SARANG RAKESHKUMAR WADHAWAN, MUMBAI V. DCIT -CC- 5(4), MUMBAI

ITA 2037/MUM/2019

AI Insights

The case involves Sarang Rakeshkumar Wadhawan, the appellant, who challenged the order of the learned CIT(A)-53, Mumbai, regarding the disallowance of capitalisation of interest expenses of Rs. 18.25 crores to the cost of land purchased in Goa. The land was financed through loans from India Bulls Housing Finance Ltd and PMC Bank. The AO disallowed the capitalisation, which did not affect the total income for the year but raised questions about the treatment of interest expenses. The CIT(A) rejected the assessee's plea to treat the interest as a business expense. The ITAT noted the lack of factual findings on whether the land was a business asset and the proper treatment of the interest expenses, leading to the decision to remand the matter back to the AO for a fresh examination.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123999 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 29-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 04-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Cost of acquisition; Capital expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘G’ BENCH, MUMBAI. Before Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM) I.T.A. No. 2037/Mum/2019 (A.Y. 2015-16) Sarang Rakeshkumar Wadhawan Plot No. 32/A, Wadhawan House Union Park Road, Near Shatranj Hotel, Bandra West Mumbai-400 050. PAN : AAAPW2530R Vs. DICT, Central Circle 5(4) Room No. 1927, 19 th Floor, Air India Building, Nariman Point, Mumbai 400 201. (Appellant) (Respondent) Assessee by None Department by Dr. Kishor Dhule Date of Hearing 30.01.2023 Date of Pronouncement 31.01.2023 O R D E R Per B.R.Baskaran (AM) :- The assessee has filed this appeal challenging the order dated 28.1.2019 passed by the learned CIT(A)-53, Mumbai and it relates to A.Y. 2015-16. 2. None appeared on behalf of the assessee, even though several notices were issued by RPAD. Hence, we proceed to dispose of the appeal ex-parte without presence of the assessee. 3. We heard learned DR and perused the record. The only issue contested in this appeal relates to disallowance of “capitalisation of interest expenses” of Rs. 18.25 crores, which was added to the purchase cost of land at Goa. 4. The Assessing Officer noticed that the assessee has purchased a land at Goa by taking loan from India bulls Housing Finance Ltd, PMC Bank. The Sarang Rakeshkumar Wadhawan 2 Assessing Officer noticed that the assessee has capitalised interest expenses of Rs.18.25 crores by adding the same to the cost of land. The Assessing Officer took the view that the assessee was not correct in capitalising interest amount. Accordingly he held that the interest expenditure of Rs.18.25 crores cannot be allowed to be capitalised to the cost of land located in Goa. It is pertinent to note that the above said decision of the Assessing Officer did not have impact on the total income of the assessee computed for the year under consideration. 5. Before the learned CIT(A), the assessee took the plea that the interest expenditure should be allowed as business expenses. The learned CIT(A) rejected the same. In the appeal filed before the ITAT, the assessee is challenging the decision of the Assessing Officer in disallowing capitalisation capital expenditure of Rs. 18.25 crores. 6. We heard learned DR and perused the record. As noticed earlier the above said decision of the Assessing Officer in holding that the interest expenses cannot be capitalized, i.e., cannot be added to the cost of land, did not have any impact on the total income computed by him. In that case, what should be the treatment to be given to the interest expenses incurred by the assessee. We notice that the AO did not consider that question at all. Before Ld CIT(A), the assessee has raised an alternate plea to allow the interest expenses as revenue expenses. However, the Ld CIT(A) did not properly address the same. It is required to be seen as to whether the land purchased in Goa is a business asset of the assessee or not. We notice that the AO has not given any factual finding on it. Hence we are of the view that the Assessing Officer has not given proper reasons for disallowing the capitalization of interest. The question whether interest expenditure can form part of the asset has to be adjudicated on the basis of facts relating thereto. However, factual details are not brought on record. Accordingly, we are of the view that this issue requires fresh examination at the end of the AO. Sarang Rakeshkumar Wadhawan 3 Accordingly, we set aside the order passed by the learned CIT(A) and restore all the issues to the file of the AO for adjudicating them afresh, after affording adequate opportunity of being heard to the assessee. 7. In the result, appeal filed by the assessee is treated as allowed for statistical purposes. Pronounced in the open court on 31.1.2023. Sd/- Sd/- (PAVAN KUMAR GADALE) (B.R. BASAKARAN) Judicial Member Accountant Member Mumbai; Dated : 31/01/2023 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai