TaxTMI 
TaxTMI 
2026 (8) TMI 1164
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....or all of the grounds of appeal at or before the time of hearing of the appeal. iii. The appellant, therefore, prays that on the ground(s) stated above, the order of the Ld. CIT (A), Mumbai, may be set aside and that of the Assessing Officer to be restored. iv. The order of the Ld. CIT (A) was received by the Pr. CIT, Central-1, Mumbai, having jurisdiction over the case on 07.01.2026. However, the CIT(A)'s order is dated 15.12.2025 and the limitation for filing appeal starts from 01.01.2026 and last date for filing appeal is 28.02.2026. 2. During the year under consideration, the assessee was engaged in the business of real estate construction and development. The assessee filed its original return of income on 30th November, 2014 declaring total income at Rs. 67,044/-, which was subsequently revised on 31st March, 2016 retaining the same total income. The return filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-Tax Act, 1961 (in short 'the Act') were issued and complied with. 2.1 During the assessment proceedings, the Assessing Officer observed substantial interest expenditure disallowed by the assessee un....
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....at the real estate projects had been completed and the occupation certificate (OC) was received on 23rd December, 2010, evidencing that construction was fully concluded and the project was ready for its intended use. Upon issuance of the OC, all unsold units stand classified as finished goods inventory rather than work in progress or qualifying assets within the meaning of ICDS IX (Borrowing Costs), in terms of ICDX IX capitalization of borrowing cost must discontinue once the asset is ready for use or sale. It was submitted that accordingly any interest incurred subsequent to the OC date constituted 'period interest' chargeable to the profit and loss account and cannot lawfully be capitalized as part of the project cost. After considering the submission of the assessee, the Ld. CIT(A) deleted the additions in dispute, observing as under ;- "I have considered the facts of the case, discussion in the assessment order and submission of the appellant. Sole issue in appeal is disallowance of Rs. 13,88,00,000/- made on account of interest payment. As discussed in the assessment order, the appellant had shown interest payment of Rs. 19.41 Crores in the profit and loss account. I....
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....r sale. • Appellant has relied upon the case laws in its support. 7.2. The submission of the appellant and the case laws relied upon are considered. There is no dispute regarding the actual payment of TDS amount on the interest payment of Rs. 13.88 Crores. The sole ground for disallowance of interest payment of Rs. 13.88 Crores is that the interest payment pertains to unsold units. As is seen from the facts on record, the said project was completed in the FY 2010-11 and therefore any expenditure including the interest expenditure incurred for the period till FY 2010-11 would have been capitalized. However, once the project is completed, the unsold units would constitute the finished goods or stock in trade and further capitalization of the expenditure would discontinue. The borrowing costs incurred after the asset is ready for its intended use are to be charged to the Profit & Loss account as revenue expenditure. In the present case, the interest expenditure pertains to FY 2012-13 (AY 2013-14), which is significantly after the project's completion. Having fulfilled the statutory requirement of TDS payment, the Appellant is entitled to the deductio....
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....tion phase and interest incurred after the asset has become commercially complete. Borrowing costs incurred till completion of a real estate project are undoubtedly liable to be capitalised as forming part of the cost of construction. However, once the project is completed and the units are ready for sale, the unsold units cease to be work-in-progress and assume the character of finished stock-in-trade. At that stage, capitalization of borrowing cost comes to an end. Interest thereafter is no longer incurred for bringing the inventory into existence or for making it saleable. It represents the cost of financing the business and assumes the character of a recurring revenue expenditure incurred wholly and exclusively for the purposes of carrying on the business. Merely because certain flats remain unsold for commercial reasons does not convert the continuing interest liability into part of their acquisition or construction cost. The borrowing continues to finance the business as a whole, and not any specific asset under construction. The commercial identity of the loan remains unchanged merely because the project has been completed. As long as the borrowed capital continues to remain....