TMI Blog2022 (2) TMI 1184X X X X Extracts X X X X X X X X Extracts X X X X ..... count. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961 ( in short the Act ) were issued and complied with. The assessment under section 143(3) of the Act was completed by the Assessing Officer on 28/12/2018, wherein the interest claimed by the assessee in the profit and loss account as expenditure was disallowed to the extent of ₹ 70, 00, 370/-. On appeal, the Ld. CIT(A) upheld the disallowance made by the Assessing Officer. Aggrieved by the finding of the Ld. CIT(A), the assessee is in appeal before the Tribunal, raising the sole ground reproduced above. 3. Before us the learned counsel of the assessee filed a paper book containing pages 1 to 11. 4. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. 5. Briefly stated, facts relevant to issue in dispute, are that the assessee had undertaken to construct a real estate project namely Fortune Avenue , which consisted of project A and project B , located at Thane ( Maharashtra). During assessment proceeding, it was observed that as per the certificates issued by the Architect and Consultant, the building No. one (project A ) was completed on 17/12/2016 and the assessee had offered certain am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 Interest Paid (Others) Project A: Project B (on the basis of Closing Stock) ₹ 34,72,385/- ₹ 30,19,465/- 8 TOTAL ₹ 80,50,429/- ₹ 70,00,371/- 6. Before the Ld. CIT(A), the assessee did not explain whether it was following project completion method or percentage completion method for offering profit from the said projects for the purpose of the Income-tax. The Ld. CIT(A) after analysing the facts and submissions including the decisions relied upon by the assessee, upheld the disallowance, observing as under: 5. I have carefully considered the facts of the case, findings of the AO in the assessment order, submissions of the appellant and material placed on record. From the facts of the case it is noticed that the appellant undertook to construct a project 'Fortune Avenue on plot bearing survey No. 120, H. No. 15 at village Kolshet, Thane. The said project consists of Project 'A' and Project 'B'. It was certified, by the Architects and Consultants that Building No. 1 (project A) was comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 14-15 0 3,02,83,500 0 3,02,83,500 2,80,00,000 NIL 2 15-16 4,97,04,306 6,26,34,695 4,97,04,306 3,23,51,195 5,01,63,000 6,65,00,000 3 16-17 7,05,30,958 8,22,71,230 2,08,26,652 1,96,36,535 5,01,63,000 7,04,02,800 Valuation of Closing Stock:- S.No. Particular Amount in (Rs.) 1 Opening Balance 6,217,49,365/- 6,90,86,200/- 2 Cost / Expenses 3,00,04,371/- 1,06,55,631/- 3 Total Stock 9,17,53,736/- 7,97,41,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded the same to the income of the appellant. 5.2 During the course of appellate proceedings the AR stated that the AO accepted the fact that the expenses by way of interest which are debited to the P L A/c are for the purpose of business and does not restrict its application to for the purpose of earning income. Provisions of section 36(1)(iii) are distinctly clear, it covers wider aspect for the purpose of business and does not restrict its application to for the purpose of earning income. It is further stated that the AO formed his opinions considering that no business activity is carried on subsequent land purchase which contradicts with his findings that appellant had incurred of Rs, 93,38,951/- (₹ 7,97,41,331/- less ₹ 7,04,02,800/- after land). 5.3 It is reiterated that Project A commenced during AY 2014-15 and the profit for the first time was declared in AY 2016-17. Where as in respect of Project B only land has been purchased and no profit has been declared there from. A building project takes a substantial period of time to get ready for is intended use or sales, therefore, would come under the definition of 'a qualifying asset1. Hence, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s Lokhandwala Construction Industries Ltd. the Hon'ble Bombay High Court was concerned with the question as to whether the interest expenditure is a capital expenditure or revenue expenditure. In similar set of circumstance the Hon'ble ITAT, Mumbai in the case of Wall Street Construction Ltd vs Jt. Commissioner of Income Tax, vide order dated 22.09.2005 has held 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. 5.5 In view of above facts and following the decision of Hon'ble ITAT (supra) it is held that the interest expenses of Capital and Unsecured loans, pertaining to Project 'B', cannot be allowed as an expense in respect of the profits derived from Project 'A' and the same will be allowed as a Capital expenditure and allowed to be capitalized to the Work in Progress (Closing Stock) of Project B. Therefore, the addition of ₹ 70,00,371/- made by the AO is hereby sustained and this ground of appeal is dismissed. 7. Thus, the issue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able income for A.Y.2017-18 . The relevant part of said submission is reproduced as under: Ref.: M/s Fortune RPJ Developers. AY 2017 In the matter of assessment before you, it is respectfully submitted in response to your questionnaire as under: Method of accounting employed : It is Percentage Completion basis. Sir, it can be noticed from earlier years of Profit Loss A/cs, that year wise revenue has been recognized in the books. In fact O.C. for the project is received on 07.12.2016. However as and when worked progressed coupled with reasonable volume of earning expected out of effective sale agreements entered viz-a-viz WIP, the revenue has been recognized. After this year in which O.C. has been obtained, in subsequent years no construction cost has been debited. Although part of Administrative expenses and provisions for completion and external work (Legal requirement as per RERA law) could have been provided for completion compliance as per Project Summary separately mentioned in my letter of even date and annexed as 'A' . The Assessee could not correctly measure quantum of expense required then. However, at this stage, prudently the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court, allowed the interest in the year of the claim observing as under: 15. Mr. Dastur next contended that on the contrary in this case if the assessee had adopted the said amortization, the Department would have told the assessee that it was not entitled to deduction in the second year as no liability accrued in the second year and as no payment was made in the second year. 16. Mr. Dastur next contended that under the contract, option was given to the Lenders but, the Department has denied the option which amounted to re-writing of contract, which was not permissible to the Assessing Officer. In this case, he relied upon the judgment in the case of CIT v. Sri Bibhuti Bhusan Dun [1963] 48 ITR 233 (Cal.). Mr. Dastur contended that deduction under the Income-tax Act does not depend on the status of the assessee nor does it depend on the profit/loss of the assessee. He, therefore, submitted that the judgment of the Supreme Court in MIIC Ltd. 's case (supra) did not apply. Mr. Dastur, therefore, contended that the judgment of the Tribunal was wrong and in the circumstances, liable to be set aside. 11. We find that in the instant case interest which was sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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