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2016 (1) TMI 1098 - AT - Income TaxAddition made on account of disallowance of interest paid on borrowed funds - partial allowance of interest by the CIT(A) as against the total disallowance made by AO under section 36(1)(iii) - Held that:- We find no merit in the orders of authorities below in working out the interest attributable to the loans relatable to 12 projects under construction, has been not allowable as deduction in the hands of assessee. The assessee was following unit sale method of accounting, where revenue was recognized on sale of the units completed by it. The assessee was not following project completion method. Though the assessee was capitalizing the cost of projects which were under consideration, the revenue relatable to units of such projects was offered to tax as and when the units were sold by the assessee. Thus, in such circumstances, there is no merit in holding that the interest attributable to the alleged loans utilized for 12 projects under consideration is to be disallowed in the hands of assessee. We find no merit in the orders of authorities below in this regard. Where the assessee is engaged in the business of construction and development and the project undertaken by the assessee constitute stock in trade / work-inprogress and are not capital assets owned by the assessee, the proviso to section 36(1)(iii) of the Act do not apply and there is no merit in restricting the deduction on account of interest expenditure on loan availed for carrying on the business of the assessee. Accordingly, we direct the Assessing Officer to allow the expenditure of ₹ 11,26,17,000/- in the hands of the assessee. At this juncture, we also want to refer to the alternate plea raised by the assessee before the Assessing Officer that at best disallowance of ₹ 52,15,480/- can be made being attributable to qualifying assets. The said alternate contention was without prejudice to the main contention and in view of our allowing the claim of the assessee in totality, we find no merit in the alternate plea raised by the assessee. Consequently, the grounds of appeal raised by the assessee are allowed and the grounds of appeal raised by the Revenue are dismissed.- Decided in favour of assessee
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