Vijayashanthi Builders Ltd., CHENNAI V. JCIT, CHENNAI

ITA 1354/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9652 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 03-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: D ANAND
• Keywords: Capital asset; Depreciation; Unabsorbed depreciation; Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1354/MDS/2015 / ASSESSMENT YEAR : 2010-11 M/S VIJAY AS HANTHI BUILDERS LTD 3, IV FLOOR, VIJAYASHANTHI COMPLEX BLACKERS ROAD CHENNAI 600 002 VS. THE JT . COMMISSIONER OF INCOME-TAX COMPANY RANGE III CHENNAI [PAN AAACV 2001 R ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI D.ANAND, A D VOCATE /RESPONDENT BY : SHRI P. RADHAKRISHNAN, J CIT / DATE OF HEARING : 03 - 03 - 2016 ! / DATE OF PRONOUNCEMENT : 13 - 0 4 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-11, CHENN AI, DATED 26.2.2015 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2. SHRI D.ANAND, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISALLO WANCE OF ` 50 LAKHS. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE-COMPANY ENGAGED ITSELF IN ITA NO. 1354/15 :- 2 -: THE BUSINESS OF REAL ESTATE, CONSTRUCTION OF RESIDE NTIAL COMPLEXES ETC. IN THE COURSE OF ITS BUSINESS ACTIVITY, THE ASSESS EE ENTERED INTO AN AGREEMENT FOR PURCHASE OF 6.68 ACRES OF LAND AT AMB ATTUR, MADHAVARAM VILLAGE FOR A TOTAL SALE CONSIDERATION O F ` 17.50 CRORES. IN PURSUANCE OF THE AGREEMENT DATED 12.10.2007, THE A SSESSEE HAS PAID A SUM OF ` 50 LAKHS TOWARDS ADVANCE. ACCORDING TO THE LD. C OUNSEL, THE BOARD OF DIRECTORS OF THE COMPANY DECIDED NOT T O PROCEED WITH THE PROJECT DUE TO UNANTICIPATED LULL IN THE REAL ESTAT E MARKET DUE TO FINANCIAL CRISIS IN US. ACCORDING TO THE LD. COUNS EL, MOST OF THE PROSPECTIVE BUYERS OF THE FLATS ARE NON-RESIDENT IN DIANS AND SOFTWARE EMPLOYEES. FINANCIAL CRISIS IN US, AFFECTED THE RE AL ESTATE MARKET IN INDIA SINCE THE ASSESSEE IS TARGETING MAINLY SOFTW ARE EMPLOYEES AND NON-RESIDENT INDIANS. THEREFORE, THE ASSESSEE-COMP ANY COULD NOT MAKE ANY PROGRESS IN RESPECT OF THE LAND PURCHASED AT AMBATTUR, MADHAVARAM VILLAGE AND HENCE, THE BOARD OF DIRECT ORS DECIDED TO ABANDON THE PROJECT. THE LAND OWNERS, HOWEVER, FOR FEITED THE ADVANCE GIVEN BY THE ASSESSEE. THEREFORE, THE ADV ANCE GIVEN BY THE ASSESSEE TO THE EXTENT OF ` 50 LAKHS WAS NOT REFUNDED BY THE LAND OWNERS AND HENCE, THIS WAS TREATED AS LOSS AND CLAI MED WHILE COMPUTING THE TOTAL INCOME. HOWEVER, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SALE OF THE LAND AS SUCH WOULD HAVE RESULTED IN MORE GAIN THAN INCURRIN G LOSS TO THE ITA NO. 1354/15 :- 3 -: ASSESSEE. MOREOVER, THE SELLERS OF THE LAND TREAT ED THE LAND AS CAPITAL ASSET AND TREATED THE TRANSACTION ITSELF AS CAPITAL TRANSACTION EVEN AFTER FORFEITING OF THE ADVANCE. THE SELLERS OF THE LAND HAVE ALSO NOT TREATED THE ADVANCE FORFEITED BY THEM AS INCOME IN THEIR HA NDS. THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE IS A CAPITAL LOSS HE NCE, IT CANNOT BE ALLOWED AS BUSINESS LOSS WHILE COMPUTING THE TOTAL INCOME. ACCORDING TO THE LD. COUNSEL, MERELY BECAUSE THE SELLERS TREA TED THE AMOUNT IN QUESTION AS CAPITAL ASSET IN THEIR HANDS THAT DOES NOT AUTOMATICALLY BE TREATED AS CAPITAL ASSET IN THE HANDS OF THE ASSESS EE-COMPANY. ADMITTEDLY, THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION OF FLATS/RESIDENTIAL COMPLE XES, THEREFORE, THE LAND PURCHASED BY THE ASSESSEE IS STOCK-IN-TRADE I N THE HANDS OF THE ASSESSEE. DUE TO VARIOUS REASONS INCLUDING THE FIN ANCIAL CRISIS IN THE US, THE ASSESSEE COULD NOT PROCEED FURTHER IN RESP ECT OF THE PROJECT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE IS ON THE REVENUE FIELD AND IT HAS TO BE ALLOWED AS BUSINESS LOSS. ACCORDI NG TO THE LD. COUNSEL, THE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. 3. ON THE OTHER HAND, SHRI P. RADHAKRISHNAN, LD. DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS ENGA GED IN THE REAL ESTATE AND CONSTRUCTION OF RESIDENTIAL COMPLEXES. THE ASSESSEE IS ALSO ITA NO. 1354/15 :- 4 -: ONE OF THE REPUTED BUILDER IN THE CITY OF CHENNAI A ND PURCHASING HUGE TRACK OF LAND WITH AN INTENTION OF EXPLOIT THE SAME IN THE BUSINESS OF CONSTRUCTION OF FLATS. ACCORDING TO THE LD. DR, TH ERE WAS SUBSTANTIAL INCREASE IN THE LAND PRICES IN AN AROUND THE URBAN AREAS. ACCORDING TO THE LD. DR, THE ASSESSEE CONSTRUCTS APARTMENTS MAI NLY CATERING TO THE LUXURY SEGMENT OF THE PROSPECTIVE PURCHASERS. THER EFORE, THE CLAIM OF THE ASSESSEE THAT THE ADVANCE WAS FORFEITED BY THE VENDORS OF THE LAND IS FARFETCHED ONE ESPECIALLY WHEN THE PRICES O F THE LAND ARE INCREASING DAY BY DAY. MOREOVER, THE VENDORS OF TH E LAND TREATED THE LAND IN QUESTION AS CAPITAL TRANSACTION, THEREFORE, THE AMOUNT FORFEITED BY THEM HAS TO BE TREATED AS CAPITAL INCOME IN THE HANDS OF THE VENDORS OF THE LAND. ACCORDING TO THE LD. DR, THE ADVANCE GIVEN BY THE ASSESSEE EVEN THOUGH IT WAS FORFEITED CANNOT BE TRE ATED AS BUSINESS LOSS. THEREFORE, THE CIT(A) HAS RIGHTLY UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSEE ENGAGED ITSELF IN THE BUSINESS OF REAL EST ATE AND CONSTRUCTION OF FLATS/RESIDENTIAL APARTMENTS. THE CONTENTION OF THE LD. DR IS THAT THE ASSESSEE HAS PURCHASED THE LAND FOR CONSTRUCTION OF FLATS FOR CATERING TO THE LUXURY SEGMENT OF THE PROSPECTIVE BUYERS. WHETHER THE ITA NO. 1354/15 :- 5 -: ASSESSEE CONCENTRATE ON CONSTRUCTION OF FLATS FOR THE LUXURY SEGMENT OR TO THE OTHER SECTION OF THE PUBLIC, IT IS NOT FO R THE REVENUE TO TREAT THE BUSINESS OF THE ASSESSEE SEPARATELY MERELY B ECAUSE THE ASSESSEE CONCENTRATES ON THE LUXURY SEGMENT OF THE PROSPECTIVE BUYERS OF THE FLATS. THE FACT REMAINS THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS AND IN ORDER TO PROMOTE THE CONSTRUCTION OF FLATS, THE ASSESSEE INTENDED TO PU RCHASE 6.68 ACRES OF LAND AT AMBATTUR, MADHAVARAM VILLAGE. AFTER ENTERI NG INTO AN AGREEMENT, THE ASSESSEE HAS ALSO PAID ` 50 LAKHS AS ADVANCE. THE PAYMENT OF ` 50 LAKHS AS ADVANCE FOR PURCHASE OF 6.68 ACRES OF LAND IS NOT IN DISPUTE. THE ASSESSEE, FOR THE REASONS BES T KNOWN TO IT, DECIDED NOT TO PROCEEDED WITH THE PROJECT AND ACCOR DINGLY ABANDONED THE PROJECT WHICH RESULTED IN FORFEITURE OF THE ADV ANCE AMOUNT OF ` 50 LAKHS BY THE VENDORS OF THE LAND. IT IS FOR THE A SSESSEE TO DECIDE WHETHER IT INTEND TO PROCEED WITH THE PROJECT OR NO T. THE ASSESSING OFFICER CANNOT COMMENT UPON THE DECISION OF THE AS SESSEE. WHEN THE ASSESSEE DECIDED NOT TO PROCEED WITH THE PROJECT, W HATEVER MAY BE THE REASON, IT WAS THE DECISION TAKEN BY THE ASSES SEE IN THE COURSE OF THE BUSINESS ACTIVITY, THEREFORE, THE FORFEITED AMO UNT IS A LOSS IN THE BUSINESS. IT IS NOT IN DISPUTE THAT THE ADVANCE PA ID BY THE ASSESSEE TO ACQUIRE STOCK-IN-TRADE IN THE COURSE OF THE BUSINES S WAS FORFEITED. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT THE ASSESSEE ITA NO. 1354/15 :- 6 -: HAS SUFFERED THE LOSS IN THE REGULAR COURSE OF BUSI NESS. THE ASSESSING OFFICER TREATED THE LOSS AS CAPITAL LOSS ON THE GRO UND THAT THE LAND IN QUESTION WAS TREATED AS CAPITAL TRANSACTION BY THE VENDORS OF THE LAND. THE ASSESSING OFFICER HAS ALSO FOUND THAT IF THE LA ND WAS RETAINED AND SOLD, THE ASSESSEE WOULD HAVE EARNED MORE GAIN THA N INCURRING LOSS. WE ARE UNABLE TO UPHOLD THE REASONING OF THE AUTHOR ITIES BELOW. AS DISCUSSED EARLIER, IT IS FOR THE ASSESSEE TO DECID E WHETHER TO PROCEED WITH THE PROJECT OR NOT. THE ASSESSEE CAN ALSO DE CIDE TO SELL THE LAND AS SUCH BY KEEPING THE SAME. THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE AND SUGGEST WHAT SHOULD BE FOR THE BEST INTEREST OF THE ASSESSEE. THE ASSESSEE BEING A B USINESSMAN KNOWS WELL HOW TO ARRANGE ITS AFFAIRS FOR EARNING MAXIMU M PROFIT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY B ECAUSE THE ASSESSEE ABANDONED THE PROJECT AFTER PAYING ADVANCE OF ` 50 LAKS, THAT CANNOT BE A REASON FOR TREATING THE LOSS CLAIM ED BY THE ASSESSEE AS CAPITAL LOSS. 5. THE NEXT REASON FOR THE ASSESSING OFFICER TO TREAT THE LOSS AS CAPITAL LOSS IS THAT THE VENDORS OF THE LAND TREATE D THE TRANSACTION AS CAPITAL TRANSACTION. THIS TRIBUNAL IS OF THE CONS IDERED OPINION THAT THE LAND MAY BE A CAPITAL ASSET IN THE HANDS OF THE VEN DORS. HOWEVER, WHEN THE LAND COMES TO THE POSSESSION OF THE ASSES SEE, IT BECOMES A ITA NO. 1354/15 :- 7 -: STOCK-IN-TRADE SINCE THE ASSESSEE IS ADMITTEDLY EN GAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS. AN ASSET MAY BE A CAPITAL ASSET IN THE HANDS OF THE SELLER AND IT MAY BE A STOCK-IN-TR ADE IN THE HANDS OF THE PURCHASER. IT ALL DEPENDS UPON THE TRANSACTION . FOR EXAMPLE, WHEN A MANUFACTURING INDUSTRY PURCHASES A MACHINERY FOR ITS MANUFACTURING ACTIVITY FROM THE INDUSTRY WHICH MANU FACTURES THE MACHINERY, THE MACHINERY PURCHASED BY THE MANUFACTU RING INDUSTRY MAY BE A STOCK-IN-TRADE IN THE HANDS OF THE COMPANY WHICH MANUFACTURES MACHINERY. HOWEVER, IT IS A CAPITAL A SSET IN THE HANDS OF THE COMPANY WHICH PURCHASES THE MACHINERY FOR USING THE SAME IN ITS MANUFACTURING ACTIVITY. SIMILARLY, WHEN THE LAND O WNERS SELL THE LAND TO A REAL ESTATE DEALER, THE LAND IS A CAPITAL ASSE T IN THE HANDS OF THE LAND OWNER. HOWEVER, THE SAME LAND PURCHASED BY TH E REAL ESTATE DEALER BECOMES A STOCK-IN-TRADE. THEREFORE, THE TR EATMENT IN THE HANDS OF THE VENDORS OF THE LAND CANNOT BE A DETERM INING FACTOR TO ALLOW THE CLAIM OF THE ASSESSEE EITHER AS REVENUE LOSS OR AS CAPITAL LOSS. IT HAS TO BE DECIDED WHETHER THE LOSS HAS OC CURRED IN THE COURSE OF THE BUSINESS ACTIVITY FOR ACQUIRING A STOCK-IN-T RADE IN THE HANDS OF THE ASSESSEE. IN THIS CASE, ADMITTEDLY, THE ASSE SSEE ACQUIRED A STOCK-IN-TRADE FOR CONSTRUCTION OF RESIDENTIAL FLAT S AT AMBATTUR IN MADHAVARAM VILALGE. THEREFORE, THE LOSS, IF ANY, S UFFERED IN THE COURSE OF THE ACQUISITION OF THE STOCK-IN-TRADE HAS TO BE NECESSARILY ALLOWED A ITA NO. 1354/15 :- 8 -: REVENUE LOSS, HENCE, IT HAS TO BE ALLOWED AS BUSINE SS LOSS WHILE COMPUTING THE TOTAL INCOME. IN VIEW OF THE ABOVE, W E ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORD INGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSI NG OFFICER IS DIRECTED TO ALLOW ` 50 LAKHS AS BUSINESS LOSS WHILE COMPUTING THE TAXA BLE INCOME OF THE ASSESSEE. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE OF LABOUR EXPENDITURE. 7. SHRI D. ANAND, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ASSESSEE HAS CLAIMED ` 12,45,73,509/- TOWARDS LABOUR EXPENDITURE. HOWEVER, THE ASSESSING OFFICER FOUND THAT THE VOUCHERS MAINTAINED BY THE ASSESSEE ARE NOT COMPLETE. ACC ORDINGLY, HE DISALLOWED 3% OF THE TOTAL EXPENDITURE CLAIMED BY T HE ASSESSEE. ACCORDING TO THE LD. COUNSEL, THE PAYMENT WAS MADE TO LABOURERS FOR CONSTRUCTION OF THE BUILDING. THE LABOURERS ENGAGED BY THE ASSESSEE ARE ILLITERATE, THEREFORE, IT IS NOT POSSIBLE TO GE T ANY VOUCHER FOR RECEIPT OF MONEY BY THE INDIVIDUAL LABOUR THEREFORE, THE A SSESSEE HAS PREPARED SELF-MADE VOUCHERS. ACCORDING TO THE LD. C OUNSEL, WITHOUT MAKING PAYMENT, THE ASSESSEE COULD NOT HAVE COMPLE TED THE PROJECT. THE LD. COUNSEL FURTHER SUBMITTED THAT THE LABOURER S USED TO MOVE FROM ONE PLACE TO ANOTHER, THEREFORE, LOCATING THE LABOURERS WHO ITA NO. 1354/15 :- 9 -: ACTUALLY RECEIVED THE MONEY IS DIFFICULT. WHEN THE WORK WAS CARRIED ON BY THE ASSESSEE, ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS TO NECESSARILY MAKE THE PAYMENT. THEREFORE, MERELY BE CAUSE THE ASSESSEE MADE ONLY SELF-MADE VOUCHERS, THAT CANNOT BE A REASON FOR DISALLOWING THE CLAIM OF THE ASSESSEE. 8. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, LD. DR SUBM ITTED THAT THE ASSESSEE CLAIMED LABOUR EXPENSES TO THE E XTENT OF ` 12,45,73,509/- IN THE PROFIT & LOSS ACCOUNT. ON VE RIFICATION OF THE BILLS AND VOUCHERS PRODUCED BY THE ASSESSEE, THE A SSESSING OFFICER FOUND THAT THE BILLS AND VOUCHERS ARE IMPROPERLY VO UCHED OR SELF-MADE AND IT COULD NOT BE VERIFIED. SINCE THE ASSESSEE CLAIMS THAT ALL LABOURERS WERE UNSKILLED LABOURERS WITH HIGH MOBILI TY AND SCARCITY OF LABOUR FORCE ON DAY TODAY BASIS, THE ASSESSING OFFI CER KEEPING IN VIEW THE FACT THAT THE LABOURERS WERE UNEDUCATED, DISALL OWED THE EXPENDITURE AT 3% OF THE TOTAL CLAIM MADE BY THE A SSESSEE. ACCORDING TO THE LD. DR, WHEN THE VOUCHERS WERE NOT VERIFIABLE, THE ASSESSING OFFICER HAS REASONABLY ESTIMATED THE DISA LLOWANCE AT 3%. THEREFORE, THE ASSESSEE CANNOT HAVE ANY GRIEVANCE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMI TTEDLY, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL FLATS. ITA NO. 1354/15 :- 10 -: THE LABOURERS IN THE CONSTRUCTION INDUSTRY ARE IN T HE UNORGANIZED SECTOR AND MOST OF THE LABOURERS ARE UNEDUCATED. T HE LABOURERS WHO ENGAGED IN CONSTRUCTION INDUSTRY USED TO MIGRATE FR OM ONE PLACE TO ANOTHER ON DAY TODAY BASIS DEPENDING UPON THE AVAIL ABILITY OF WORK. THEREFORE, OBTAINING PROPER VOUCHER FROM SUCH KIND OF UNORGANIZED LABORUERS IS SOMETHING BEYOND THE CONTROL OF THE A SSESSEE. THEREFORE, THE ASSESSEE HAS TO NECESSARILY MAKE SE LF-MADE VOUCHERS TO EVIDENCE THE PAYMENT OF SALARY TO SUCH LABOURERS ENGAGED IN THE CONSTRUCTION ACTIVITY. THEREFORE, THE ASSESSING OF FICER HAS TO EXAMINE WHETHER THERE WAS ANY INFLATION OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AFTER COMPARING THE NATURE OF THE WORK CAR RIED OUT BY THEM. IN THE CASE BEFORE US, IT IS NOBODYS CASE THAT THE ASSESSEE HAS INFLATED THE EXPENDITURE. IN THE ABSENCE OF ANY AL LEGATION THAT THE ASSESSEE HAS INFLATED THE EXPENDITURE, THIS TRIBUN AL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE SELF-MADE VO UCHERS ARE MADE WITH REGARD TO PAYMENT MADE TO LABOURERS WHO ENGAGE D IN THE CONSTRUCTION ACTIVITY THAT ALONE CANNOT BE REASON F OR DISALLOWING ANY PART OF THE EXPENDITURE ON ESTIMATE BASIS. THEREFO RE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER AT 3% OF THE TOTAL EXPENDITURE IS NOT CALLE D FOR. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE DISALLOWANCE ITA NO. 1354/15 :- 11 -: MADE BY THE ASSESSING OFFICER @ 3% TO THE EXTENT OF ` 37,37,206/- IS DELETED. 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISALLO WANCE OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION TO THE EXTENT OF ` 86,84,479/-. 11. SHRI D. ANAND, LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE DURING THE FINANCIAL YEAR 2008-09 THE ASSESSEE HAS BORROWED LOAN FOR HOUSING PROJECT AT THAIYUR, CHENNAI. THERE WAS A DELAY IN COMMENCEMENT OF THE PROJECT DUE TO APPROVALS FROM M ULTIPLE AUTHORITIES, THEREFORE, THE INTEREST CAST ON THE BO RROWED FUNDS WAS DEFERRED. THE ASSESSEE IN FACT TREATED THE INTERE ST ON THE BORROWED FUND AS DEFERRED REVENUE EXPENDITURE IN THE BOOKS O F ACCOUNT. THE LD. COUNSEL FURTHER SUBMITTED THAT THE PROJECT AT THAIY UR WAS COMPLETED DURING THE FINANCIAL YEAR 2012-13. UPTO THE FINANC IAL YEAR 2011-12, THE DEFERRED REVENUE EXPENDITURE BECAME CURRENT ASS ET AND ACCORDINGLY, IT WAS TREATED AS CLOSING STOCK AS PER THE ACCOUNTING STANDARD 7. THE LD. COUNSEL FURTHER SUBMITTED THAT NECESSARY ADJUSTMENTS WERE ALSO MADE IN COMPUTING THE TAXABLE INCOME IN THE YEAR IN WHICH THE PROJECT WAS FULLY ACCOUNTED. AC CORDING TO THE LD. COUNSEL, THE INTEREST ON THE BORROWED FUND HAS TO B E ALLOWED TO BE CARRIED FORWARD AS CLAIMED IN THE RETURN OF INCOME. ITA NO. 1354/15 :- 12 -: 12. ON THE CONTRARY, SHRI P. RADHAKRISHNAN, LD. DR SUBM ITTED THAT THE ASSESSEE CLAIMED DEFERRED REVENUE EXPENDI TURE IN RESPECT OF THE INTEREST ON BORROWED FUNDS AS ALLOWABLE EXPENDI TURE. ACCORDING TO THE LD. DR, INTEREST ON THE BORROWED FUND WAS PRIOR TO THE COMMENCEMENT OF THE PROJECT. SINCE THE EXPENDITURE WAS FORMING PART OF THE PRE-COMMENCEMENT PERIOD, IT HAS TO BE C APITALIZED ON THE PROJECT. AS RIGHTLY OBSERVED BY THE ASSESSING OFFI CER, ONLY THE EXPENDITURE WHICH WAS DEFERRED IN THE BOOKS OF ACCO UNT HAS TO BE CONSIDERED AS ALLOWABLE EXPENDITURE ON THE COMMENCE MENT OF THE PROJECT AS CLAIMED BY THE ASSESSEE. IN FACT, THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT FOR CONSTRUCTI ON OF THE FLATS. WHEN THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT AND CLAIMING THE EXPENDITURE AFTER COMMENCEMENT OF THE PROJECT ON THE INTEREST PAYMENT, THERE IS NO REASON TO DEVIATE FRO M THE SAME WHILE COMPUTING THE TAXABLE INCOME. ACCORDING TO THE LD. DR, THE INTEREST ON THE BORROWED FUND BEFORE COMMENCEMENT OF THE PRO JECT CANNOT BE ALLOWED AS EXPENDITURE EITHER FOR ASSESSMENT YEAR 2 009-10 OR FOR ASSESSMENT YEAR 2010-11. THEREFORE, THE CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO. 1354/15 :- 13 -: 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. TH E ASSESSEE IS ADMITTEDLY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS. DURING THE COURSE OF BUSINESS ACTIVITY, THE ASSESSEE PROPOSED TO CONSTRUCT RESIDENTIAL FLATS AT THAIYUR, CHENNAI. THE ASSESS EE HAS ALSO BORROWED LOAN FOR THE ABOVESAID HOUSING PROJECT. THE ASSES SEE IS CLAIMING INTEREST ON THE BORROWED FUNDS AS REVENUE EXPENDITU RE. SINCE THE CONSTRUCTION OF FLATS WAS NOT COMMENCED DUE TO DELA Y IN GETTING APPROVALS FROM MULTIPLE AUTHORITIES, THE ASSESSEE CARRIED FORWARD THE DEFERRED REVENUE EXPENDITURE AND CLAIMED THE SAME D URING THE YEAR UNDER CONSIDERATION. THE QUESTION ARISES FOR CONSI DERATION IS WHEN THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF RESI DENTIAL FLATS AND BORROWED FUNDS FOR THE PURPOSE OF BUSINESS, WHETHER THE INTEREST ON SUCH BORROWED FUNDS IS AN ALLOWABLE EXPENDITURE OR NOT? THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS, MERELY BECAUSE THE PROJECT IN THAIYUR COULD NOT BE COMMENCED FOR WHATE VER REASON, THE ASSESSEE IS VERY MUCH IN THE BUSINESS OF CONSTRUCTI ON INDUSTRY, THEREFORE, THE INTEREST ON THE BORROWED FUNDS IS AN ALLOWABLE EXPENDITURE WHILE COMPUTING THE TOTAL INCOME. THE FACT THAT THE ASSESSEE DEFERRED THE EXPENDITURE IN THE EARLIER AS SESSMENT YEAR CANNOT BE REASON TO DISALLOW THE CLAIM OF THE ASSE SSEE. THE ITA NO. 1354/15 :- 14 -: ASSESSING OFFICER FOUND THAT IN THE ANNUAL REPORT, THE ASSESSEE CLAIMS THAT THE EXPENDITURE IS YET TO BE CAPITALIZED FOR T HE RELEVANT PROJECT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ENTRY IN THE BOOKS OF ACCOUNT IS IRRELEVANT FOR THE COMPUTATION OF TAXABL E INCOME. THE INCOME IS COMPUTED AS PER THE INCOME-TAX ACT, 1961 IRRESPECTIVE OF THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. WHEN THE ASSESSEE BORROWED FUNDS AND PAID INTEREST ON SUCH BORROWED F UNDS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE INTE REST PAID ON THE BORROWED FUNDS HAS TO BE ALLOWED AS BUSINESS EXPEND ITURE. THAIYUR IS ONE OF THE PROJECT PROPOSED BY THE ASSESSEE. MERE LY BECAUSE THE LOAN WAS BORROWED FOR THAIYUR PROJECT THERE IS NO R ESTRICTION FOR THE ASSESSEE TO USE THE BORROWED FUNDS FOR OTHER PROJE CTS. THE BORROWED FUNDS CAN ALSO BE UTILIZED FOR OTHER PROJECTS. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS NOT CONSTRUCTING ANY OTHER FLATS OR RESIDENTIAL COMPLEX AT THE RELEVANT POINT OF TIME. WHEN THE ASSESSEE IS CONSTRUCTING RESIDENTIAL COMPLEXES DURING THE RE LEVANT PERIOD OF TIME AND ALSO PROPOSED TO COMMENCE A PROJECT AT THAIYUR, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE EXPENDITURE ON T HE BORROWED FUNDS HAS TO BE NECESSARILY ALLOWED. IN VIEW OF THE ABOV E, WE ARE UNABLE TO UPHOLD THE ORDERS OF THE LOWER AUTHORITIES. ACCORDI NGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSI NG OFFICER IS DIRECTED ITA NO. 1354/15 :- 15 -: TO ALLOW THE PAYMENT OF INTEREST ON THE BORROWED FU NDS CLAIMED BY THE ASSESSEE WHILE COMPUTING THE TAXABLE INCOME. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH APRIL, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 13 TH APRIL, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF