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2019 (8) TMI 549 - AT - Income TaxAllowable business expenses in construction project - recognition of income & expenses including cost of borrowings - AS 7 on Construction Contracts - AS 16 on Borrowing costs - revenue expenses or cost of project need to capitalised with capital WIP - HELD THAT:- In the instant case, where the assessee is in the business of development and construction of group housing project, the interest cost though allowable have to be accumulated as per the method of accounting followed by the assessee wherein it is accumulating all the project costs and the same is claimed as and when it achieves the prescribed construction and development threshold. More so, where it is the stated position of the assessee that for computation of revenues, the stage of completion was arrived at with reference to the entire project costs incurred including land costs, borrowing costs and construction and Development Costs. In our view, such an approach will give a true and correct picture of state of affairs of the assessee’s business activities and thus should precede over the claim of the assessee of such interest cost in the year of incurrence. The various decisions which have been relied upon by the ld AR were rendered solely in context of section 36(1)(iii) and the issue relating to the method of accounting, and the interplay between section 36(1)(iii) and method of accounting have not been examined in those decisions and hence, the said decisions doesn’t support the case of the assessee. In the result, the finance cost and interest paid to partners and others will be required to be accumulated as part of work-in-progress and cannot be claimed in the year under consideration. In respect of other expenses debited in the profit/loss account, we find that these include JDA expenses, salary of employees at site, site office expenses. These expenses are directly related to construction and development activities and should therefore form part of work-in-progress and therefore, cannot be claimed in the year under consideration. Rest all expenses are in nature of general administrative and overhead expenses and has rightly been claimed for tax purposes.- In the result, the ground of revenue’s appeal is partly allowed. Reclassification of income from the head of “Income from other sources” to business income - HELD THAT:- The same has been directed to be allowed set-off against business loss claimed by the assessee. We find that in schedule 11: other income of the financial statements, the assessee has shown discount received of ₹ 8494 and interest received of ₹ 17,260. The discount receipt seems to be related to some business purchase and is clearly in the nature of business receipt. The nature of interest income is not clear from the record. Notwithstanding the same, as we have held above that the assessee is eligible to claim certain administrative and other overheads expenses incurred during the year, the same would result in a loss under the head “Business income” and the interest income even where classified under the head “Income from other sources” can be set off against such business loss. In the result, the ground of revenue’s appeal is dismissed.
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