TaxTMI 
TaxTMI 
2022 (10) TMI 1331
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssing Officer) was partly allowed. 02. The learned Assessing Officer is aggrieved with the order of the learned CIT (A) in deleting the disallowance of interest expenditure amounting to Rs.6,33,67,881/-. 03. The brief fact of the case is that the assessee is a company engaged in the business of construction and development of real estate and was developing a residential project at Pune. Assessee filed its return of income on 30^th November 2014 at a total income of Rs.28,61,89,640/- which was the further revised on 9th March 2015 at a total income of Rs.22,28,21.760/-. The case of the assessee was picked up for scrutiny. 04. The learned Assessing Officer noted that assessee is following percentage completion method of accounting for real estate projects. It has borrowed capital for the business and has paid interest of Rs.43.02 crores and earned interest income of Rs.31.71 crores resulting into net interest expenditure of Rs.11.31 crores. Out of that assessee capitalized interest of Rs. 6.76 crores in work-in-progress in the books of account. Interest of Rs.6.34 crores was claimed as deduction in the return of income. The learned Assessing Officer asked that why the intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0582/2016-17 dated 20/05/2021, had discussed this issue in detail and held that the assessee was not eligible to claim this expenditure in view of the decision of Hon'ble Special Bench of the Mumbai ITAT In the case of Wall Street Construction Ltd. (101 ITD 156). In the said order, had discussed why, as ITD 156). In the per my opinion, the decision of Hon'ble Bombay High Court in the case of CIT v. Lokhandwala Construction Industries Ltd. [260 ITR 0579 (Bom)] did not support the case of the assessee and the issue was to be decided in view of decision of Hon'ble Special bench of the Tribunal in the case of Wall Street Construction Ltd.(supra). The assessee, thereafter, filed an appeal before the Hon'ble Mumbai ITAT against the said appeal order passed by me in the case of M/s. MMR Social Housing Pvt. Ltd., and the Hon'ble Mumbai Tribunal has decided the issue in favour of the assessee. The Hon'ble ITAT, in the order dated 08/04/2022 in ITA No. 1310/Mum./2021 (A. Y. 2014-15), has given the following findings: 9. We have considered the rival submissions and perused the material available on record. In the present case, the assessee has followed percent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....centage of completion. The funds have been borrowed for the purpose of construction and have gone into the projects of the assessee which are stock in trade and not capital asset of the assessee. Therefore, the amendment brought in the Act with effect from 2003 by way of introducing the proviso to section 36 (1) (iii) also does not affect the facts of the case of the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of Ashish Builders Private Ltd and Rohan Estate Private Ltd (supra) and also the various judicial pronouncements relied upon by the assessee, the interest expenditure claimed by the assessee is held to be allowable. Therefore, the AO is directed to delete the addition made of Rs. 4,39,49,000/-. This ground of appeal is ALLOWED. 5. Upon due consideration of material facts, it is quite evident that the assessee was following percentage of completion method of accounting to recognize revenue from operations as against the case law of Tribunal Special Bench in M/s Wall Street Construction Limited (102 TTJ 505) which deal with a case wherein the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has also considered the decision of Special Bench in M/s Wall Street Construction Limitedreported in 102 TTJ 505. 012. On the argument of the revenue that the decision of the Honourable Bombay High Court was rendered prior to insertion of proviso to Section 36 (1) (iii) of the act by the finance act, 2003 with effect from 1/4/2004 and therefore that decision does not apply to the facts of the case. We have looked at circular number 7/2003 dated 5/9/2003 which is explained the insertion of the above proviso as Under: - "28.3 The Act has amended the said clause by way of insertion of a proviso to provide that no deduction will be allowed in respect of any amount of interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) for the period beginning from the date on which the capital was borrowed for the acquisition of the asset till the date on which such asset was first put to use." 013. On careful reading of the above circular, same applies to an asset which provides for capitalization of interest to the cost of the asset steel it is first put to use. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in law, the learned [CIT(A)-49] erred in not appreciating that no double disallowance of expense could be made by adding the disallowance to total income as well as reducing the same from Work-in-progress of inventories. 4) The appellant craves leave to add, amend, alter, or delete the said ground of appeal." 018. Coming to the facts of the case, assessee filed return of income on 30^th August 2015 declaring total loss of Rs.7,08,642/-. The assessment order was passed in the name of Ishwar Realty and Technologies Pvt. Ltd. which was renamed as Lodha Developers Thane Pvt. Ltd and subsequently, renamed as Bellissimo Developers Thane Pvt. Ltd. merged into Macrotech Developers Ltd. 019. The learned Assessing Officer noted that assessee has unsecured loan of Rs.1,13,242 lacs as on 31^st March 2015. Assessee has also given advance of Rs.8,000 lacs on which no interest was charged. Assessee has paid interest of Rs.8.49 lacs out of which Rs.1,485 lacs is reduced from interest income and Rs.6,932 lacs was allocated to the cost of project. The assessee was questioned as to why the interest expenses related to the construction should not be considered as work-in-progress. Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rest expenses and carried forward to the WIP. 1.4 While on the subject, the assessee also submits that funds advanced by the assessee company to JRPL has been used for the business purposes by JRPL. During the year under consideration, JRPL has declared the book profit of Rs. 158.89 Crores and paid the taxes of Rs. 33.30 Crores; therefore, the assessee submits that the by utilizing the borrowed fund the JRPL has earned the huge income and paid the taxes thereon; thus, there is no leakage to the revenue due to advance given by the assessee to JRPL. Therefore, the assessee submits that in view of the circumstances, the assessee has rightly netted off the interest income against the interest expenses. its support the assessee has also relied on the following judicial pronouncements to establish that it has correctly netted off the interest expenses - Eveready Industries India Limited vs CIT 323 ITR 0312 (Cal) CIT vs Producin (P) Ltd (290 ITR 0598 Kar HC] CIT vs Madras Refineries Limited (228 ITR 0354 Mad HC) CIT vs Tirupati Woolen Mills Limited (193 ITR 0252 Cal HC) Further, the assessee has submitted as under: - ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hod of accounting. There would be only deferment in the year i.e. it would be taxed as income from other sources in the subjected year and shall be allowed as deduction. in respective years forming part of WIP. In view of the above facts, the assessee submits that its claim is duly allowed under the law; therefore, the same shall be allowed in the subjected year. 4.1 In the alternative and without prejudice to the above submission, the assessee submits that of at all the disallowance is to made, then the same shall be restricted to Rs. 1,73,75,903/- which works out as under: Particulars Amount Interest Rate Avg Amount Interest paid to IHFL Interest paid to Lodha Developers Limited 154,874,589 14.94% 1,036,643,835 415,103,077 13.40% 3,097,784,157 569,977,666 4,134,427,991 Average interest rate on borrowing Interest rate on lending Difference in borrowing rate and lending rate 13.79% 13.40% 0.39% Funds borrowed from IHFL and used for lending Applying the differential interest rate on borrowing (i.e. Rs.450 Crores X .39%) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....progress to the extent of disallowance confirmed. 024. Both the parties are aggrieved with the above order. 025. On the appeal of the learned Assessing Officer the learned Departmental Representative relied on the order of the learned Assessing Officer, whereas he relied on the order of the learned CIT (A) on appeal of the assessee. 026. The learned Authorized Representative on the appeal of the learned Assessing Officer relied upon the orders of the learned CIT (A) and of the orders of co-ordinate Benches in case of group concern as well as assessee. With respect to the appeal of the assessee, the learned Authorized Representative submitted that learned CIT (A) has restricted the disallowance to Rs.9,75,000/- whereas the interest debited by the assessee only Rs.69,062/- to the profit and loss account and therefore, disallowance cannot exceed more than that. He further stated that double disallowance of expenses also including the disallowance on the WDV from work-in-progress is not proper. 027. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also carefully considered the decision of the co-ordinate Benches rel....