TaxTMI 
TaxTMI 
2026 (5) TMI 1856
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....r brevity the "Ld. AO"] order passed under section 143(3) of the Act date of order 30.12.2016. 2. Assessee has raised the following grounds: 1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the addition/disallowance of Rs. 2,05,97,289/- under section 43CA of the Income Tax Act, 1961. 2. The Appellant craves leave to add, amend, alter or delete the said ground of appeal. 3. Revenue has raised the following grounds: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the disallowance of interest expenses amounting to Rs. 35,07,71,725/- without considering the fact that the said expenditure is attributable to the cost of project and was therefore required to be capitalized to work in progress. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified the disallowance of interest expenses amounting to Rs. 35,07,71,725/- by disregarding the proviso to section 36(1)(iii) of the Income Tax Act, 1961, Accounting Standard 7 and Guidance Note on accounting for real estate transaction issued by....
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....ed capitalization of interest to WIP and foreign exchange loss before us. ITA 7695/Mum/2025(Assessee's Appeal) 5. The Ld. AR argued filed a paper book comprising pages 1 to 261 which has been placed on record. The Ld. AR contented that in connection with the disallowance of Rs. 2,05,97,289/- under section 43CA of the Act, it was submitted on behalf of the assessee during the course of hearing that during FY 2011-12 the assessee had sold flat nos. 2301 and 2302 in the project "World View" at 23rd Floor to M/s Life Style Trading & Investment Advisors Pvt. Ltd. for Rs. 1,03,26,996 and to M/s Life Style Holdings & Properties Pvt. Ltd. for Rs. 1,38,85,623 respectively. The Assessee had received the booking amounts of Rs. 9,00,000 each from the said customers in FY 2011-12 but the registration of the agreement to purchase was done subsequently in FY 2013-14. Copies of application forms, cheques issued and allotment letters in respect of aforementioned flats have already been submitted in APB. It was further argued that the date of booking should be considered as date of agreement and date of letter of allotment should be considered as the date of transfer of asset which in the pres....
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....ed documentary evidence demonstrating that an amount of Rs. 9,00,000/- each had been received from the respective parties during Financial Year 2011-12, whereas the registration of the agreements for purchase was subsequently carried out in A.Y. 2014-15. In support of the said contention, the assessee placed on record copies of the bank statements for F.Y. 2011-12, copies of the agreements, and allotment letters issued to the parties. The records further reveal that the assessee had received the aforesaid payments from the parties on 24.08.2011. Considering the aforesaid facts, we respectfully rely upon the judgment of the Hon'ble Bombay High Court in the case of M/s Zain Construction v. ITO and Others reported in (2019) 265 Taxman 82 (Mag.) (Bom.), wherein the SLP preferred by the Revenue was dismissed by the Hon'ble Supreme Court reported in (2020) 269 Taxman 274 (SC). In the said decision, the Hon'ble High Court has categorically held that the provisions of section 43CA, inserted with effect from 01.04.2014, have no applicability in respect of units sold prior to the said date, i.e., in Assessment Year 2013-14. Reliance was also placed upon the decision of the Coordinate Bench o....
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....revenue from the above project, it is following percentage completion method of accounting. The assessee, for the purposes of construction has borrowed interest bearing funds from the group concern; the loan outstanding as on 31.03.2014 is Rs. 1914.88 Crores. On the said funds, the assessee has paid the interest of Rs. 191.45 Crores and after reducing the interest income of Rs. 144.94 Crores net interest expenses of Rs. 46.51 Crores have shown as expenses. Out of the total interest expenses of Rs. 46.51 Crores, the assessee has capitalized an interest of Rs. 35.08 Crores to work in progress. The said interest of Rs. 35,07,71,725/-, capitalized in the books of accounts have been claimed as deduction in the return of income. Therefore, the assessee was asked to explain as to why the interest expenses claimed in the return of income shall not be disallowed. 7.2 The assessee file submission wherein it has stated that the interest expenses has been claimed as deduction in the year of incurrence thereof for the reason that the interest is periodic cost; hence, the claimed in the year for which it belongs to. The assessee also submitted that such interest cost has been claimed as....
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....lied upon by the assessee is distinguishable as in the case of Taparia (supra), the assessee was not a construction company so its distinguishable on facts. The judgment of lokhandwala (supra) were rendered before the proviso to section 36(1)(iii) has been inserted vide Finance Act 2003. Therefore, both the cases are not applicable in the facts of the assessee. In view of the above facts and legal position, the interest cost of Rs. 35,07,71,725/- is disallowed and added to the work in progress of the assessee. 10. The Ld. DR further argued that the capitalization of interest to WIP amount of Rs. 35,07,71,725/- was claimed as deduction under section 36(1)(iii) of the Act, being interest pertaining to stocking trade of the assessee. So, the assessee respectfully relied on the order of the Taparia Tools Private Limited (supra) & fact is distinguishable. The Ld. DR respectfully relied on the order of Hon'ble Special Bench of Mumbai in the case of Wall Street Construction Limited vs. JCIT reported in [2006] 5 SOT 103 (Mum) (SB). The relevant paragraph 30 is reproduced as below: "30. From the above, it may be seen that the facts were entirely different. There was no question ....
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....der of the Commissioner of Income-tax (Appeals). We find the assessee without any firm commitment from any party pumped its borrowed funds in a BPO project which has subsequently been taken over by another group company at cost. In our opinion, the cost which has been incurred by the assessee on the project in the year under consideration is nothing else but the work-in-progress of the project since during the year under consideration there was not even a confirmed party for which the project was being carried out. Therefore, we agree with the findings of the Commissioner of Income-tax (Appeals) that the correct treatment would have been to treat the entire interest expenses as work-in-progress and the pro rata disallowances made during the year have to be actually made for the following year. The decision of the Hon'ble Bombay High Court in the case of CIT v. Lokhandwala Construction Inds. Ltd. (2003) 260 ITR 579 relied on by the assessee to claim the interest as deduction under section 36(1)(iii) of the Act is, in our opinion, not applicable to the facts of the present case since the assessee is neither a contractor nor doing any service. In this view of the matter, we do not....
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.... between the transaction date and the date of settlement of any monetary items arising from a foreign currency transaction. When the transaction is settled within the same accounting period as that in which it occurred, all the exchange difference is recognised in that period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognised in each intervening period up to the period of settlement is determined by the change in exchange rates during that period. The AS does not talk of a situation when expenses are related to work in progress. In such circumstances, it is very clear that when the expenses are capitalized to work in progress then the consequential loss pertaining thereto shall also be capitalized to work in progress. The accounting of the construction activity is governed by the Accounting Standard 7 as well as guidance note on accounting for real estate transaction issued by the Institute of Chartered Accountants of India (ICAI). The said guidance note categorically states that all the expenses directly related to the project have to be carried over and debited to the cost of project. Such expenses can be claimed as ded....
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....t the term "expenditure" in section 37 of the Act covers an amount which is a "loss" even though the said amount has not gone out from the pocket of the assessee. The "loss" suffered by the assessee on account of the exchange difference as on the date of the balance sheet is an item of expenditure u/s 37(1) and hence is allowable deduction. 5.6 The Appellant further places reliance on the decision of Hon'ble Mumbai Tribunal in case of Tata Consultancy Services Ltd. Vs. Commissioner of Income-tax, LTU, Mumbai [2019] 108 taxmann.com 41 (Mumbai - Trib.), wherein at para 5 it was held as under, "It is also pertinent to mention that AS-11 as well various judgments including decisions of Hon'ble Supreme Court in the case of Woodward Governor India (P.) Ltd. (supra) has consistently held that both gains or losses on account of exchange rate fluctuations on the reporting date is to be accounted for fo bring to tax while computing income chargeable to tax and it does not only refer to losses sustained on the reporting date owing to exchange rate fluctuations to be taken into account while computing income chargeable to tax. It is unlike in AS-2 which dealt with val....
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.... 5 December 2023 (Copy of order is enclosed herewith as Annexure 10), wherein Ld. AO had disallowed foreign exchange loss of Rs. 1,68,30.320 on account of consultancy charges payable to foreign parties. 5.9 It is pertinent to note that the aforesaid issue has been decided in favour, by your goodself for AY 2013-14 in the case of Appellant's group company, M/s Macrotech Developers Ltd. Copy of order is enclosed herewith as Annexure 8. 5.10 Further, the Appellant places reliance on the following judicial precedents * Principal Commissioner of Income-tax Vs Suzion Energy Ltd. [2020] 121 taxmann.com 137 (SC) * Principal Commissioner of income-tax Vs. Vedanta Ltd [2023] 146 taxmann.com 34 (SC) * Vassantram Mehta & Co. (P) Ltd Vs Joint Commissioner of Income-tax, Goa [2015] 63 taxmann.com 102 (Bombay) * Principal Commissioner of Income Tax. Bengaluru Vs. Mphasis Ltd. [2021] 128 taxmann.com 138 (Karnataka) * Everest Industries Ltd Vs. Deputy Commissioner of Income-tax [2022] 141 taxmann.com 176 (Mumbai -Trib) 5.11 In view of the above, the Appellant humbly submits that the disallowance of foreign exchange loss of ....
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....s between the interest payment and interest receipts. The limited issue that has been raised in the appeal by the Department is whether the amount of Rs. 35,07,71,725/- is allowable in the year of incurrence itself, namely, the year under consideration or is it required to be taken to work in progress. 2.2 It is submitted that this issue is covered in favour of the Assessee by a number of decisions in the case of the Assessee's group companies. Before the Learned Commissioner of Income Tax (Appeals) ("CIT(A)"), a list of about 14 decisions of the Hon'ble Mumbai Tribunal were cited and the CIT(A) has decided the issue in favour of the Assessee by following the ITAT's decision in the case of Lodha Developers Ltd. (Formerly known as Macrotech Developers Ltd.) for AY 2015-16 in ITA No 68/Mum/2019. 2.3 In all these decisions, the ITAT has consistently followed the Hon'ble Bombay High Court's decision in Commissioner of Incometax Vs. Lokhandwala Construction Inds. Ltd. (2003) 260 ITR 579 and has also distinguished the decision of the Special Bench in Wall Street Construction Ltd. Vs. Joint Commissioner of Income-tax, Special Range-12, Mumbai [2006] 1....
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....apital expenditure, as it is debited in the profit and loss account. The Ld. AR prayed for dismissing both the grounds of the revenue. 15. We heard the rival submissions and considered the material available on record. The first issue raised by the revenue relates to deletion of disallowance on account of capitalization of interest to work-in-progress amounting to Rs. 35,07,71,725/-. The Ld. AO was of the view that since the assessee was following percentage completion/project completion method for its real estate projects, the interest expenditure attributable to the projects ought to have been carried to work-in-progress and allowed only in the year in which corresponding revenue is recognized. For this proposition, reliance was placed upon the decision of the Special Bench of the Mumbai Tribunal in the case of Wall Street Construction Ltd. (supra) and also on the decision in Aditya Birla Power Company Ltd. (supra) However, on perusal of the record, we find that the assessee had borrowed funds for the purposes of its business and the interest expenditure was incurred wholly and exclusively for business purposes. The assessee had consistently claimed such expenditure under sect....