee to allow the expenses towards brokerage and commission as revenue in nature. 6.2. Reference is also made to decision of Coordinate Bench in the case of sister concern of the group to which the assessee belongs to, i.e., Dosti Realty Ltd., formerly known as Friends Development Corporation (Imperia) Pvt. Ltd. in ITA No. 7374/Mum/2019 for Assessment Year 2014-15, dated 06.09.2022. In this case also, issues relating to similar expenses in the nature of brokerage and advertising expenses were dealt with. The Coordinate Bench held in favour of the assessee by deleting the capitalisation made by the ld. Assessing Officer for which relevant findings and observations in this respect are extracted below for ready reference. "14. We have heard both the parties and perused the relevant findings given in the impugned order as well as relevant material placed on record before us. In so far as issue raised in Ground No. 1 & 3 relating to disallowance....
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....sed by the assessee as well as the additional evidences furnished on record. Ld. CIT(A) may call for remand report, if so desired or make any further enquiries as deem fit. Needless to say, assessee be given reasonable opportunity of being heard and make any further submission, if so required. Accordingly, ground no.3 raised by the assessee is allowed for statistical purposes. 8. Ground No.4 is in respect of disallowance of Rs. 92,72,993/-made u/s.14A r.w.r. 8D. The issue raised in this ground is similar to what we have already dealt in the appeal vide order of Coordinate Bench of Mumbai, in assessee's own case in appeal No.6130/Mum/2024, dated 24.07.2025 for Assessment Year 2014-15 with the same undersigned constitution. The only difference is towards proportionate interest expense disallowed in this year amounting to Rs. 79,28,667/-. What ld. Assessing Officer has done while making addition for the year under consideration when compared with Assessment Year 2014-15 is that he has taken proportionate interest expense by applying Rule 8D(2)(ii) for computing the disallowance. In this respect, ld. Assessing Officer has taken into account interest expenditure of Rs. 10,75,29,743/-....
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.... 9,90,25,000 12,40,07,121 2. Mutual Fund investment 25,00,000 25,00,000 3. Warrant application money 12,14,516 12,14,516 Total 10,27,39,516 12,77,21,637 11,52,30,576 0.5% thereof 5,76,153 II. Addition made by the A.O. Investment in partnership firm 36,06,36,154 17,70,94,211 26,88,65,182 0.5% thereof 13,44,326 Proportionate interest exp. 79,28,667 Total addition 92,72,993 8.3. Based on our findings, the revised calculation for the disallowance u/s.14A for considering those investments on which assessee has earned exempt income is also tabulated below: Sr. No Investment As on 01.04.2014 (Rs.) As 31.03.2015 (Rs.) Average investment (Rs.) Exempt income (Rs.) * 1. Mutual fund 25,00,000 25,00,000 25,00,000 1,77,900 2. Capital account balance with Friends Development Corp. 19,33,65,511 3,11,70,352 11,22,67,932 3,10,04,842 3. Capital account balance with Dosti Seaview Realty LLP 1,66,233 1,70,186 1,68,210 3,952 4. Capital account balance with Crystal Build....
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....he higher appellate authority. It is required that the first appellate authority viz. CIT(A) will appreciate the evidence, consider the arguments and apply the law on the given set of facts and circumstances and arrive at findings. 9.2. Before us, on this issue, ld. Counsel for the assessee strongly submitted on the settled position of law whereby taxability with regard to unsold shops/flats held as stock in trade is to be dealt as business income and not under the head 'income from house property'. He placed strong reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Classique Associates Ltd. in ITA No.1216 of 2016, dated 28.01.2019, wherein this issue has been considered in para-4 after discussing the decision of Hon'ble High Court of Gujarat in the case of Neha Builders Pvt. Ltd., [2008] 296 ITR 661 (Guj) and of Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. vs. CIT(A) [2014] 377 ITR 673 (SC). In para-4, Hon'ble High Court of Bombay took note of the observation of para-8 of Neha Builders (supra) which is reproduced as under: "8. True it is, that income derived from the property would alway....
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.... Court of Delhi in the case of Ansal Housing and Finance and Leasing Company (supra) was also dealt with in para-5. Coordinate Bench also took note of the amendment made by the Finance Act, 2017 w.e.f. 01.04.2018 to sub-section 23 by insertion of sub-section (5) which is reproduced as under: "(5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to nil." 9.5. The effect of the above stated amendment in which it was noted that in order to give relief to Real Estate Developers, section 23 has been amended w.e.f. AY 2018-19 (FY 2017-18). By this amendment, it is provided that if the assessee is holding any house property as his stock- in-trade which is not let out for the whole or part of the year, the annual value of such property will be considered as Nil for a period up t....