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2023 (7) TMI 367 - ITAT DELHIDisallowances of interest and capitalizing in inventory of work in progress - scope of matching concept allowance to set off the interest expenses as and when the revenue is recognized for the purposes of taxation - expenditure incurred and claimed in the nature of interest is for completion of the project (on which no income has been offered for tax during the year) or for buying a capital asset or for any other business activity - HELD THAT:- Under the matching concept, revenue and income earned during an accounting period, irrespective of actual cash in-flow, is required to be compared with expenses incurred during the same period, irrespective of actual out-flow of cash. In the instant case, it is an admitted position that the assessee has not offered revenue from the project to tax on the grounds that it is the first year of operations and less than 15% of the project is completed. Therefore, applying the matching principle, the interest incurred needs to be transferred to WIP and would be liable to be claimed in the year that revenue is earned We deem it fit to remand the matter to the file of the A.O. and the assessee is directed to provide the details of interest that has been capitalized in work in progress (WIP) and the interest that has been deducted in the Profit and Loss Account. After receiving the assessee’s submission, the A.O has to examine the nature of interest expense and verify why only Rs. 93,13,592/- forms part of WIP while the remaining interest is claimed as an expense. If the expense is incurred for any other business activity, then it would be allowable in the year under consideration. The A.O is directed to verify the nature of the interest expense and accordingly pass an order in line with the observations/directions made above. Appeal filed by the assessee is allowed for statistical purposes.
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