Income Tax Appellate Tribunal - Mumbai
Dcit Cen Cir 7(3), Mumbai vs Sanathanagar Enterprises Ltd, Mumbai on 12 April, 2022
ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI „G‟ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President), and Suchitra Kamble (Judicial Member)] ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Deputy Commissioner of Income Tax (OSD) Central Circle 7(3), Mumbai ...............................Appellant Vs. Sanathnagar Enterprise Limited ..............................Respondent 412, 17-G, Vardhman Chambers, Cawasji Patel Road, Horniman Circle Fort, Mumbai 400001, (PAN: AAACB8317J) Appearances by:
Hoshang B Irani for the appellant Ronak Doshi for the respondent Date of concluding the hearing : 13/01/2022 Date of pronouncing the order : 12/04/2022 O R D E R Per Pramod Kumar VP
1. These three appeals pertain to the same assessee, involve a common issue arising out of the same set of facts and were heard together. As a matter of convenience, therefore, all the three appeals are being disposed of by way of this consolidated order.
2. These appeals, filed by the Assessing Officer, are directed against three separate but materially similar orders passed by the learned CIT(A) in the matter of assessments under section 143(3) of the Income Tax Act, 1961, for the assessment years 2013-14, 2014-15 and 2015-16. Grievance raised in these appeals is also common, but for the quantum of disallowance made for the respective assessment year- which is Rs 2,68,50,325 for the assessment year 2014- 15 and Rs 8,77,48,747 for the assessment year 2015-16, and reads as follows:
"1. Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.7,77,81,219/- made by the Assessing Officer u/s.36(1)(iii) and capitalized the same to inventory.
2. Whether on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.7,77,81,219/- relied upon the decision of the judgement of the jurisdictional High Court in the case of Lokhandwala ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 2 of 11 Construction Inds. Ltd. 260 ITR 579 the same were rendered before the proviso to section 36(1)(iii) has been inserted vide Finance Act 2003."
3. The issue in the appeal lies in a very narrow compass of material facts. The assessee is engaged in the business of real estate construction and development. The assessee is following the mercantile system of accounting and, so far as recognition of revenue is concerned, the assessee is following the percentage of completion method of accounting. When it comes to the treatment given to the interest paid by the assesseee, on its loans, is concerned, while the assessee takes it to the work in progress, but then in the computation of income, the same is claimed as a deduction under section 36(1)(iii). There is, however, no double deduction inasmuch as whenever the WIP is charged to the profit and loss account, there is a corresponding deduction of the interest claimed as deduction. On these facts, the Assessing Officer has disallowed the claim for deduction following the Special Bench decision in the case of Wall Construction Co Ltd Vs JCIT (102 TTJ 505), and, while doing so, for example for the assessment year 2013-14 (the corresponding observations for the other years are materially similar), observed as follows:
"6. The assessee's explanation has been perused; however, not found satisfactory. The assessee is developing one project only. The accounting of the construction activity is governed by the Accounting Standard 7 as well as guidance note on accounting for real estate transaction issued by the Institute of Chartered Accountants of India (ICAI). The said guidance note categorically states that all the expenses directly related to the project have to be carried over and debited to the cost of project. Such expenses can be claimed as deduction in the year in which the corresponding income of the project is credited in the books of account and offered to tax. It is interesting in the case of the assessee that it has allocated all other expenses to the work in progress except interest. If the assessee's contention is to be accepted that the interest cost has been claimed in the year of its incurrence for the reason that it is periodic cost then going by the same logic the entire salary cost should also have been claimed as deduction for the same reason that it is also a periodic fixed cost. However, the assessee has allocated the salary cost to the work in progress which are directly related to the project. Thus, the treatments given by the assessee to expenses are contradictory to each other. It is not out of the place to state that the assessee has not followed the correct method of accounting for accounting the expenses towards the project being developed by the assessee. Thus, the entire interest expenses have to be carried over to the work in progress and shall be allowable as deduction in the year in which the revenue pertaining to the said interest shall be offered for taxation. The above view is fully supported by the judgment of Hon'ble Special Bench Mumbai in the case of M/s Wall Street Construction Limited [102 TTJ 505] wherein the Hon'ble bench has held that the interest cost shall be debited to work in progress and allowed to be claimed as deduction only in the year in which corresponding income is offered to tax. The case laws relied upon by the assessee is distinguishable as in the case of Taparia (supra), the assessee was not a construction company so its distinguishable on facts.
The judgment of Lokhandwala (supra) were rendered before the proviso to section 36(1)(iii) has been inserted vide Finance Act 2003. Therefore, both the cases are not applicable in the facts of the assessee. In view of the above facts and legal position, ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 3 of 11 the interest cost of Rs.7,77,81,219/- is disallowed and added to the work in progress of the assessee."
4. When the matter travelled in appeal before the learned CIT(A), these disallowances were deleted. The line of reasoning adopted by the learned CIT(A), as evident from the observations in the assessment year 2013-14 and the observations in the other assessment years being materially identical, is as follows:
6.3. The submissions of the Ld. counsel have been carefully considered alongwith the factual matrix of the case. According to the learned counsel, the interest claimed by the assessee is a period cost and has to be allowed under section 36 (1) (iii) of the Act. The assessee has relied upon the judgment of the apex court in the case of the Taparia tools Ltd vs. DCIT (2015) 272 ITR 605 wherein the Supreme Court held that the only aspect which needed examination was as to whether the provisions of section 36 (1) (iii) read with section 43 (2) of the Act were satisfied or not. Once these are satisfied there is no question of denying the benefit of deduction in the year in which 'such an amount was actually paid or incurred. Further, the proviso introduced by the Finance Act 2003 prohibits the allowance of interest cost only if the borrowed funds have been utilized for acquisition of a capital asset even for existing business. In this case the borrowed funds have been utilized for stock in trade which is not a capital asset. The jurisdictional Bombay High Court in the case of Lokhandwala constructions Inds Ltd 260 ITR 579 held as under:-
"In the instant case, it was clear that the assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under section 28. The assessee had undertaken the project of construction of flats. Therefore, the loan was obtained for obtaining stock-in- trade. The project constituted the stock-in-trade of the assessee. The project did not constitute a fixed asset of the assessee. Since the assessee had received loan for obtaining stock-in-trade, it was entitled to deduction under section 36(1) (iii).
While adjudicating the claim for deduction u/s 36(1)(iii), the nature of expenses, whether the expenses are on capital account or revenue account is irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee is an item of deduction. The utilization of the capital is irrelevant for the purpose of adjudicating the claim for deduction u/s 36(1)(iii)."
6.4. The SLP filed by the Department against the Bombay High Court judgment has been rejected by the Supreme Court. The Hon'ble ITAT Mumbai in the case of M/s. Ashish Builders Private Ltd vs. ACIT ITA number 310/M/2012 held as under:
"A) Interest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed finance cost on the borrowed capital. The claim of the assessee should be allowed in full in view of the various decisions on this issue. To start with, ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 4 of 11 we perused the order of the Tribunal in the case of Rohan Estates Pvt Ltd. (supra) which is one of the sister concerns of the assessee. We perused the para 3.2 of the said order of the Tribunal and find it is a self explanatory and the decision of the Tribunal supports the case of the assessee. Under comparable facts of the assessee, interest cost was allowed in favor of the assessee relying on binding jurisdictional High Court judgment in the case of M/s Lokhandwala Construction Industries Ltd. (supra). For the sake of completeness of this order we extract relevant para 3.2 of the order which is reproduced as under:
"3.2 With regard to the interest expenditure............The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same a/so has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(1)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra), The same also clarifies that the interest cost is to allowed u/s 36(1)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deductibility of the said cost u/s 36(1)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(1)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(1)). The said decision may, thus, in the given facts ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 5 of 11 and circumstances of the case as, well as the amended law, not be of much assistance."
We have also perused the said binding High Court judgment in the case of M/s Lokhandwala Construction inds. Ltd. (supra) and find the same is relevant for the following conclusion - "construction project undertaken by the assessee builder constituted its stock in trade and the assessee was entitled to deduction under section 36(1)(iii) of the Act in respect of the interest on the loan obtained for execution of said project." Relying on the another judgment of Hon'ble Bombay High Court in the case of Calico Dying and Printing Works 34 ITR 265 Bombay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(1)(iii) of the Act. The relevant lines from the para 4 reads as under;
"that, while adjudicating the claim for deduction under section 36(1)(iii) of the Act the nature of expense - whether the expenditure was on capital account or revenue account - was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(1)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset......."
Considering the above settled position in the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capital borrowed and utilized for business purposes in the year under consideration. Resultantly, we disapprove the decision of the Assessing Officer/CIT(Appeals) in transferring the interest expenditure to WIP account.
Therefore, assessee is justified in debiting the same to the P&L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee."
6.5. The Hon'ble ITAT in the case of ITO vs Rohan Estates ITA number 7200/MUM/2010 held as under:
3.2 With regard to the interest expenditure, though the Accounting Standard
-2 (AS-2) on the valuation of inventories issued by the Institute of Chartered Accountant of India (ICAI) would suggest that the interest expenditure ought to be taken into account in the valuation of inventories where and to the extent there is a direct nexus, the said standard is not mandatory under ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 6 of 11 the Act. In fact, even following AS-2 a direct nexus has to be established for the interest cost to form part of the cost of production or construction, as the case may be, and, thus, a part of the valuation of the unsold inventory or work-in-progress as at the year-end. This is as, to cite by way of an example from the civil construction itself, the work on a project may not be underway at all for the whole or a part of the year, or say as its optimum or normative level, on account of various business exigencies. The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(1)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd (supra). The same also clarifies that the interest cost is to allowed u/s 36(1)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capital account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being reckoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deductibility of the said cost u/s 36(1)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(1)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized.
Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(1)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance.
ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 7 of 11 In fact, even going by the Revenue‟s stand, another issue would arise and, accordingly, need to be determined apriori. Considering the said cost as includable in the project cost may have a direct bearing on the gross profit rate, and which may therefore stand to decline from the reported and accepted rate of 23%, and cannot be presumed be remain as such, i.e., unchanged."
6.6. The Hon'ble ITAT Pune in the case of M/S Kolte Patil Developers Ltd (erstwhile Corola reality Ltd merged with Kolte Patil Developers Ltd) also held as under:
"Further, we find the Mumbai Bench of the Tribunal in the case of M/s Ashish Builders Pvt. Ltd.(supra) has decided an identical issue in favour of the assesses. Relevant Paragraphs are being reproduced hereunder for better appreciation of the issue:
"6. Ground No. 1 of the appeal relates to the addition of some of the expenses to the WIP account i.e. interest on unsecured loan/fixed deposit (sic-car loan), advertisement expenses, brokerage expenses and loan processing fees.
AO considered the above expenses as relatable to the WIP account and recomputed the WIP account at Rs.5,33,28,399/-. Assessee contends that the above said expenditure is fully allowable in the year under consideration. In this regard, assessee relied on various ITA No. 80/PUN/2016 M/s Kolte Patil Developers Ltd., decisions. This issue is relevant for A Ys/appeals under consideration. We shall take up expenditure-account wise adjudication in the following paragraphs:
"A) Interest on unsecured loans and fixed deposits: It is the claim of the assessee that the entire interest expenditure is allowable as it is a time related fixed 'finance cost on the borrowed capital. The claim of the assessee should be allowed in full in view of the various decisions on this issue. To start with, we perused the order of the Tribunal in the case of Rohan Estates Pvt Ltd. (supra) which is one of the sister concerns of the assessee. We perused the para 3.2 of the said order of the Tribunal and find it is a self explanatory and the decision of the Tribunal supports the case of the assessee. Under comparable facts of the assessee, interest cost was allowed in favor of the assessee relying on binding jurisdictional High Court judgment in the case of M/s Lokhandwala Construction Industries Ltd. (supra). For the sake of completeness of this order we extract relevant para 3.2 of the order which is reproduced as under:
"3.2 With regard to the interest expenditure............The interest cost on the corresponding capital borrowed would nevertheless continue to be incurred, without any corresponding increase in the value of the inventory or the project. Similarly, a project, or part thereof, may be partly sold or even. remain unsold for quite some time after its completion. While revenue would stand to be booked only on the part, if any, sold, the interest cost would continue to be incurred on the entire capital, even as no corresponding gain ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 8 of 11 inures I terms of value addition to the project, which stands in fact completed, so as to increase its cost by loading the said cost thereon. It is for these reasons that interest (financing) cost is normally considered as only a period (fixed) cost, and charged to the operating statement for the year in which the same is incurred. As such, what in our view would prevail is the method of accounting being regularly followed by the assessee, i.e. on a year basis. The same also has the sanction of law inasmuch as sec. 145 clearly provides for determination of the business income on the basis of the method of accounting being regularly followed, with the mandate of sec 36(1)(iii) being also satisfied, and toward which the assessee relies on the decision in the case of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(1)(iii), irrespective of whether it stands incurred in relation to stock-in-trade or on capital account, as the said section draws no such distinction. The issue, though, we may clarify, is not as to whether the borrowed capital stands utilized toward trading operations or on capita! account; the instant case being decidedly of the former, but whether the said cost, having been incurred, is to be capitalized as a part of the project cost and, thus, taken into account for the purpose of valuation of inventory (stock-in-trade) as at the year-end and, consequently, the determination of gross profit for the year. It is only the cost that is incurred and otherwise allowable, which, it may be appreciated, would stand to be considered thus, where it otherwise qualifies for being rekoned as a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deductibility of the said cost u/s 36(1)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(1)(iii) stands since amended by Finance Act, 2003 w.e.f. 01/04/2004, by way of insertion of a proviso thereto, so that any interest cost on capital account is to be necessarily capitalized. Accordingly, it is only the interest cost computing the business income qua the business of which the relevant asset is a or is to constitute a part (also refer Explanation 8 to s.43(1)). The said decision may, thus, in the given facts and circumstances of the case as, well as the amended law, not be of much assistance."
6.7 We have also perused the said binding High Court judgment in the case of M/s Lokhandwala Construction Inds. Ltd. (supra) and find the same is relevant for the following conclusion - "construction project undertaken by the assessee builder constituted its stock in trade and the assessee was entitled to deduction under section 36(1)(iii) of the Act in respect of the interest on the loan obtained for execution of said project". Relying on the another judgment of Hon'ble Bombay High Court in the case of Calico Dying and Printing Works 34 ITR 265 Bombay, Hon'ble Bombay High Court concluded that the interest expenditure relating to the borrowed capital is allowable u/s 36(1)(iii) of the Act. The relevant lines from the para 4 reads as under:-
"that, while adjudicating the claim for deduction under section 36(1)(iii) of the Act the nature of expense - whether the expenditure was on capital account or revenue account - was irrelevant as the section itself says that ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 9 of 11 interest paid by the assessee on the capital borrowed by the assesses was an item of deduction. That the utilization of capital was the relevant for the purpose of adjudicating the claim of deduction under section 36(1)(iii) of the Act. (referring to the judgment in the case of Calico) It was laid down that where an assessee claims deduction of interest paid on the capital borrowed all that the assessee was to show that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether capital was borrowed in order to acquire the revenue asset or a capital asset......."
Considering the above settled position in the matter we are of the opinion that the assessee is entitled to claim entire interest deduction relatable to the capita! borrowed and utilized for business purposes in the year under consideration. Resultantly, we disapprove the decision of the Assessing Officer/CIT (Appeals) in transferring the interest expenditure to WIP account.
Therefore, assessee is justified in debiting the same to the P&L accounts of the respective assessment years. Thus, we order the Assessing Officer to accept the claim as made in the return of income. Accordingly, this part of the ground No. 1 is allowed in favour of the assessee."
6.8. From the above, it is evident that any amount of the interest paid in respect of capital borrowed for the business purposes constitutes an allowable deduction. The said clause (iii) of section 36(1) of the Act supports the assessee's claim in the present case. This view is upheld in the case of CIT vs Lokhandwala Construction Industries Ltd. (supra) as well as the decision of the Tribunal in the case of M/s. Ashish Builders Pvt. Ltd. (supra) irrespective of the method of accounting of recognizing the income followed by the assessee. The present case involves the payment of interest of Rs.2469.34 lakh, the interest paid to debenture holders, Financial institutions, Unsecured loan etc. It is not the case of the Revenue that the interest claim of Rs.777.81 lakh and related capital borrowed was not utilized by the assessee for business purposes of the assessee.
6.9 The case of Wall Street constructions Ltd. (2006) 102 TTJ 505 is one where the assessee was following project completion method and therefore the ITAT held that the interest cost shall be debited to work in progress and allowed to be claimed as deduction only in the year in which the corresponding income is offered to tax. In the instant case, the assessee is following percentage completion method (POCM) and therefore the judgment of Wall Street constructions Ltd. is not applicable to this case. The assessee is following percentage completion and offers a part of the revenue every year depending upon the percentage of completion. The funds have been borrowed for the purpose of construction and have gone into the projects of the assessee which are stock in trade and not capital asset of the assessee. Therefore, the amendment brought in the Act with effect from 2003 by way of introducing the proviso to section 36 (1) (iii) also does not affect the facts of the case of the assessee. In view of the binding judgment of the jurisdictional High Court in the case of Lokhandwala constructions and also of the jurisdictional ITAT in the cases of ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 10 of 11 Ashish Builders Private Ltd and Rohan Estate Private Ltd (supra) and also the various judicial pronouncements relied upon by the assessee, the interest expenditure claimed by the assessee is held to be allowable. Therefore, the AO is directed to delete the addition made of Rs.7,77,81,219/-. This ground of appeal is ALLOWED."
5. The Assessing Officer is aggrieved by the relief so granted by the learned CIT(A) and is in appeal before us.
6. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position.
7. When learned Departmental Representative's attention was invited to the decisions of the coordinate benches in the cases of Ashish Builders Pvt Ltd Vs ACIT (ITA No 1566/Mum/2011), ACIT Vs Palava Dewellers Pvt Ltd (ITA No 2147/Mum/18), Kotle Patil Developers Ltd Vs DCIT (ITA No 80/Pune/16) wherein on the same set of facts it is held that irrespective of the capitalization of interest, as part of WIP, on account of following percentage of completion method, and even after insertion of proviso to Section 36(1)(iii), the interest has been allowed as a deduction, learned Departmental Representative fairly accepted that the law has been so laid down by the coordinate benches, but then he points out that it will result in a double deduction for deduction of interest as also deduction of WIP at the pint of booking revenue. He submits that the matter should be remitted to the file of the Assessing Officer at least for this factual verification. In any event, he vehemently relies upon the stand of the Assessing Officer and submits that the deduction of interest should not be allowed under section 36(1)(iii) in view of proviso thereto as also in view of the fact that at the point of time of booking related revenues, the WIP, which includes interest charges as well, the deduction is allowed anyway. We are, however, not inclined to approve his this plea in principle for the reason that the coordinate benches have consistently held that in view of the specific provisions under section 36(1)(iii), interest is to be allowed as a deduction irrespective of its capitalization as WIP, but while charging the WIP, corresponding reduction is to be allowed for the interest already claimed as deduction. In any event, the very foundation of disallowance is special bench decision in the case of Wall Street Construction (supra) which stands reversed by Hon'ble jurisdictional High Court in the case of CIT Vs Lokhandwala Construction Industries Limited (260 ITR 579) which holds good even today. The proviso to Section 36(1)(iii) does not come into play in the present case as the residential units are part of the stock in trade, and not the capital assets. Respectfully following the views so expressed by the coordinate benches, we approve the detailed and well-reasoned approach adopted by the CIT(A) and decline to interfere, in principle, in the matter. As regards the learned Departmental Representative's apprehension of double deduction, however, we consider it fit and proper to add that once these amounts are allowed as deduction in the year of incurring the expenditure, the same shall not be eligible for being allowed as deduction yet again as a part of the work in progress being debited to the profit and loss account in any subsequent year. The double deduction will thus not be permissible. The conclusions arrived at by the learned CIT(A), subject to this observation, are approved.
8. Learned representatives fairly agree that whatever we decide for the assessment year 2013-14 will equally apply to the other two assessment years 2014-15 and 2015-16 as well. The ITA Nos. 792, 793 and 794/Mum/ 2019 Assessment years: 2013-14, 2014-15 and 2015-16 Page 11 of 11 conclusions arrived at by the learned CIT(A) for the other two years must also be approved, subject to the observations above, as well.
9. In the result and subject to the above observation, all the three appeals are dismissed. Pronounced today on the 12 th day of April 2022 under proviso to Rule 34(4) of the Income Tax Appellate Tribunal Rules, 1963.
Sd/- Sd/-
Suchitra Kamble Pramod Kumar
(Judicial Member) (Vice President)
Date: 12 th day of April, 2022
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