TMI Blog2021 (10) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... l business and this demolition was done by the assessee. This factual position would go to show that the land was put to use in the Assessment Year under consideration. Tribunal had rightly noted that the term put to use in the proviso in Section 36(1)(iii) would be applied to capital asset/income earning apparatus/facilitating the business activity and therefore, the Statute envisages the importance of such capital asset should be put to use in the business in contra distinction to the inventory of the assessee. Tribunal noted that the inventory in the business/holding of inventory in the business by itself is a business activity in the normal course and in continuation of business of construction pursued by the assessee - attempt to apply the proviso to the case of the assessee would lead to wrong interpretation of law and therefore, the reasons given by the Assessing Officer to disallow the interest expenditure by applying the provisions of Section 36(1)(iii) is not in accordance with law - Tribunal noted that the assessee is into the business of Real Estate Development and in the process of executing two projects at different places and the Assessing Officer was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to MRC Nagar project? 3.The assessee filed its return of income for the Assessment Year under consideration, AY 2015-16, on 27.09.2015, admitting Nil Income. The case was selected for scrutiny and notice under Section 143(2) of the Act, dated 31.08.2015, was served on the assessee and thereafter, by another letter dated 25.04.2016, details were called for. The details were furnished and the assessment was completed by order dated 26.12.2017 under Section 143(3) of the Act. 4.The issue before the Assessing Officer was that the assessee was running a Hotel and Real Estate business and offered a total income of ₹ 120.27 Crores from Rooms Revenue, Restaurants and Banquets Revenue, Contract Profits recognized, Other Operating Revenues, Rental Revenue, etc. The major portion of the revenue was received from the Hotel business. For the Assessment Year 2015-16, the assessee had offered income from the Real Estate in respect of the project, namely, 'Atlantic' at Egmore. An amount of ₹ 41,37,73,978/- was claimed towards Interest Payable at 13.75% p.a. on a loan amount of ₹ 301.92 Crores, obtained from IFCI Limited, which was outstanding as on 31.03.2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee accounted 'Property Development and Construction Workin- Progress' under the head Inventories . An amount of ₹ 845.67 Crores was shown as 'Property Development and Construction Work-in-Progress', the break-up of which was relatable to Atlantic project and MRC Nagar project. The assessee was called upon to explain and they have stated as to how the asset in MRC Nagar was put to use. The Assessing Officer did not agree with the submissions made by the assessee, since the assessee was following Mercantile System of Accounting. According to the Assessing Officer, as per the Accounting Standard 16 ( AS-16 for brevity), borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset and the amount of borrowing costs eligible for capitalisation should be determined in accordance with the AS-16, otherwise, borrowing costs should be recognized as an expense in the period in which they are incurred. Thus, the Assessing Officer held that the assessee is bound to capitalise the interest cost of ₹ 41.37 Crores on the borrowal to the Workin- Progres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogress was shown, which clearly shows that the project at MRC Nagar had not even commenced. Further, it is submitted that, no distinction under Section 36(1)(iii) of the Act could be made between the capital borrowed for revenue purpose and capital borrowed for the purpose of business. Further, the Revenue seeks to rely upon the Director's Report and would submit that, in terms of the report, it has been stated that the MRC Nagar project had not commenced its operations during the relevant previous year and therefore, the expenses claimed by the assessee cannot be treated as inventory and ought to be treated as pre-operative expenses, which are required to be capitalised. 13.The learned counsel appearing for the respondent/assessee submitted that the Tribunal, on considering the facts which were placed before it, which is the Abstract of the expenses pertaining to the MRC Nagar project, on perusal of the same, came to the conclusion that the property at MRC Nagar was put to use. Further, the Tribunal has also taken note of the various documents that were filed by the assessee in the form of paper-book and held that the Real Estate Development should be treated as a segment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. 17.Therefore, the question which was examined by the Tribunal was the allowability or otherwise of the interest paid on the loan borrowed by the assessee from IFCI Limited and whether it would fall within the scope of Section 36(1)(iii) of the Act. 18.As rightly noted by the Tribunal, the loan which was obtained by the assessee from IFCI Limited is for the purpose of business of the assessee and having accepted the said fact, the deduction of interest was disallowed only on the ground that the asset purchased by the assessee in MRC Nagar was not put to use in the Assessment Year under consideration for the purpose of business of the assessee. This appears to be factually incorrect, as could be seen from the material facts which were placed before the CIT(A) and noted by the CIT(A). When the appeal was being heard by the CIT(A), the assessee furnished an Abstract of Expenses pertaining to MRC Nagar project and the expenses were in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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