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2022 (2) TMI 1184 - AT - Income TaxDisallowance of proportionate interest expenditure - capital attributable to project ‘B’ i.e. unfinished project - AO held that interest part on borrowing as well as partners capital attributable to project ‘B’ i.e. unfinished project , cannot be allowed as an expense in respect of the profits derived from project ‘A’ and same should be allowed to be capitalized to the work in progress (WIP) of project ‘B - As per AO substantial amount of newly acquired unsecured loans and capital was used for the purchase of plot of land for project ‘B’, no income or revenue from said project has been credited, and therefore, he was of the view that interest on borrowings by way of capital and unsecured loans was required to be allocated project –wise - Whether project completion method or percentage completion method for offering profit from the said projects for the purpose of the Income-tax? - HELD THAT:- The assessee has not clarified before the lower authorities that whether it was following project completion method or percentage completion method for crediting income to profit and loss account. Before us, the assessee has filed a copy of submission dated 23/12/2019 before the Assessing Officer in respect of assessment year 2017-18 i.e. subsequent assessment year. In the said submission, the authorised representative of the assessee has clearly mentioned that the assessee is following percentage completion method. It is also mentioned that in the earlier year also the revenue was recognized following the percentage completion method. The learned authorised representative has also mentioned that interest expense was not claimed in computation of taxable income for A.Y.2017-18 We find that under percentage completion of method the revenue from booking or sales is credited to the profit and loss account in proportion to the expenditure incurred on the project as compared to the total cost of the project. In the assessment year under consideration, the assessee has not credited any amount of revenue on the ground that no substantial construction work was executed in the year under consideration. In such circumstances, even under the percentage completion method also the interest expenditure which is specifically related to project ‘B’ cannot be allowed and it shall be eligible for deduction in percentage terms of cost of construction debited following the percentage completion method. In the instant case interest which was specifically related to project B and neither expenditure on said project was claimed nor any revenue from said project was offered in the profit and loss account. The interest corresponding to the project ‘A’ has already been allowed by the Assessing Officer and only part pertaining to project B has been disallowed. This interest expenditure disallowed was not related to borrowing for maintaining business infrastructure but it was related to specific real estate project. As no significant risks and rewards of ownership of the project ‘B’ were transferred by the assessee to prospective buyer, no revenue from said buyer was recognized following principle of percentage completion method. Thus, no liability in respect of interest expenses pertaining to project ‘B’ was accrued, hence it is not allowable in the year under consideration. - Decided against assessee.
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