LODHA DEVELOPERS LTD(FORMERLY KNOWN AS LODHA DEVELOPERS PRIVATE LIMITED), MUMBAI V. DCIT CEN CIR 7(3), MUMBAI

ITA 2349/MUM/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2421 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 15-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Business expenditure; Opportunity of being heard; Principle of natural justice; Additional evidence; Corroborative evidences; Revenue expenditure; Rule 8D
• Section: 145; 37; 2; 14A; 36 (1) (iii); 37(1); 251; 207; 264; 113; 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER ITA NO. 2349/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited {erstwhile Lodha Developers Limited} 412, 4 th Floor, 17G Vardhaman Chamber Cawasji Patel Road, Horniman circle Fort, Mumbai - 400001 PAN: AAACL1490J v. DCIT – Central Circle – 7(3) Room No. 655, 6 th Floor Aayakar Bhavan, M.K. Road Mumbai – 400020 (Appellant) (Respondent) ITA NO. 2148/MUM/2018 (A.Y. 2014-15) DCIT – Central Circle – 7(3) Room No. 655, 6 th Floor Aayakar Bhavan, M.K. Road Mumbai – 400020 v. Macrotech Developers Limited {erstwhile Lodha Developers Limited} 412, 4 th Floor, 17G Vardhaman Chamber Cawasji Patel Road, Horniman circle Fort, Mumbai - 400001 PAN: AAACL1490J (Appellant) (Respondent) Assessee by : Shri Rajan Vora & Shri Hemen Chandariya Department by : Shri Sandeep Raj Date of Hearing : 17.02.2022 Date of Pronouncement : 12.05.2022 2 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited O R D E R PER S. RIFAUR RAHMAN (AM) 1. These cross appeals are filed by the assessee and revenue against order of the Learned Commissioner of Income Tax (Appeals)-49, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 29.01.2018 for the A.Y. 2014-15. 2. Assessee has raised following grounds in its appeal: - “1. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of foreign exchange loss of Rs.13,10,46,670 treating the same as capital loss. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of Rs.23,96,276 being 50% of payment of marketing expenses paid to Lodha Developers UK Limited for lack of evidences. 3. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of regularization charges Rs. 1,58,42,172 treating the same as penalty towards infringement of law. 4. On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the disallowance of write off of non-refundable security deposit of Rs. 61,21,854 for electric connections as revenue expenditure.” 3. Assessee vide letter dated 05 th November, 2019 filed additional ground, which is reproduced below: - “Reversal of provision of Rs. 69966000 in relation to Transferable Development Rights (‘TDR’) 1. Erred in not reducing the reversal of provision of Rs.6,99,66,000 from the total income of the Assessee without 3 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited appreciating that the provision was disallowed in the year in which the provision was created i.e. AY 2013-14 and hence the same amount should not be charged to tax twice; 2. Without prejudice to the above, the learned AO should be directed to allow the provision of Rs.6,99,66,000 in the year in which it is created i.e. AY 2013-14.” 4. Further, Assessee vide letter dated 24 th May, 2021 filed additional ground, which is reproduced below: - “6. The Appellant prays that the education cess on income tax paid for the year ought to be allowed as a deduction under Section 37(1) of the Act while computing the total income.” 5. As the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds raised by the assessee. 6. The Assessee filed supplementary additional evidence before us with application for admission. Considered the rival submissions and observed that these evidences were relating to the grounds raised before us and these evidences were not submitted before lower authorities. It will have bearing on the issues contested before us therefore, we admit the additional evidences and these evidences are remitted back to the file 4 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited of Assessing Officer for verification, these issues are discussed elaborately while adjudicating the respective grounds. 7. With regard to Ground No. 1 which is in respect of disallowance of foreign exchange loss of ₹.13,10,46,670 treating the same as capital loss. 8. Brief facts relating to above grounds are, during the year, the Assessee invested in bonds of Lodha Developers International (Netherlands) B.V. During F.Y.2014-15, the bonds were redeemed incurring a loss of ₹.52.43 crores due to change in foreign exchange rate of Rupees to GBP. However, the foreign exchange loss for period ending 31 March 2014 of ₹.13,10,46,670 was booked on mark to market basis on 31 March 2014 and the balance ₹.37.2 crores of loss was booked in FY 2014-15 on redemption. The Assessing Officer held that the loss is neither allowed to be set off nor carried forward and he categorized it as a dead loss and disallowed the same. The Ld.CIT(A) relying on the decision of the Hon’ble SC in the case of M/s. Sutlej Cotton Mills (116 ITR 21) and the CBDT Instruction No. 3/2010 dated 26 March 2010 held that the assessee had invested in bonds which was clearly a capital asset and hence the loss incurred was a capital loss and thereby upheld the action of the Assessing Officer. 5 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 9. Ld. Counsel for the assessee submitted that the loss on account of foreign exchange fluctuation to the assessee should be allowed u/s. 37(1) of the Act, in this regard he submitted the below submissions: a) Mark to market forex fluctuation loss incurred by the assessee is revenue expenditure allowable u/s 37(1) (i). Woodward Governor India Pvt Ltd (SC) (Civil appeal No. 2206 and 2214 ETC of 2009 dated 8 April 2009) (Refer Page to of the paperbook) (ii). M/s. Reliance Communications Limited [ITA No. 2915/Mum/2012 dated 5 February 2013] (Refer Page 265 to 305 of the paperbook) (iii). Ninestars information Technologies Pvt. Ltd. (ITA 2503/Chy/2018) dated 28 February 2020 (Refer Page 261 to 264 of the paperpook) (iv). HSBC Data Processing Electronic India Pvt Ltd (ITA 2388/Hyd/2018) dated 17 July 2020 (Refer Page 306 to 327 of the paperbook) (v). Lupin Limited (ITA 7513/Mum/2014) dated 26 October 2016 (Refer Page 328 to 334 of the paperbook) b) The above decisions are after considering the CBDT Instructions 3/2010 dated 23 March 2010 and thereby the reliance placed by CIT(A) is not correct and as held by above judicial precedents, mark to market loss is revenue expenditure. c) Investment in subsidiary for strategic purpose should be allowable as deduction. Reliance in this regard is placed on the following decisions: (i). S.A. Builders Ltd. vs. CIT [SC] 288 ITR 1 (Refer Page 335 to 341 of the paperbook) (ii). Hero Cycles (P) Ltd [SC] [2015] 379 ITR 347 (iii). CIT vs. Reliance Communications Infrastructure Lts. [Bom HC] [2012] 254 CTR 251 6 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited (iv). CIT vs. Daimia Cement Bharat Ltd. [Del HC} [2011] 330 ITR 595 d) Without prejudice to the above submissions, the assessee would also like to submit that the AO for the AY 2015-16 has allowed loss of Rs. 37.72 crores on basis that the loss is actually realised, hence if the loss of Rs. 13.71 crores not allowable then the entire loss of Rs. 52.43 crores should be allowed as deduction and the Id. AO should be directed to make adjustments accordingly.” 10. Ld.DR vehemently supported the orders of the Authorities below. 11. Considered the rival submissions and material placed on record, from the facts on record we observe that the assessee invested in the bonds of its foreign AE. In the financial year 2014-15 i.e., in the subsequent AY, assessee redeemed the same. Due to exchange fluctuation, it incurred the loss of ₹.52.43 crores. During this assessment year, the assessee observed that as per the mark to market rate, the projected loss as at 31.03.2014 was ₹.13.10 crores. Accordingly, assessee recorded the loss in the current AY. The issue before us is, whether the investment made by the assessee in the bonds, do we need to treat the investment as capital investment and any expenditure incurred in such investment to be treated as business expenditure or not. It is fact on record that the investments were made in the name of the company and any related expenditure has to be charged to the business except to the 7 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited extent of any exempt income earned through these investments. However, in the given case, the investments made in bond are interest bearing bonds and it is chargeable to tax, therefore, any income chargeable to tax, any related expenditure either related to earning of such income or relating to investments are business expenditures. In this case, the assessee has incurred loss while redeeming the bonds, hence it is deductible expenditure. 12. It is also fact on record that in the subsequent AY, these bonds were redeemed and the actual loss incurred due to exchange fluctuations. The assessee normally would have claimed the loss in the subsequent AY, since it has anticipated the loss by monitoring rate fluctuations (the Mark to Market), it predicted possible loss and it booked the loss prudently. We observe that the courts have held that the Mark to Market losses are revenue in nature and it should be treated as such. In the given case, the assessee has booked the loss in two parts and once part claimed in the present AY and balance part of actual loss was claimed in the subsequent AY. It is needless to say that the loss was allowed by the Assessing Officer in the subsequent AY as revenue. Therefore, the loss claimed by the assessee is part of actual loss and it may look as claimed on the basis of provision but it is part of actual loss. Therefore, in our considered view, 8 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited the loss claimed by the assessee in this AY is claimable u/s 37 of the Act. Hence, we direct the AO to allow the foreign exchange loss claimed by the assessee. Accordingly, the ground raised by the assessee is allowed. 13. Coming to the Ground No.2 which is in respect of disallowance of ₹.23,96,276 being 50% of payment of marketing expenses paid to Lodha Developers UK Limited (“LD UK”) for lack of evidence. 14. Brief facts relating to above ground are, during the year, assessee had made a payment of ₹.47,92,553 to Lodha Developers UK Limited towards selling and marketing. The Assessing Officer disallowed the expenses following the order of the Ld. ITSC of earlier years and on the ground that the assessee failed to substantiate its claim that actual work of selling and marketing was done by LD UK with any evidences, disallowed 50% of the total expenses on ad-hoc basis. The CIT(A) upheld the disallowance made by Assessing Officer. 15. Ld. Counsel for the assessee submits that Lodha UK had initially entered into an agreement with Lodha Novel Bulldfarma Pvt Ltd (Lodha Novel) and Lodha Crown Buildmart Pvt Ltd., (Lodha Crown) (refer page 98 to 100 of additional evidence), two group Companies of the Assessee, 9 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited Wherein LD UK would be engaged in marketing of properties of Lodha Novel and Lodha Crown in India to potential customers in United Kingdom and other countries. The said expenses would then be recovered from the two companies in the ratio of 60:40 as provided in the agreement. In this regard, following documents were filed before lower authorities to substantiate that the expenses were for purpose of business. a) Copy of marketing agreement by the appellant with Lodha UK (refer page 98 to 100 of additional evidence) b) Table showing marketing and selling expenses incurred by Lodha UK (refer page 101 to 103 of additional evidence) c) Sample copies of invoices for the marketing expenses (refer page 104 to 113 of additional evidence). d) Copy of audited financials of Lodha UK (refer page 114 to 120 of additional evidence) 16. In addition to the above documents, the Assessee submitted a sample copy of application form of an NRI customer booking flat in project of Lodha Novel pursuant to the exhibition held in Dubai by LD UK, is enclosed at page 121 to 128 of additional evidence to substantiate that expenses were incurred for marketing of properties in India to NRI customers. Further submitted that in the meantime, Lodha Novel was amalgamated with the Assessee vide an order of the Hon'ble Bombay High Court dated 19 July 2013, with the appointment date being 1st April 2012 and accordingly, the reimbursement made by Lodha Novel was accounted 10 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited and claimed as expenses by the Assessee. The copy of the order of Merger is enclosed at page 129 to 133 of additional evidence. In this regard, Ld. counsel for the assessee submitted that no addition can be made on the basis of mere surmise and conjecture. Reliance in this regard is placed on the following judgements: a) Lalchand Bhagat Ambica Ram Vs CIT (1959) 37 ITR 288 (SC) b) Sayaji Iron & Engg Co. (253 ITR 749) (Guj HC) (Refer Page 342 to 345 of the paper book) 17. Ld. Counsel for the assessee submitted that no ad hoc disallowance can be made for expenses incurred for purpose of business without giving any basis of estimation. Reliance in this regard is placed on the following judgements: - a) Palava Dwellers Pvt Ltd (group company) in ITA 2147/M/2018 vide order dated 20 February 2020 (Refer Page 467 to 207 Of the paper book) b) M/s son & Johnson Ltd (ITA No. 9437/Mum/2004) dated 15 February 2013 (Refer Page 346 to 363 of the paper book) c) Pearl Farben Chem (P) Ltd (1122/M/2010) dated 12 November 2010 (Mum) d) S.S.P (P.) Ltd (202 Taxman 386) (P&H HC) 18. Ld. DR vehemently supported the orders of the Authorities below. 19. Considered the rival submissions and material placed on record. We observe that the assessee has raised identical ground for the 11 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited A.Y.2013-14 in ITA.No. 2387/Mum/2019 and the same has been adjudicated by order dated 28.03.2022 (in which the Bench is the party) and observed as under: - “21. At the time of hearing, the Ld. AR submitted that the assessee company is engaged in the real estate constructions and the assessee has made some payments to Lodha Developers UK Ltd towards the selling and marketing services but the assessee could not substantiate fully with the details of claim of marketing and selling expenses. The A.O found that the total payments/ reimbursements aggregated to Rs.87,78,309/- and the assessee could submit only marketing agreement in the assessment proceedings and supporting evidences of claim were not produced. Finally, the A.O was not satisfied with the submissions and information and restricted the claim to the extent of 50% of the expenses being Rs. 43,89,154/-. On appeal, the CIT(A) has confirmed the addition and dismissed the ground of appeal. On further appeal before the Hon’ble Tribunal, the Ld. AR submitted that the assessee has appointed agents as per the agreement and there is increase in the revenue due to NRI customers investments in properties in India. The Ld. AR for the first time has filed the details of payments, marketing & selling expenses incurred by the Lodha Developers U K Ltd, sample invoices of marketing expenses incurred in UK, and statement of sale of properties in India to NRI customers in the F.Y.2012-13 and prayed for allowing the claim based on the substantial evidence filed. The Ld.DR submitted that the A.O. should be provided an opportunity to verify and examine the additional evidence filed by the assessee. Further on perusal of the assessment order, we find that the assessee could not substantiate the claim with proper evidences for various reasons. Accordingly, to meet the ends of justice and the principles of natural justice, we restore the disputed issue for limited purpose to the file of the Assessing officer to verify and examine the claim and grant the relief and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information and we allow this ground of appeal of the assessee for statistical purposes. In the result the appeal filed by the assessee is allowed for statistical purposes.” 12 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 20. Facts being identical, respectfully following the above said decision in assessee’s own case for the A.Y. 2013-14, we restore this ground to the file of the Assessing Officer for denovo consideration and after due verification of the evidences submitted the expenses may be allowed, it is needless to say that proper opportunity of being heard to the assessee. We allow this ground of the assessee for statistical purpose. 21. Coming to the Ground No. 3 which is in respect of Disallowance of ₹.1,58,42,172 on account of regularization charges by treating the same as penalty towards infringement of law. 22. Brief facts relating to above ground are, during the year under consideration, the assessee had made payment of ₹.1,58,42,172 to Thane Municipal Corporation (‘TMC’) as regularization fees in order to regularize the construction of the projects. The Assessing Officer disallowed the same on the basis that any expenditure which has been incurred for any purpose which is an offence or which is prohibited by law shall not be allowed as deduction. The Ld.CIT(A) had upheld the disallowance made by Assessing Officer. The charges paid were on account of violation of certain rules which are not in the nature of offences and can be cured by 13 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited compounding, and therefore regularisation fees paid are not in nature of offence or prohibition of law and allowable u/s 37(1) of the Act. 23. Learned Counsel for the assessee submitted that Post facto approvals were granted by the TMC after levying regularization fees as a fine for undertaking Construction prior to the receipt of formal approvals and in order to regularize the construction. It is pertinent to note that construction is carried on as per the approved building plans only and the assessee had not violated the provisions of any regulations/ laws. However, the approval got delayed due to the reasons beyond the control of the assessee. Accordingly, the TMC levied compensatory charges on the assessee and it can be noted that had this been violation of any law or construction of any unauthorized project, the TMC would have demolished the structure. However, in this Case as per the circular of TMC dated 3 April 2010 the regularization fees were paid to regularize the construction. The notices and receipts were issued in the name of Lodha Novel but is accounted and claimed by the assessee on account of amalgamation. The fine levied by TMC is more in nature of non-compliance with the procedural aspects and the fees were compensatory in nature. In this regard the assessee wishes to place reliance on the following documents: - 14 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited a) Notice issued by Thane Municipal Corporation (TMC) for payment of compounding charges alongwith English translation (refer page 134 to 135 of additional evidence) b) Receipts of payment made to TMC (refer page 136 to 139 of additional evidence) c) Circular dated 3 April 2010 under which the regularization charges are paid alongwith English translation (refer page 140 to 147E of additional evidence) 24. In support of his contentions Ld. Counsel for the assessee relied on the following decisions: - (i). Keerthi Estates P Ltd (ITA 271/Hyd/2016) dated 9 August 2017 (Refer page 364 to 372 of paperbook) (ii). Oberoi Constructions Ltd. (ITA No. 502/Mum/2018) dated 20 August 2019 (Refer page 380 to 385 of paperbook) (iii). M/s. Darshan Properties vs. DCIT [Mum trib.] (ITA No.3098/Mum/2010 dated 24 June 2011) (Refer page 386 to 394 of paperbook) (iv). Oberoi Realty Ltd (ITA 1050/M/2013) dated 4 November 2015 (Refer page 373 to 379 of paperbook). 25. Ld. Counsel for the assessee submitted that in the present case, the amount paid on account of regularization fee for getting post facto approval is compensatory in nature and therefore is deductible u/s. 37(1) of the Act and prayed that the impugned disallowance be deleted and the same be allowed as deduction. 26. Ld.DR vehemently supported the orders of the authorities below. 15 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 27. Considered the rival submissions and material placed on record, we observe that assessee paid regularization charges in order to regularize certain deviations in the construction projects. In the similar situation, the Hyderabad Bench decided the exactly similar compounding charges in favour of the assessee in the case of Keerthi Estates (P.) ltd. v. DCIT in ITA.No. 271/HYD/2016 dated 09.08.2017, for the sake of clarity, it is reproduced below: - “8. Considered the rival submissions and perused the material facts on record as well as gone through the decisions cited at bar. The assessee has paid compounding fine to regularise the building plan. The payment of such compounding fine is penalty in the nature of an offence or which is prohibited by law. We have noticed that the decision on this count is divided among the various courts. The Hon’ble High Courts Karnataka and P&H have held the same as penalty in the nature of an offence. The other ITAT benches have given divergent views. In our considered view, the builders submit building plan for approval and based on the proposed plan, the Corporation/Municipalities gives approval. It is fact that at the time of approval, the corporation and the builders aware that it is not possible to complete the project as per the proposed plan as there are certain adjustments need to be made at the time of actual execution. As long the actual completion of the projects are within the parameters of approval, the corporation/approving authorities permit the projects as approved with the nominal fine or compounding fee. This is the reason, the corporation has the clause intact in the rules books. If the projects are illegal, which is an offence and cannot be cured, the whole project cannot be approved by the approving authorities, as the same is subject matter of public safety. The penalty can be classified as two types; one charged for violation of law in the nature of offence, which cannot be pardoned by compounding and the second is charged for violation of certain rules which are not in the nature of offences and can be cured by compounding. In the case of housing/commercial projects, the corporation aware that there will be certain deviations at the time of approval and no project can be completed without any deviation. 16 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited The question is, the extent of deviation. In case it is within the permissible limits, the approving authorities, allow with compounding the deviation by levying compounding fees. In the given case, the project was completed and the deviations are within the limits, for which the Bangalore Mahanagar Palike has approved the project by compounding fees, which is not in the nature of offence nor prohibition of any law. Hence, it is allowable u/s 37(1) of the Act. 28. Respectfully following the above decision, we are directing the Assessing Officer to allow the compounding fees claimed by the assessee, accordingly, ground raised by the assessee. 29. Coming to Ground No.4 which is in respect of disallowance in respect of writing off of non-refundable security deposits of ₹.61,21,854/- for electric connections as revenue expenditure. 30. Brief facts relating to the above ground are, Assessee had paid non- refundable security deposits for electricity connections for the constructions projects undertaken. The Assessing Officer made disallowance of the entire expenditure incurred on the ground that no documentary evidence was submitted to substantiate the claim of payment of non-refundable deposits. The CIT(A) upheld the disallowance made by Assessing Officer. 17 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 31. Ld. Counsel for the assessee submitted that the Assessee as a part of the routine business activity requires electricity connection for the construction activity and also provides electric connections to the flats and offices constructed by the Assessee in addition to other services and amenities. The electric connections are provided on payment of certain non-refundable deposits to be made with the electricity company. This is a regular practice followed in the real estate industry. Further, the Assessee is no longer entitled to receive the electricity deposit which is paid for the connection of flats and offices once the flats or offices are handed over to the customers. Since this payment of non-refundable deposits was a part of business and the same was not refundable, the assessee had written off the said amount during the year. However, since the expenditure is directly linked to business, the same is to be allowable as revenue expenditure. In this regard reliance is placed on the following documents to support that it is used for the purpose of business: - a) Breakup of non-refundable deposit paid for electricity connection (refer page 148 of additional evidence) b) Sample copy of sale agreement entered with the customer wherein electric charges is recovered under the common area maintenance charges (refer page 149 to 158 of additional evidence). 18 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 32. Ld. Counsel for the assessee submitted that the non-refundable deposit written off was a part of routine business and should be allowable as revenue expenditure. 33. Ld.DR vehemently supported the orders of the authorities below. However, he agreed to remit this issue back to Assessing Officer for verification. 34. Considered the rival submissions and material placed on record, we observe that the assessee had paid certain amount as initial deposit for the purpose of obtaining new electricity connection in the new projects it undertakes. Since assessee did not submit the relevant supporting documents before tax authorities, now, these documents were filed before us an additional evidence. We are inclined to admit these evidence and remitting this issue also to the file of Assessing Officer to verify the claim of the assessee, we direct him to allow the claim as per law after providing reasonable opportunity of being heard to the assessee. Accordingly, ground raised by the assessee is allowed for statistical purpose. 19 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 35. Coming to additional ground, which is in respect of Reversal of provision made in respect of Transferable Development Rights (“TDR”) ‘TDR’ of Rs.6,99,66.000/-. 36. Brief facts of the case are, the assessee in AY 2013-14 had created a provision for the purchase of Transferable Development Rights (‘TDR’). The assessee reversed the entire provision made in A.Y 2013-14 in the current year and offered the amount to tax. Subsequently, in A.Y.2013-14 the Assessing Officer did not allow the provision as a deductible expense under section 37(1) of the Act due on the ground that provision is contingent in nature and hence not allowable. In view of the same there has been double disallowance. 37. Learned Counsel for the assessee submitted that the provision for the purchase of Transferable Development nights (TDR) amounting to ₹.6,99,66,000/ was created in A.Y. 2013-14, and subsequently reversed the entire provision made in the current year and offered the amount to tax (Refer page 1 to 44 of the financials in the paper book). Since the Assessing Officer has disallowed the provision created in AY 2013-14, directions should be given to Assessing Officer to reduce the income offered to tax in current year. Copy of the order is enclosed at page 159 20 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited to 162 of additional evidence. Ld. Counsel for the assessee prays that the amount of provision should not be taxed as it has been disallowed in earlier years and accordingly suitable directions to be given to Assessing Officer to reduce the income offered to tax in current year. 38. Ld.DR vehemently supported the orders of the authorities below. However, he accepted this issue may be remitted to the file of Assessing Officer to verify. 39. Considered the rival submissions and material placed on record, we observe from the submissions of the assessee that in the earlier AY, Assessing Officer rejected the claim of the assessee relating to the provision made in respect of TDR. We understand that assessee preferred an appeal before appellate authorities in the AY 2013-14, we direct Assessing Officer to verify the outcome of the appellate proceedings, in case it is rejected by the appellate authorities, the assessee may be given due benefit. In case assessee prefers to drop the proceedings initiated before the appellate authorities, then the Assessing Officer may pass the necessary benefit to the assessee and entertain the claim of the assessee. Accordingly, additional ground raised by the assessee is allowed for statistical purpose. 21 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 40. Second additional ground raised by the assessee relating to education cess deductible u/s. 37(1) of the Act. Even Ld. Counsel submitted that this issue is covered by the Hon'ble Bombay High Court decision in the case of Sesa Goa v. JCIT [423 ITR 426]. After considering the submissions and the latest amendments in the Finance Act, this issue is already reached finality. Accordingly, additional ground raised by the assessee is dismissed. 41. In the result, appeal filed by the assessee is partly allowed for statistical purpose. 42. Coming to the appeal of the revenue, revenue has raised following grounds in its appeal: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.58,99,99,069/- made by the Assessing Officer u/s 36(1)(iii) and capitalized the same to inventory?” “2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is deleting the addition of Rs.58,99,99,069/- relied upon the decision of the judgement of the jurisdictional High Court in the case of Lokhandwala Construction India Ltd. 260 ITR 579 the same were rendered before the proviso to section 36(1)(iii) has been inserted vide Finance Act 2003?” “3. Whether on the facts and in the circumstances of the | case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.15,17,14,879/- made by the Assessing Officer u/s 14A r.w.r. 8D and limiting the disallowance made by the Assessing Officer to the 22 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited extent exempt income of the assessee as claimed not to the expenditure as rule.?” “4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.15,17,14,879/- made by the Assessing Officer u/s 14A r.w.r. 8D while computing the book profit under clause (f) of Explanation I to section I1S5JB 2 o the Act.?” 43. After considering the rival submissions, it is noticed that in assessee’s own case relating to the A.Y. 2015-16, identical grounds were raised and the same were adjudicated by this Tribunal in ITA.No. 68/Mum/2016 dated 28.03.2022 (in which this bench was party to the order), observing as under: - “12. We heard the rival submissions and perused the material available on record. We find the grievance of the revenue that the CIT(A) erred in deleting the addition u/sec.36(1)(iii) of the Act relying on the decision of Honble High Court of Bombay. We find the Coordinate Bench of the Honble Tribunal in the assessee’s group case M/s. Palava Dwellers Pvt Ltd & Lodha Developers Ltd ITA No. 2147/Mum/2018 & 2348/Mum/2018 for the A.Y 2014-15 has dealt on the same issue in the revenue appeal, were the similar grounds of appeal are raised and observed at page 2 Para 3 as under:- 1. In so far as Ground Nos. 1 and 2 are concerned, briefly stated the facts are that, the Assessing Officer while completing the assessment on 30.12.2016 u/s.143(3) of the Act noticed that assessee for the purpose of construction of residential project borrowed interest bearing funds from group concerns, banks and financial institutions. Assessing Officer noticed that assessee paid interest of ₹.164.71 Crores and earned interest income of ₹.42.57 Crores and net interest expenses were shown at ₹.122.15 crores. Assessing Officer noticed that out of this ₹.122.15 crores the assessee capitalized an interest of ₹.105.13 crores and shown as work in progress. He further noticed that in the return of income interest of ₹.89.12 crores have been claimed as deduction out of this ₹.105.13 Crores which were capitalised in the Books of Accounts. The assessee was required to explain as to why 23 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited interest expenses claimed in the return of income shall not be disallowed. The assessee submitted that interest expenses have been claimed as deduction in the year of incurrence as the interest is periodic cost and pertains to the year for which it belongs to. It was further submitted that the said interest is allowable as deduction u/s. 36(1)(iii) of the Act being interest pertaining to stock in trade of the assessee. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Taparia Tools Pvt. Ltd., v. JCIT in Civil Appeal No. 6366/2003 dated 23.03.2015 and the decision of the Hon'ble Bombay High Court in the case of CIT v. Lokandwala Construction Industries Ltd., [260 ITR 579]. 2. Not convinced with the submissions of the assessee, the Assessing Officer placing reliance on the judgement of the Hon'ble Special Bench, Mumbai in the case of M/s. Wall Street Construction Limited [102 TTJ 505] wherein it has been 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 offered to tax, Assessing Officer denied the claim of the assessee. On appeal the Ld.CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Lokandwala Construction Industries Ltd., [260 ITR 579] and various other decisions of the Coordinate Benches allowed the claim for deduction of interest. Against this order the revenue is in appeal before us. 3. Ld. DR vehemently supported the order of the Assessing Officer and also the decision of the Special Bench in the case of M/s. Wall Street Construction Limited (supra). 4. We have heard the rival submissions, perused the orders of the authorities below and case laws relied on. This aspect of the matter has been elaborately considered by the Ld.CIT(A) with reference to the averments of the Assessing Officer and considering the submissions of the assessee and also the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Lokandwala Construction Industries Ltd., (supra) and various other decision and allowed the claim of the assessee observing as under: - “The submissions of the learned counsel have been carefully considered. 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 24 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 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 was 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 dear 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(l)(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 capita! 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(l)(iii)." 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, 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 25 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 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 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(l)(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(l)(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 deducibility of the said 26 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited cost u/s 36(l)(iii) is thus neither in doubt nor in dispute, Further, it may also be in place to state that section 36(l)(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 aor is to constitute a part (also refer Explanation 8 to s.43(l)). 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." 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(l)(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(l)(iii) of the Act. The relevant lines from the para 4 reads as under; "that, while adjudicating the claim for deduction under section 36(l)(iii) of the Act the nature of expense 0- 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(l)(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 27 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 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” The Hon'ble ITAT in the case of ITO vs Rohan states 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 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(l)(iii) being also satisfied, and toward which the assessee relies on the decision in the case 28 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited of CIT vs Lokhandwala Construction Inds. Ltd(supra). The same also clarifies that the interest cost is to allowed u/s 36(l)(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 deducibility of the said cost u/s 36(l)(iii) is thus neither in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(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(l)). 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. 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.” 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 assessee. Relevant Paragraphs are being reproduced hereunder for better appreciation of the issue: 29 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited "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 AYs/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 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 30 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 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(l)(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(l)(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 reckonedas a part of the cost of production/construction, and thus of the inventory or the project cost a sat the year-end. The deducibility of the said cost u/s 36(l)(iii) is thus nether in doubt nor in dispute. Further, it may also be in place to state that section 36(l)(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(l)). 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." 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(l)(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(l)(iii) of the Act. The relevant lines from the para 4 reads as under; 31 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited "that, while adjudicating the claim for deduction under section 36(l)(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(l)(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 f 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." 14. 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 (Hi) 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.8,19,23,638/-, 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.3,00,57,566/- and related capital borrowed was not utilized by the assessee for business purposes of the assessee." However, the case of Wall Street construction is one where the assessee was following project completion method and therefore the ITAT held that the interest cost shall be debited 32 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 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) of therefore the judgment of Wall Street construction 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 Ashish Builders Private Ltd and Rohan Estate Private Ltd and also the various judicial pronouncements relied upon by the assessee the interest expenditure claimed by the assessee is held to be allowable, It is also to be mentioned here that during the proceedings before the Income Tax Settlement Commission, the AO had raised specific question in relation to claim on interest expenditure made by the appellant and reply was filed by the appellant explaining the same. Wherein the assessee explained that disallowance cannot be made u/s 36(l)(iii) of the Act, in view of the jurisdictional High Court's decision in the case of Lokhandwala Construction (supra). After considering the assessee's submissions, the AO accepted the same and did not raise objection in relation to interest claimed in the report u/s 245D (3) report filed before the ITSC. Further no disallowance/ adjustment was made by ITSC in relation to such interest claimed while passing the order. The addition made by the AO is directed to be deleted. These grounds of appeal are ALLOWED.” 7. On a careful perusal of the order of Ld.CIT(A), we do not see any infirmity in allowing the claim of the assessee as the claim of the assessee is in tune with the decision of the Hon'ble Jurisdictional High Court in the case of Lokandwala Construction (supra) wherein it has been held that when the project constructed by the assessee is its stock in trade and not a fixed asset of the assessee the interest paid on loans obtained for stock in trade is an allowable deduction u/s. 36(1)(iii) of the Act. We also find that in the proceedings before the settlement commission the assessee claimed interest expenses and as per the order dated 28.07.2014 of 33 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited the settlement commission and during verification proceedings u/s. 245D(3) of I.T. Act, the assessee informed the Assessing Officer that interest of ₹.124.02 crores as claimed in the computation of income on ground of interest expenses retained in inventory is deductible under provisions of section 36(1)(iii) of the Act. It was further informed that the said amount of interest paid was in respect of capital borrowed for the purpose of business or profession. It was further submitted that the construction and development having commenced, the business is in operation, therefore, interest is allowable u/s. 36(1)(iii) of the Act. It was also further brought to the notice of the Assessing Officer that in the case of CIT v. Lokandwala constructions Industries Ltd., [131 Taxman 810] the assessee’s claim for deduction of interest, although the revenue was recognized only on project completion basis in subsequent year, was allowed in the year in which the claim of interest was made. Thus, it was contended that the interest expenditure incurred during the year is claimed and allowable as expenses even though the same has been inventorised in the Books of Accounts. These contentions were accepted by the revenue and no objection has been raised by the Assessing Officer and the settlement commission has accepted these contentions of the assessee. This fact was also taken note by the Ld.CIT(A) in allowing the claim of the assessee. Therefore, since the revenue could not controvert the findings of the Ld.CIT(A) that the project constructed by the assessee for which the loans have been taken is not a stock in trade and also the other findings of the Ld.CIT(A), we do not find any valid reason to interfere with the findings of the Ld.CIT(A) and accordingly we sustain the order of the Ld.CIT(A) on this issue. Grounds raised by the revenue are rejected. 13. We find the CIT(A) has dealt on the disputed issue at Para 7 of the order and relied on the facts, provisions of law, amendments, accounting standards and judicial decisions of the Hon’ble High Court and Hon’ble Tribunal and directed the assessing officer to delete the addition u/sec36(1)(iii) of the Act and passed a reasoned order on the disputed issue. The Ld. DR could not controvert the findings of the CIT(A) on this disputed issue with any new cogent evidence or information. Accordingly, we do not find any infirmity in the decision and are not inclined to interfere with the order of the CIT(A) passed relying on the decision of Jurisdictional Honble High court and Honble Tribunal and we fallow the judicial precedence and up hold the decision of the CIT(A) on this disputed issue and dismiss the grounds of appeal of the revenue. 34 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 14. On the 3 rd ground of appeal, the Ld. DR submitted that CIT(A) has erred in granting the relief on the disallowance U/sec14A r.w.r 8D(2)(ii).we find the CIT(A) has dealt at Para 8.4 of the order and directed the A.O to recompute as under: 8.4 In the appellants case, the appellant also has mixed funds and therefore some interest portion has to be attributed to the investments made. Therefore, this plea of the Ld. Counsel not to make a disallowance for the reason that the appellants own funds are greater than the investments is rejected. The Ld. Counsel has also taken without prejudice a plea that for the calculation of interest disallowance the net interest should be taken in place of the gross income. The Hon’ble ITAT, Mumbai in the case of Morgan Stanley Securities Pvt Ltd Vs. CIT ITA No. 5072/Mum/2005 held that the net interest debited to the profit and loss account should be considered for the purpose of Rule 8D(2)(ii). This plea of the assessee is acceptable and the AO is directed to recomputed the disallowance u/s 14A r.w.r 8D by computing the net interest debited which is Rs. 14,06,26,480/- for the purpose of computation of interest disallowance. These grounds of appeal are partly allowed. 15. We find in the present case the CIT(A) has considered the fact of calculation of disallowance under rule 8D(2)(ii) and issued the directions to the A.O. Whereas, the Ld.DR submitted that the action of the CIT(A) in granting the relief overlooking the facts of interest component is not acceptable. We considering the overall facts and findings of the appellate authority, find that the CIT(A) has rejected the assessee plea of own funds more than investments and considered the alternative submissions and relied on the judicial decision and issued directions to the A.O. to recompute the disallowance u/sec14A r.w.r 8D(2) considering the net interest claimed. The Ld.DR could not controvert on the observations of the CIT(A) with any new cogent material evidence or information to take a different view. Accordingly, we are not inclined to interfere in the decision of the CIT(A) on this disputed issue and uphold the same and dismiss the ground of appeal of the revenue. And the appeal filed by the revenue is dismissed.” 35 ITA NO. 2349 & 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited 44. Facts being identical, respectfully following the above said decision in assessee’s own case for A.Y. 2015-16, we dismiss the grounds raised by the revenue. 45. In the result, appeal filed by the revenue is dismissed. 46. In the result, appeals filed by the assessee is partly allowed for statistical purpose and appeal filed by the Revenue is dismissed. Order pronounced in the open court on 12.05.2022. Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 12.05.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum