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2005 (9) TMI 228 - AT - Income TaxDeduction in respect of interest u/s 36(1)(iii) - Business Expenditure - Value of work-in-progress - Whether, where an assessee following project completion method of accounting, the interest identifiable with that project should be allowed as deduction in the year when the project is completed and income is offered from the project or it should be allowed on year to year basis? - HELD THAT:- In the books of account, the interest expenditure is allocated to different projects and the interest expenditure referable to a particular project, is added to the value of work-in-progress in respect of that project. A reference may be made to the Schedules annexed to and forming part of the accounts for the year ended 31-3-1993 in the case of Wall Street Construction Ltd. Note No. 1 with the title 'System of Accounting' declares that the company follows completed projects method of accounting and that the work-in-progress is valued at cost. Note No. 2 declares that the cost of construction includes cost of land, development rights, construction, development, administration, marketing and finance. During the course of assessment proceedings, the Authorised Representatives of the assessees had categorically admitted that the assesses are following project-completion method of accounting. In the books of account, interest expenditure has been consistently identified and added to the value of work-in-progress. There was no question regarding the project completion method and determination of the cost of project in the case of a builder. However, in the case of a builder following project-completion method of accounting, this has no relevance for the simple reason that the determination of profits chargeable to tax are postponed to the year in which the project is completed or is substantially completed. In our view, the true profits in such a q case can be determined only when entire cost of the project, direct or indirect, including finance cost is added to the value of work-in-progress. This proposition is also fortified by the matching concept, as propounded by the Hon'ble Bombay High Court in the case of Taparia Tools Ltd. [2003 (1) TMI 83 - BOMBAY HIGH COURT]. In the present cases, the assessees have identified interest cost and have allocated such cost to different projects in the books of account, but deduction " in respect of interest is claimed u/s 36(1)(iii) against the income of some other projects which are completed during the relevant years. In our view, this procedure results into distortion of the correct profits which must be determined as per the project-completion method followed by the assessees. Thus, we hold that where an assessee is following project-completion method of accounting, the interest identifiable with that project should be allowed only in the year when the project is completed and the income from that project is offered for taxation.
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