M/s Nitesh Estates Project Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 707/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0165 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 15-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENUKADEVI
• Assessee Lawyers: V SRINIVASAN
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 707 /BANG/201 3 (ASSESSMENT YEAR : 20 08 - 09 ) M/S. NITESH ESTATES PROJECT PVT. LTD., 7 TH FLOOR, NITE SH TIMESQUARE, NO.8, M.G. ROAD, BANGALORE - 560 001 VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI V. SRINIVASAN, C.A. RESPONDENT BY : SMT. RENUKADEVI, JCIT (D.R) DATE OF H EARING : 20.06 .201 6. DATE OF P RONOUNCEMENT : 29. 7 . 201 6 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THIS APPEAL BY THE ASSESSEE IS DIR ECTED AGAINST THE ORDER DT.28.3.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 2 ITA NO. 707 /BANG/ 201 3 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS THEY ARE AGAINST THE APPELLANT, A RE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (APPEALS) IS NOT JUSTIFIED IN SUSTAINING A PART OF THE DISALLOWANCE IN RESPECT OF FINANCE CHARGES AMOUNTING TO RS.1,45,72,724 FROM OUT O F THE ORIGINAL DISALLOWANCE OF RS.3,43,72,724 HOLDING THAT THE FINANCE CHARGES PERTAINING TO THE NBG PROJECT ALONE WAS ALLOWABLE UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE. 2.1 THE LEARNED CIT (APPEALS) FAILED TO APPRECIATE THAT T HE ENTIRE FINANCE CHARGES OF RS.3,43,72,724 INCURRED BY THE APPELLANT WAS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT, AS THE SAME PERTAINS TO THE INTEREST ON BORROWED FUNDS USED FOR THE PURPOSE OF THE BUSINESS AND THAT, THERE WAS NO JUSTIFICATION TO ONL Y ALLOW A PART OF THE INTEREST IN RESPECT OF THE NBG PROJECT FROM WHICH THE INCOME HAS BEEN OFFERED AND CONSEQUENTLY, THE DISALLOWANCE SUSTAINED BY THE LEARNED CIT (APPEALS) DESERVES TO BE DELETED. 3. WITH O UT PREJUDICE TO THE RIGHT TO SEEK WAIVER WITH TH E HON'BLE CCIT/DG, THE APPELLANT DENIES ITSELF LIABLE TO BE CHARGED TO INTEREST UNDER SECTION 234B, 234C AND 234D OF THE ACT, WHICH UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE AND THE LEVY DESERVES TO BE CANCELLED. 4. FOR THE ABOVE A ND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT MAY BE AWARDED COST IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUND OF THE IN STITUTION FEES AS PART OF THE COSTS. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ENGINEERING CONTRACT S AND REAL ESTATE DEVELOPMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN SALES ON THE BASIS OF 3 ITA NO. 707 /BANG/ 201 3 RECOGNITION OF REVENUE FROM THE PROJECT NBG WHICH WAS JOINTLY EXECUTED WITH A PARTNER. THE ASSESSING OFFICER ALSO NOTED THAT THE FINANCE CHARGES CLAIMED BY THE ASSESSEE WAS NOT RELATED TO THE BORROWINGS USED FOR NBG PROJECT AT ALL BUT MAY BE USED IN RESPECT OF LOAN RAISED FOR WORK IN PROGRESS WHERE REVENUE HAD NOT BEEN RECOGNIZED. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE ENTIRE AMOUNT CLAIMED AS FINANCE CHARGES OF RS.3,43,72,724 AND TREATED THE SAME AS CAPITALIZED UNDER WORK IN PROGRES S. 4. ON APPEAL THE CIT (APPEALS) GRANTED PART RELIEF AND ALLOWED PART FINANCIAL CHARGES UPTO 61.60% BEING CONSUMED IN RESPECT OF NBG PROJECT AND THE BALANCE AMOUNT WAS DISALLOWED BEING INTEREST PAYABLE TO THE BANK IN RESPECT OF WORK IN PROGRESS. THE REFORE, THE CIT (APPEALS) ALLOWED THE CLAIM OF RS.1.98 CRORES BEING 61.60% OF THE TOTAL EXPENDITURE OF INTEREST ON LOAN AND THE BALANCE DISALLOWANCE WAS SUSTAINED. 5. BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS FOLLOWING THE PERCENTAGE COMPLETION METHOD, THE FINANCIAL CHARGES ARE ALLOWABLE UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') AND THEREFORE WHEN THE BORROWED FUND IS USED AS 4 ITA NO. 707 /BANG/ 201 3 A CAPITAL FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE THEN THE ENTIRE FINANCE CHARGES ARE INCURRED FOR USE OF CAPITAL AND ACCORDINGLY IT CANNOT BE DISALLOWED IN PART. HE HAS FURTHER CONTENDED THAT THE USE OF BORROWED FUND DOES NOT BRING INTO EXISTENCE OF ANY NEW ASSET BUT THE FUNDS WERE US ED FOR THE BUSINESS OF THE ASSESSEE AS A WHOLE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DCIT VS. C ORE HEALTH CARE LTD. 298 ITR 194 (SC) AS WELL AS THE DECISION IN THE CASE OF TAPARIA TOOLS L TD. VS. JCIT 372 ITR 605 (SC) . 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE ASSESSEE IS CAPITALIZING ALL OTHER EXPENSES IN THE WORK IN PROGRESS AND SHOWIN G THE SAME IN THE BALANCE SHEET THEN THE FINANCIAL CHARGES RELATED TO THE WORK IN PROGRESS CANNOT BE CLAIMED IN THE PROFIT AND LOSS ACCOUNT AGAINST THE INCOME OF OTHER PART OF THE PROJECT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RE LEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLLOWING THE PERCENTAGE COMPLETION METHOD AND OFFERING THE INCOME FROM AN UNDERGOING PROJECT ONLY 5 ITA NO. 707 /BANG/ 201 3 AFTER REACHING A CERTAIN STAGE OF COMPLETION WHICH IS 60% OR MORE. THE OTHER PROJECTS W HICH ARE BELOW CERTAIN STAGE OF COMPLETION HAS BEEN SHOWN AS WORK IN PROGRESS AND DIRECTLY TAKEN TO THE BALANCE SHEET. IT IS PERTINENT TO NOTE THAT THE COST OF THE WORK IN PROGRESS IS NOT TAKEN TO THE PROFIT AND LOSS ACCOUNT AND THEREFORE THE ENTIRE CAPIT ALISED AMOUNT HAS BEEN SHOWN IN THE BALANCE SHEET. ONCE THE ASSESSEE IS NOT CLAIMING ANY EXPENDITURE DIRECTLY INCURRED TOWARDS THE ONGOING PROJECTS AND SHOWN AS WORK IN PROGRESS A S IT IS CAPITALIZED AND SHOWN IN THE BALANCE SHEET THEN IN THE ABSENCE OF THE WORK IN PROGRESS BEING PART OF THE PROFIT AND LOSS ACCOUNT, THE FINANCE CHARGES WHICH ARE RELATED TO THE FUND USED FOR THE PROJECT SHOWN IN THE WORK IN PROGRESS CANNOT BE CLAIMED AS A REVENUE EXPENDITURE AS IT IS PART OF THE COST OF THE WORK IN PROGRE SS. IN ANY CASE, AS PER THE PRINCIPLE OF ACCOUNTING EITHER THE ENTIRE EXPENDITURE INCURRED IN RESPECT OF THE ONGOING PROJECT IS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE CORRESPONDING WORK IN PROGRESS IS SHOWN IN THE CREDIT SIDE OF THE PROFIT AND LOS S ACCOUNT OR THE ENTIRE EXPENDITURE IS CAPITALIZED AND TAKEN OUT FROM THE PROFIT AND LOSS ACCOUNT AND SIMILARLY THE CORRESPONDING WORK IN PROGRESS IS SHOWN IN THE BALANCE SHEET ONLY. THE ASSESSEE THOUGH TAKEN THE OTHER DIRECT 6 ITA NO. 707 /BANG/ 201 3 EXPENDITURE TO THE WORK IN PR OGRESS AND SHOWN IN THE BALANCE SHEET BUT THE FINANCE CHARGES ARE CLAIMED IN THE PROFIT AND LOSS ACCOUNT WHICH IS NOT PERMISSIBLE WHEN THE WORK IN PROGRESS IS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT. IT IS NOT A CASE OF UTILIZATION OF BORROWED FUND FOR PURCHASE OF MACHINERY OR OTHER BUSINESS ASSET SO THAT THE FUND IS SAID TO BE USED FOR CAPITAL AND IRRESPECTIVE OF THE BUSINESS ASSET BEING USED DURING THE YEAR UNDER CONSIDERATION, T HE INTEREST EXPENDITURE OF SUCH USE OF CAPITAL IS ALLOWABLE EXPENDITURE A S HELD BY HON'BLE SUPREME COURT IN THE CASE OF CORE HEALTH C ARE LTD (SUPRA) AS WELL AS TAPARI A TOOLS LTD (SUPRA). IN THE CASE ON HAND, THE BORROWED FUNDS WERE NOT USED FOR ACQUISITION OR PURCHASE OF MACHINERY OR BUSINESS ASSET BUT IT HAS BEEN USED FOR CON STRUCTION OF THE PROJECT, THIS WILL BE STOCK IN TRADE OF THE ASSESSEE AND NOT A BUSINESS ASSET. ACCORDINGLY, WHEN THE WORK IN PROGRESS IS NOT TAKEN TO THE PROFIT AND LOSS ACCOUNT THEN THE CORRESPONDING EXPENDITURE WHICH FORMS THE COST OF WORK IN PROGRESS CANNOT BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS NOT DISPUTED THE CORRECTNESS OF THE APPORTIONMENT OF THE INTEREST EXPENDITURE BY THE CIT (APPEALS) AND THEREFORE WHEN THE OTHER DIRECT EXPENDITURE OF THE WORK IN 7 ITA NO. 707 /BANG/ 201 3 PROGRESS IS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT THEN FINANCE CHARGES RELATING TO THE WORK IN PROGRESS CANNOT BE CLAIMED AGAINST THE INCOME OF SOME OTHER COMPLETED PROJECT. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT (APPEALS), THE SAME IS UPHELD. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF JULY, 201 6 . SD/ - (A .K. GAR ODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR , ITAT , BANGALORE .