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2005 (5) TMI 552 - ITAT MUMBAIBusiness expenditure - disallowance of interest incurred on capital account in respect of incomplete projects - HELD THAT:- Relying on the decision of the Supreme Court in India Cements Ltd. v. CIT [1965 (12) TMI 22 - SUPREME COURT] and Bombay High Court in Calico Dyeing & Printing Works v. CIT[1958 (3) TMI 59 - BOMBAY HIGH COURT], the Court held that if the capital borrowed was used for business purpose in the relevant year of account, it did not matter whether the capital was borrowed in order of acquire a revenue asset or a capital asset and interest on the capital borrowed need to be allowed as a revenue expenditure u/s 36(1)(iii). In the present case, the issue is of a bit different dimension. As rightly argued by the learned Commissioner, there is no dispute on the point that the finance cost booked by the assessee-company in its books of account is revenue in nature. The said expenditure need to be allowed as a deduction in computing the income of the assessee. Revenue admits this. The question is whether the expenditure need to be allowed in the relevant previous year itself; or it should be delayed till the completion of the project when the income is recognized from the said project. So there is no dispute on the basic question that the expenditure is revenue in nature. Finance cost is also generally treated as an expenditure falling under this category. Therefore, in the Accounting Standard it has been suggested that in such cases, where the expenditure could not be attributed to a particular activity carried on by the assessee, the same may be allowed as a period cost. This issue of identity between the borrowed funds and the project works carried on by the assessee is one of the main thrust of arguments advanced by the learned counsel appearing for the assessee. It is basically a question of fact. As argued by the learned Commissioner, it may not be altogether impossible to work out the quantum of borrowed funds utilized for a project if the accounts are maintained by the assessee in such a befitting manner. Such an attribution can be made, may be at the cost of a cumbersome exercise. There is a point in the argument of the revenue that such expenditure should be deferred till the completion of the project. Therefore, we have to see that in spite of various possible dimensions and manifestations of the issue, the various Benches of the Tribunal has taken a consistent view that the claim made by the assessee for deduction of finance cost by way of interest is in conformity with the Accounting Standard-7 issued by the Institute of Chartered Accountants of India. The said Accounting Standard also does not prohibit the treatment of such expenditure as period cost where the expenditure is general in nature. Therefore, we hold that the ground raised by the revenue is liable to be dismissed. In result, this appeal is dismissed.
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