TaxTMI 
TaxTMI 
2022 (4) TMI 1682
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....est expenses of Rs..1,90,82,553/- against rent income of Rs..2,22,46,798/- under the head Income from House property". During the course of assessment proceedings, assessee was asked to furnished statement and utilization details of borrowed capital on which interest expenses were claimed against house property income. In response to the same, assessee vide letter dated 08.02.2016 submitted an explanation on allowability of interest expenses u/s 24 against rental income. Assessee had also put an alternate claim which is as under :- "Without prejudice to above & without admitting, we have to state as under : Assessee is in the business of Real estate Development. During the course of business, assessee had made advance of Rs. 8,20,99,000/- to Periwinkle Construction Pvt. Ltd against property. If whole of the interest paid of Rs. 1,90,82,553/- claimed u/s 24 is not allowed than proportionate interest on above advances made against property should be allowed u/s 36(1)(iii) as the same is paid in respect of capital borrowed for the purpose of business." 3. The learned assessing officer has disallowed Interest u/s 24 (b) by stating that :- "It is an admitte....
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....ssee in its submission has stated that part of the loan amount was given for property advances. On perusal of confirmation letters filed by the assessee from the respective parties, it is seen that the said transactions were not finalized and advances were made for acquisition of development rights. Thus, as provided in section 36(1)(iii) and proviso thereto, interest on money borrowed for acquiring a capital assets till the date on which the assets was brought to use even if it is for extension of existing business, is not allowable as revenue deduction. This is view is gets supported by number of case laws on the subjects matter. Therefore, the alternate claim of assessee to allow proportionate interest expenses as business expenses is denied." 6. Being aggrieved against the said order, assessee preferred an appeal before the Ld. CIT(A). During the course of appellate proceedings, the assessee's submission is as under :- "4.1) Appellant's main source of income is from rent that it receives from two parties. Further its main object clause as per the memorandum of association reads as under :- "To manage, acquire, takeover, undertake, carry on and engag....
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....t that asset with a view for produce profit, it would be revenue expenditure. the outgoing is so relied to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit earning process or operation, and not for the acquisition of an asset of a permanent character, then a would be expenditure of revenue nature. 4.7) The Hon'ble Mumbai ITAT in assessee's own case for A. Y. 2012-13 an similar facts allowed the appeal of the assessee and directed the AO to allow the proportionate deduction of interest u/s. 36(1)(iii) of the I T Act, 1961 on advances made for purchase of properly. Hence the claim of deduction of interest of the appellant may kindly be allowed." 7. The Ld. CIT(A) dismissed the appeal filed by the assessee by stating that - "Ground No.1: 4.1.1. Vide this ground appellant has agitated against disallowance of interest expenses u/s 24(b) of the IT Act amounting to Rs. 81,63,625/-. In the assessment order the Ld. AO has mentioned that the amount borrowed from M/s Kanakia Spaces Pvt. Ltd. were not utilized for the purpose of acquisition/construction of House Property. Further, Ld. AO has ....
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....ng _ the relevant year, appellant had made advances for acquiring development rights. Therefore, the interest amount should be allowed u/s 36(1)(iii) as the same is paid in respect of capital borrowed for the purpose of business. The submission made by the appellant on the alternate claim and as well as the contention raised by the Ld. AO in the assessment order has been considered. It is noted that the accounting of the Real estate developer is different as the Accounting Standards. There are specific methods i.e. percentage completion method and Project Completion method, according to that method, appellant allowed to book the income and respective expenses. In that method it is specify that up to the project is not reach at the mark/percent all the cost would be included under Work in Progress and neither routed through the Profit and loss account and nor appellant can claim such expenses without offering the income in respect to the project." 8. Aggrieved assessee preferred appeal before us raising following grounds: - 1) The learned Commissioner 'of Income Tax, Appeal' -16, Mumbai erred in law & facts in confirming order of Assessing officer of dis....