THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6(4), MUMBAI V. ELAN AVENUE LIMITED (FORMERLY KNOWN AS AIRMID DEVELOPERS LIMITED ), MUMBAI

ITA 1555/MUM/2023

AI Insights

The case involves the revenue appealing against the order of the Learned Commissioner of Income Tax (Appeals)-54, which had allowed the claim of Elan Avenue Ltd. (formerly Airmid Developers Ltd.) for interest on inter corporate deposits amounting to Rs. 8,24,10,091. The interest was initially disallowed by the AO, who treated it as part of Work In Progress (WIP) due to the funds being used for inventory and fixed deposits, which earned interest income. The CIT(A) had deleted the addition, relying on earlier orders for AY 2012-13 and AY 2017-18. The Tribunal, referencing a similar issue from AY 2017-18, remanded the matter back to the AO to verify the actual utilization of the loan funds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299176 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 18-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 03-05-2023
• Other Referred Cases: ITA No. 2380/Mum/2021
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Proportionate interest; Revenue expenditure
• Section: 143(3); 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM ITA N o. 1555 /M u m/ 20 23 (A s s ess me nt Y ea r: 20 18-19) DCIT CC 6(4) Room No. 1925, 19 th Floor, Air India Building, Nariman Point, Mumbai-400021 V s. Elan Avenue Ltd. (Formerly known as Airmid Developers Ltd.) M-62 & 63, 1 st Floor, Cannaught Place, New Delhi 110001 PA N /GI R N o. AAGC A 560 1G (Appellant) : (Respondent) Assessee by : None Revenue by : Shri. P. D. Chougule D ate of H ea rin g : 19.07.2023 D ate of P ron ou n ce me n t : 19.07.2023 O R D E R PER KAVITHA RAJAGOPAL, J M: 1. This appeal has been filed by the revenue challenging the order of Learned. Commissioner of Income Tax(Appeals)-54 [in short “the Ld.CIT(A)”] passed u/s 250 of the Income Tax Act,1961 [in short “the Act”] relevant to the assessment year 2018-19. 2. The Revenue has challenged the order of the Ld. CIT(A) in deleting the addition towards interest claimed on inter corporate deposits amounting to Rs. 8,24,10,091/- to the cost of real estate project under development/WIP/Inventory account for the reason that 2 ITA No.1555/Mum/2023( A . Y . 2018-19) Elan Avenue Ltd. (Formerly known as Airmid Developers Ltd.) the assessee has not offered income from the stated business activity of real estate development during the year under consideration. 3. As there was no representation on behalf of the assessee we hereby proceed to dispose of this appeal by hearing the Ld. DR and on perusal of the materials available on record. 4. The brief facts are that the assessee company is engaged in the business of real estate development and had filed its return of income dated 14.09.2018 declaring net loss of Rs. 8,31,65,798/-. The assessee’s case was selected for scrutiny and assessment order dated 09.04.2021 was passed by the Ld.AO u/s 143(3) of the Act where the total income was determined at loss of Rs. 7,55,707/- and the Ld.AO made a disallowance on account of finance cost of Rs. 8,24,10,091/- and capitalized the same as WIP. 5. The assessee was in appeal before the First Appellate Authority challenging the order of the Ld.AO. The Ld. CIT(A) allowed the claim of the assessee by relying on the earlier orders of his predecessor for Ay 2012-13 and AY 2017-18. 6. The revenue is in appeal before us challenging the order of the Ld. CIT(A). 7. We have heard the rival submissions and perused the materials on record. It is observed that the Ld. AO has disallowed the interest claimed by the assessee u/s 36(i)(iii) of the Act towards finance cost and had treated the same as WIP. The Ld. AO further stated that borrowed funds has been utilized by the assessee for the inventory and therefore the cost attributable to the borrowed funds should have to form part of the inventory and the same cannot be allowed as revenue expenditure. The Ld. AO has also stated that the borrowed funds was utilized for fixed deposits for which the assessee has 3 ITA No.1555/Mum/2023( A . Y . 2018-19) Elan Avenue Ltd. (Formerly known as Airmid Developers Ltd.) earned interest income of Rs. 57,99,551/- and the same was offered under the head income from “business & profession”. The Ld.AO added the impugned amount Rs. 8,24,10,091/- to WPI/Inventory. The Ld. CIT(A) deleted the impugned addition by allowing the interest as deduction u/s 36(i)(iii) of the Act by placing reliance on the earlier orders. It is also observed that similar issue was before the Tribunal for AY 2017- 18 in ITA No. 2380/Mum/2021 and vide order dated 04.05.2023 the issue was remanded back to the Ld. AO to verify the actual utilization of loan funds for the reason that the lower authorities have failed to examine the aspect of utilization of the borrowed funds by the assessee. The Tribunal has remanded this issue to examine the fact that whether the loan was utilized for the general purpose of the business where the entire expenses has to be allowed as deduction or for any specific project of real estate development in which case proportionate interest expenses may be added to the value of WIP. 8. We do not find any change in the circumstances of the present case with that of AY 2017-18 and hence by respectfully following the decision of the Tribunal we deem it fit to remand this issue also back to the file of Ld.AO for the purpose of verification of the utilization of the borrowed funds. 9. In the result the appeal filed by the revenue is allowed for statistical purpose. Order pronounced in the open court on 19.07.2023 Sd/- Sd/- (OM PRAKASH KANT) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated : 19.07.2023 Aniket Singh Rajput, Stenographer 4 ITA No.1555/Mum/2023( A . Y . 2018-19) Elan Avenue Ltd. (Formerly known as Airmid Developers Ltd.) Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai