Appeal details
Counselvise Citation
[NaN] 107 COUNSELVISE.COM (IT) 2081 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 19 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-02-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
SMC
Assessment Year
2013-2014
Appeal Filed On
14-10-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “SMC”, HYDERABAD (Through Virtual Hearing) BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA No.1536/Hyd/2019 A.Y. 2013-14 M/s. Golden Jubilee Hotels Pvt. Ltd., Hyderabad. PAN: AACCG5200D Vs. Asst. Commissioner of Income Tax, Circle-2(2), Hyderabad. (Appellant) (Respondent) Assessee by Sri S. Rama Rao. Revenue by Sri Swapnil Patil, DR Date of hearing: 02/12/2021 Date of pronouncement: 03/01/2022 O R D E R PER A. MOHAN ALANKAMONY, A.M: This appeal is filed by the assessee against the order of the Ld. CIT (A)-12, Hyderabad in appeal No. 10151/2018-19, dated 22.07.2019 passed U/s. 143(3) r.w.s. 250(6) of the Act for the A.Y. 2013-14. 2. The assessee has raised five grounds in its appeal and the concise grounds are stated herein below for adjudication. “ 1. Ld. CIT(A) has erred in confirming the order of Ld.AO who has made addition towards disallowance of pre- 2 ITA No.1536/Hyd/2019 commencement expenses amounting to Rs.3,86,44,897/- by treating it to be capital expenditure. 2. The Ld.CIT(A) has erred in confirming the order of Ld.AO who had denied netting of the interest income against borrowing cost and thereby made addition of Rs.17,27,404/- .” 3. The brief facts of the case are that the assessee is a limited company engaged in the field of development and operation of hotel projects, filed its return of income for the A.Y. 2013-14 on 27.09.2013 declaring total loss of Rs.3,84,53,840/-. Thereafter the case was taken up for scrutiny under CASS and the assessment was completed on 15.03.2016 u/s.143(3) of the Act wherein the learned AO had made the above-mentioned additions which was further confirmed by the ld. CIT(A). Aggrieved by the Order of the Ld.CIT(A) the assessee is in appeal before us. Disallowance of pre-commencement expenditure. 4. During the course of scrutiny assessment proceedings, it was observed by the ld. AO that the assessee has debited its profit and loss account towards various expenditure amounting to Rs.3,86,44,897/-. It was further observed by the ld.AO that the assessee had not completed the hotel project and had not earned any revenue from the operation of the hotel project. Therefore the ld. AO opined that the expenditure incurred by the 3 ITA No.1536/Hyd/2019 assessee cannot be treated as revenue expenditure, but it has to be treated as capital expenditure. While holding so, the ld. AO relied on the provisions of sections 41(1), 28 and 37 of the Act. The claim of the assessee was that the expenditure incurred by the assessee are towards general administration and overhead expenses which cannot be allotted to any specific capital asset. However, the ld. AO held that corporate office expenses, operating expenses, financial expenses, etc. incurred by the assessee before the commencement of the business has to be capitalized by virtue of the above-mentioned provisions of the Act. 5. On appeal, the Ld. CIT(A) confirmed the order of the Ld. AO on this issue by agreeing with his view. 6. At the outset, we do not find any infirmity in the order of the revenue authorities on this issue. Expenses incurred by the assessee before commencement of the business has to be necessarily capitalised towards the cost of the project and cannot be treated as revenue expenditure. From the facts of the case, it is evident that the assessee has not commenced its business and has not earned any revenue out of its hotel business and the same is not in dispute. Therefore, I do not find it necessary to interfere in the order of Ld. Revenue authorities 4 ITA No.1536/Hyd/2019 on this issue. Hence this ground of assessee is devoid of any merit. Netting off of interest income against borrowing cost. 6. During the course of scrutiny assessment proceedings, it was observed by the Ld.AO that the assessee had netted off of interest received from the interest paid and the excess of the interest paid over the interest received was capitalised as the project was not completed. On query, it was explained that interest received were out of fixed deposits kept with the bank towards bank guarantee and therefore the interest received was attributable to the project and hence the same was reduced from the project cost. However, the ld.AO denied to subscribe to the view of the assessee by relying on the decision of the Hon’ble Apex Court in the case Tuticorin Alkali Chemicals and Fertilisers Limited reported in 227 ITR 172 (SC) and also the decision of Hon’ble Apex Court in the case Bongaigaon Refinery and Petrochemicals Limited reported in 251 ITR 329 (SC) and thereby made addition of Rs.17,27,404/- with respect to the interest earned during the relevant assessment under the head ‘Income from Other Sources’. On appeal, the Ld.CIT(A) confirmed the addition made by the ld.AO by further relying on the decision of jurisdictional High Court in the case CIT Vs. Raasi Cements Limited reported in 232 ITR 554. 5 ITA No.1536/Hyd/2019 7. At the outset, we find that the issue is squarely covered by the decisions of the Hon’ble Apex Court and the jurisdictional High Court relied on by the learned revenue authorities. Therefore, we do not find it necessary to interfere in their orders on this issue also. However, we also make it clear that if the assessee has incurred any expenditure / interest expenditure correlating to the interest income, then such proportionate interest expenditure shall be allowable as a deduction while computing the interest income under the head ‘Income from Other Sources’ by virtue of section 57(iii) of the Act. It is ordered accordingly. 8. In the result, the appeal of the assessee is partly allowed as indicated herein above. Pronounced in the open Court on the 3rd Feb., 2022. Sd/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER Hyderabad, Dated: 03.02.2022. * Reddy GP Copy to:- 1) M/s.Golden Jubilee Hotels Limited Company, S.No.64, Besides Shilpakala Vedika Shilparamam, Madhapur, Hyderabad-500 081 2) Asst. Commissioner of Income Tax, Circle-2(2), Botanical Gardens, Kondapur, Hyderabad. 3) The CIT (A)-12, Hyderabad. 4) The Principal Commissioner of Income Tax-2, Hyderabad. 5) The DR, ITAT, Hyderabad 6) Guard File
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