TMI Blog2020 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... nd even if it is added/capitalized to the inventory being unsold stock under construction as contemplated by Revenue, then also the same is to be allowed as expenses in subsequent years when Revenue is recognized from such unsold inventory - we allow appeal of the assessee - ITA No.543/Chny/2019 - - - Dated:- 4-3-2020 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER Appellant by : Mr. J.Prabhakar, FCA Respondent by: Mr. A.Sundararajan, Addl.CIT O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal filed by assessee is directed against appellate order dated 30.01.2019 passed by learned Commissioner of Income Tax (Appeals)-Puducherry, (hereinafter called the CIT(A) ), in ITA No.35/CIT(A)-Pdy/2017-18 for assessment year (ay) 2015-16, the appellate proceedings before learned CIT(A) had arisen from assessment order dated 13.12.2017 passed by learned Assessing Officer (hereinafter called the AO ) u/s.143(3) of the Income-tax Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Chennai (hereinafter called the Tribunal ) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses of ₹ 62,21,334/- as deduction while computing income for the year under consideration u/s.36(1)(iii) of the 1961 Act. The AO observed that assessee has obtained interest bearing loans from banks and other parties, and the assessee had paid interests during the year. The AO observed that assessee had five real estate projects, which were still not completed and were not put to use till the end of the previous year, the details of which are as under: Project Investment as on 31.03.2013 Investment as on 31.03.2014 Investment as on 31.03.2015 Nataraja Residency 12,00,000 58,00,000 1,16,93,200 Easwar Residency 20,00,000 60,00,000 92,54,000 Kannan Residency 20,00,000 49,67,000 61,77,000 Dakshanya Residency 20,00,000 72,49,000 51,79,000 Annamalai Tower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that these interest bearing funds were used for ongoing projects, some of the units in the projects are yet to be completed. However, the AO also observed that the assessee is not following Percentage Completion Method to offer income to tax while on the other hand expenditure has been claimed till the last date of the financial year. The AO also observed that notional income of ₹ 44,89,250/- was offered to tax by assessee. It was also observed by AO that there is a direct co-relation between borrowing interest bearing funds and the projects which are ongoing. The AO disallowed interest expenses to the tune of ₹ 62,21,334/- u/s.36(1)(iii) of the 1961 Act, vide assessment order dated 13.12.2017 passed by AO u/s 143(3) of the 1961 Act. 7. Aggrieved by an assessment order dated 13.12.2017 passed by AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with Ld.CIT(A), who was pleased to dismiss appeal filed by assessee vide appellate order dated 30.01.2019, by holding as under: 5. Adjudication: 5.1 The appellant had claimed ₹ 62,21,334/- as interest expenses under section 36(l)(iii) of the IT Act. As per above section, any amount of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onate rental income offered. 5.5 AO has rightly rejected the claim of ₹ 44,89,250/- as notional income offered by the appellant to explain the source of own funds. Subsequent withdrawal of such a disclosure for taxation has no relevance on the issue at hand. 5.6 Interest paid on capital borrowed for setting up a new unit in same line of business, before it is put to use, is to be treated as capital expenditure as held in 'the case of CIT vs. Vardhman Polytex Ltd. (P H) 299 ITR 152 . Interest on capital borrowed for the purpose of acquisition of assets of the new unit is to be allowed as revenue expenditure only when such assets is put to use and starts yielding income and not for any period prior to it following the proviso to Section 36(1)(iii). 5.7 Proceedings initiated under 27IB were procedural and the same can be adjudicated separately if an appeal is filed independently. Accordingly, all grounds raised in appeal are disposed off. The addition made in the assessment order is confirmed. 8. Aggrieved by an appellate order dated 30.01.2019 passed by learned CIT(A), the assessee has filed an appeal with tribunal and Ld.Counsel for the assessee submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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