M/s. Corolla Realty Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 80/PUN/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7150 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-11-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 19-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Capital asset; Business income
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.80/PUN/2016 / ASSESSMENT YEAR : 2011-12 M/S. KOLTE PATIL DEVELOPERS LTD., (ERSTWHILE COROLLA REALTY LTD. MERGED WITH KOLTE PATIL DEVELOPERS LTD.), 2 ND FLOOR, CITY POINT, DHOLE PATIL ROAD, PUNE 411 001 PAN : AACCC9323K . /APPELLANT VS. DCIT, CIRCLE-1(1), PUNE . / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI MUKESH JHA, CIT-DR / DATE OF HEARING : 08.11.2017 / DATE OF PRONOUNCEMENT: 15.11.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORD ER OF CIT(A)- 11, PUNE DATED 05-11-2015 FOR THE ASSESSMENT YEAR 2011-12. 2 BEFORE US, BRINGING OUR ATTENTION TO THE GROUNDS, LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NOS. 7 TO 9 ARE NOT PRESSED. THEREFORE, THEY ARE DISMISSED AS NOT PRESSED. REFERRING TO GROUND NOS. 1 TO 6, LD. COUNSEL FOR THE ASSESSEE DEMONSTRATED THA T THESE GROUNDS REVOLVE AROUND THE CORE ISSUE OF DISALLOWABILITY OF INTEREST O F RS.3,00,57,566/-. THIS INTEREST EXPENDITURE IS CAPITALIZED TO WIP ACCOUNT AND THE INCOME WAS RECOGNIZED ON THE BASIS O F PERCENTAGE ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 2 COMPLETION METHOD. THESE GROUNDS CONTAIN VARIOUS ARGUMEN TS OF THE ASSESSEE AGAINST THE FINDING OF THE CIT(A) WHO CONFIRMED THE SAID DISALLOWANCE OF INTEREST. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF REAL ESTATE BUSINESS. DURING THE YEAR, ASSESSEE UNDERTOOK THE IVY ESTATE PROJECT AT MAUZE WAGHOLI, PUNE AND THE SAME IS IN PROGRESS. ASSESSEE PURCHASED LARGE TRACKS OF LAND FOR THE REAL ESTATE BUSINESS OF THE ASSESSEE AND STARTED T HE SAID IVY ESTATE PROJECT ON SMALL PORTION OF THE SAID LAND. IN ORDER TO FINA NCE THE SAID LAND COST AND OTHERS, ASSESSEE FLOATED THE ISSUE OF DEBEN TURES AND ALSO RAISED TERM LOANS APART FROM OTHER UNSECURED LOANS. THE TOTAL INTEREST COST INCURRED BY THE ASSESSEE IN THE YEAR UNDER CONSID ERATION WORKS OUT TO RS.8,19,23,638/-. IT INCLUDES INTEREST PORTION OF RS.5,52,3 7,845/- TOWARDS INTEREST RELATABLE TO THE SAID DEBENTURES, RS.2,14 ,69,374/- TOWARDS INTEREST ON TERM LOANS, RS.51,51,137/- TOWARDS I NTEREST FROM UNSECURED LOANS AND FINALLY RS.65,282/- TOWARDS BANK CHA RGES. ASSESSEE CLAIMED THE ENTIRE INTEREST EXPENDITURE AS BUS INESS EXPENDITURE IN TWO WAYS. THE FIRST WAY INCLUDE DIRECT DEB ITING OF INTEREST COST OF RS.5,18,66,672/- TO THE PROFIT AND LOSS ACCOUNT, COP Y OF THE PROFIT AND LOSS ACCOUNT IS PLACED AT PAGE 2 OF THE PAPER BOOK. SCHEDULE S RELATES TO FINANCE EXPENSES. SECOND WAY INCLUDES THE CA PITALIZATION OF RS.3,00,57,566/- TO THE WORK-IN-PROGRESS (IN SHORT WIP) ACCOUNT AND CLAIMED THE SAME AS ALLOWABLE EXPENSES THROUGH COMPUTATION OF INCOME . 4. DURING THE ASSESSMENT PROCEEDINGS, AO NOTICED THE CA PITALIZATION OF THE SAID INTEREST EXPENDITURE OF RS.3,00,57,566/- TO WIP ACCOUNT AND HELD THE CLAIM IS NOT ALLOWABLE IN THE COMPUTATION INCOME OF T HE ASSESSEE. IN RESPONSE, ASSESSEE FILED WRITTEN SUBMISSIONS JUSTIFYING HIS CLAIM IN THE LIGHT OF THE PERCENTAGE COMPLETION METHOD OF IN COME ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 3 RECOGNITION FOLLOWED BY HIM IN THE BOOKS OF ACCOUNT. THE EX PLANATION OF THE ASSESSEE WAS REJECTED BY GIVING THE FOLLOWING REASONS . CONTENTS OF PAGES 5 AND 6 OF THE ASSESSMENT ORDER ARE RELEVANT AN D THE SAME ARE EXTRACTED AS UNDER : I. ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD . IT WAS REVEALED THAT ASSESSEE HAS SOLD STOCK OF FLATS OF RS.35.97 C RORES ONLY AND WIP OF RS.98.56 CRORES IS STILL WITH THE ASSESSEE. ASSESS EE HAS INCURRED INTEREST EXPENSES OF RS.8.19 CRORES DURING THE YEAR AND AS P ER CHART SUBMITTED BY ASSESSEE, ASSESSEE HAS TRANSFERRED RS.3 CRORES OF F INANCIAL EXPENSES OUT OF TOTAL EXPENSES OF RS.8.19 CRORES DEBITED TO PROF IT AND LOSS ACCOUNT APPLYING THE PROJECT COMPLETION METHOD. II. AUDITORS HAS ALSO CERTIFIED IT THAT FINANCIAL C HARGE OF RS.3 CRORES IS TO BE PART OF WIP AND ACCORDINGLY THE SAME HAS BEEN REDUCED FROM TOTAL FINANCIAL COST OF RS.8.19 CRORES AND BALANCE FINANC IAL COST OF RS.5.19 CRORES WAS DEBITED IN PROFIT AND LOSS ACCOUNT. III. HOWEVER, IT HAS BEEN REDUCED FROM COMPUTATION SHEET OF INCOME IN DEVIATION OF AUDIT REPORT AND IN DEVIATION OF METHO D FOLLOWED BY ASSESSEE REGULARLY. IV. IT IS NOT JUSTIFIABLE THAT ALL THE FINANCIAL CO ST WAS INCURRED FOR EARNING CURRENT YEAR INCOME ONLY ALTHOUGH CONSTRUCT ION OF SOME PROJECT IS STILL IN PROGRESS AND ASSESSEE HAS SHOWN WIP OF RS. 98.56 CRORES IN COMPARISON OF READY STOCK OF RS.35.97 CRORES. V. THE CONTENTION OF ASSESSEE THAT ONCE BUSINESS IS SET UP, ENTIRE INTEREST EXPENDITURE HAS TO BE ALLOWED AS A DEDUCTI ON EVEN THOUGH IN THE BOOKS THE ASSESSEE HAD CAPITALIZED PART OF THE INTE REST TO THE WIP IS NOT CORRECT. SOME PROJECT OF ASSESSEE IS STILL IN PROG RESS AND BORROWED FUND HAS BEEN USED ON SUCH PROJECT. THEREFORE, FOLLOWIN G PROJECT COMPLETION METHOD IT HAS TO BE CAPITALIZED. THIS VIEW IS IN A CCORDANCE OF AUDITORS REPORT AND METHOD FOLLOWED BY ASSESSEE. VI. BY MAKING SUCH ARBITRARY DEVIATION FROM AUDIT R EPORT AND IN DEVIATION OF METHOD FOLLOWED BY ASSESSEE REGULARLY ASSESSEE HAS REDUCED A TAXABLE INCOME OF RS.3 CRORES TO AVOID PAYING TAX ES IN CURRENT YEAR AND SHIFTED IT TO SUBSEQUENT YEAR. ACCORDINGLY, THE CLAIM OF ASSESSEE THAT INTEREST COS T OF RS.3,00,57,566/-, REDUCED FROM COMPUTATION SHEET OF INCOME WAS CORREC TLY DONE HAS NOT MERIT AND THE SAME IS DISALLOWED AND ADDED BACK TO THE INCOME OF ASSESSEE. PENALTY U/S.271(1)(C) IS INITIATED SEPAR ATELY FOR INACCURATE PARTICULARS OF INCOME. 5. THE ABOVE EXTRACT PROVIDES THE INFORMATION THAT THE AO IS UNDER MISTAKEN BELIEF THAT THE ASSESSEE FOLLOWS PROJECT COMPLETION METHOD AND NOT THE PERCENTAGE COMPLETION METHOD. THIS BELIEF LED HIM T O THE CONCLUSION THAT DEDUCTION, IF ANY, IS ALLOWABLE ONLY AT THE E ND OF THE PROJECT, THE YEAR OF RECOGNITION OF THE TAXABLE INCOME OF T HE PROJECT. ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 4 ACCORDINGLY, THE ASSESSEES CLAIM OF INTEREST COST OF RS.3,0 0,57,566/- WAS REDUCED FROM THE COMPUTATION SHEET OF INCOME. THE SAID D ECISION OF THE AO WAS CONFIRMED BY THE CIT(A) AS PER THE DISCUSSION GIVEN IN PARA NOS. 8 TO 13. 6. CIT(A) CONSIDERED THE WRITTEN SUBMISSIONS OF THE ASSESS EE DATED 05-10-2015 WHICH IS ALSO EXTRACTED IN PARA 6 OF THE IMPU GNED ORDER. IN THE SAID SUBMISSIONS, ASSESSEE NARRATED THE FACT OF PERC ENTAGE COMPLETION METHOD BEING FOLLOWED BY THE ASSESSEE, INAPPLICABILIT Y OF THE SPECIAL BENCH DECISION IN THE CASE OF WALL STREET CONSTRUC TION LTD. 101 ITD 156. THE DECISION IS RELEVANT FOR THE PROPOSITION OF DEBITING THE INTEREST EXPENDITURE AGAINST THE REVENUE RECOGNITION ON THE BASIS OF MATCHING CONCEPT IN THE YEAR OF RECOGNITION OF THE INCOME IN A CASE WHICH FOLLOWS THE PROJECT COMPLETION METHOD. CIT(A) CONFIRMED THE CONCLUSION OF THE AO. 7. AGGRIEVED AGAINST THE ADVERSE DECISION OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US WITH THE ISSUE SUMMARISED ABOVE. 8. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTIRE INTEREST EXPENDITURE OF RS.8,19,23,638/- (RS.5,18,66,672 + RS.3,00,57,566/- ) CONSTITUTES AN ALLOWABLE EXPENDITURE WITHIN THE MEANING OF SECTION 36(1)(III) OF THE ACT. ACCORDING TO THE CLAUS E (III) OF SECTION 36(1), AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION CONSTITUTES AN ALLOWABLE DEDUCTION . HE ALSO SUBMITTED THAT THE PROVISO TO SAID CLAUSE (III) PROHIBITS THE CLAIM OF DEDUCTION OF ANY AMOUNT OF INTE REST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ASSET . OTHERWISE, THE INTEREST EXPENDITURE INCURRED FOR THE BUSINESS PURPOSES IS AN ALLOW ABLE DEDUCTION. ACCORDING TO THE LD. COUNSEL FOR THE ASSESS EE WHO RELIED ON ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 5 VARIOUS JURISDICTIONAL HIGH COURT JUDGMENTS, AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSI NESS OR PROFESSION CONSTITUTES AN ALLOWABLE DEDUCTION . THIS PRINCIPLES APPLY TO BOTH CASES OF INCOME RECOGNITION (1) BY PROJECT COMPLETION METHOD AND (2) PERCENTAGE COMPLETION METHOD. ACCORDINGLY, LD. COUNSEL SUBMIT THAT TH IS LEGAL POSITION DOES NOT CHANGE WITH THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 9. TO SUPPORT THE ABOVE, LD. COUNSEL FOR THE ASSESSEE B ROUGHT OUR ATTENTION TO THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. 260 ITR 579 DA TED 15-01-2003 WHICH IS RELEVANT FOR THE PROPOSITION THAT SINCE THE ASSESSEE HAS RECEIVED LOAN FOR OBTAINING STOCK IN TRADE, THE A SSESSEE WAS ENTITLED TO DEDUCTION OF INTEREST U/S.36(1)(III) OF THE ACT ON BOR ROWED CAPITAL . THIS IS THE CASE WHERE PROJECT COMPLETION METHOD WAS FOLLOWED BY THAT ASSESSEE. FURTHER, REFERRING TO THE DECISION OF MUMBAI BENCH OF THE T RIBUNAL IN THE CASE OF M/S. ROHAN ESTATES PVT. LTD. IN ITA NO.7200/MUM/ 2010 ORDER DATED 16-01-2013, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILAR VIEW WAS PRONOUNCED FOLLOWING THE ABOVE JUDGMENT. FURTHE R, REFERRING TO ANOTHER DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF M/S. ASHISH BUILDERS PVT. LTD. VS. ACIT AND VICE VERSA IN ITA N OS. 310/MUM/2012, ITA NO.1566/MUM/2011, ITA NO.7317/MUM/201 3, ITA NO.433/MUM/2012, ITA NO.6658/MUM/2013 ORDER DATED 23-09-2016 (WHERE ONE OF US IS THE PARTY), LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTIRE INTEREST EXPENDITURE ON THE B ORROWED LOAN IS HELD ALLOWABLE IN THE CASE OF THE ASSESSEE WHO FOLLOWS THE PERCENTAGE COMPLETION METHOD. THE FACTS OF THIS CASE ARE VERY CLOSE TO THE FACTS OF THE PRESENT CASE. IN THE SAID CASE, THE REVENUE DID NOT ALLOW THE DEDUCTION OF INTEREST EXPENDITURE FOR THE PURPOSE OF CAPIT ALISING TO THE ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 6 WIP ACCOUNT AND STRANGELY ALLOWED THE INTEREST SEGMENT RELATABLE TO THE LOAN ATTRIBUTABLE TO THE UNUTILISED SEGMENT OF LAND IN THE Y EAR UNDER CONSIDERATION. HE ALSO SUBMITTED THE DETAILS BRINGING OUT T HE APPLICABILITY OF THE SAID RATIO TO THE FACTS OF THIS CASE. 10. PER CONTRA, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A). HE TRIED TO DISTINGUISH THE APPLICAB ILITY OF THE SAID JUDGMENTS TO THE FACTS OF THE PRESENT CASE. HE FAIR LY SUBMITTED THAT THE AOS DECISION OF ALLOWING THE ASSESSEES CLAIM OF INTERE ST EXPENDITURE OF RS.5,18,66,672/- AND DISALLOWING RS.3,00,57,566/- IS INDEFENSIBLE . HOWEVER, HE RELIED HEAVILY ON THE SPECIAL BENCH DECISION I N THE CASE OF WALL STREET CONSTRUCTION LTD. (SUPRA). 11. WE HEARD BOTH THE PARTIES ON THE LIMITED ISSUE OF ALLOW ABILITY OF CLAIM OF DEDUCTION OF RS.3,00,57,566/- THROUGH THE WORKING CA PITAL ROUTE USING THE COMPUTATION OF INCOME FOR CLAIMING THE SAID DEDUCT ION. WE FIND THAT IT IS A WEIRD CASE THAT THE AO MISSED THE FACT T HAT THE ASSESSEE FOLLOWS PERCENTAGE COMPLETION METHOD, AND ALLOWED INTEREST E XPENDITURE OF RS.5,18,66,672/-, I.E. THE INTEREST RELATABLE TO THE UNUTILISE D PORTION OF THE LAND PURCHASED BY THE ASSESSEE FOR ITS BUSINESS PUR POSES IN THIS YEAR BUT FINALLY AO IS STUCK UP WITH THE CAPITALISED PORTION OF INT EREST OF RS.3,00,57,566/- TO THE WORKING CAPITAL ACCOUNT. IT IS UNFO RTUNATE THAT AOS FOCUS IS ON THE ALLOWABILITY OF THE INTEREST EXPENDITURE WHICH IS ACTUALLY RELATABLE TO THE UTILISED LAND FOR THE BUSINESS PUR POSES IN THE YEAR UNDER CONSIDERATION. IGNORING THE SAME, WE FOCUS OU RSELVES ON THE CURRENT ISSUE OF ALLOWABILITY OF THE INTEREST CLAIM OF RS.3,00,57 ,66/- IN THE LIGHT OF THE FACTS AND THE JUDGMENTS IN FORCE. 12. ON PERUSAL OF THE ABOVE JURISDICTIONAL HIGH COURT JUDG MENTS AS WELL AS THE COORDINATE BENCH DECISIONS AS WELL AS THE COM PARATIVE CHART ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 7 CONTAINING THE FACTS OF THE CASES WITH THE FACTS OF THE PR ESENT CASE, WE FIND THE ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE BY THE HIGHER JUDICIARY AND THE COORDINATE BENCH OF THE TRIBUNAL. FOR T HE SAKE OF COMPLETENESS, WE EXTRACT THE COMPARISON OF THE CASES CITED ABOVE : SR. NO. FACT INVOLVED ASSESSEES CASE ASHISH BUILDERS CASE LOKHANDWALAS CASE 1 METHOD OF ACCOUNTING PERCENTAGE COMPLETION METHOD OF ACCOUNTING PERCENTAGE COMPLETION METHOD OF ACCOUNTING PERCENTAGE COMPLETION METHOD OF ACCOUNTING 2 BUSINESS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF FLATS 3 UTILISATION OF LOAN FOR EXECUTION OF THE PROJECT FOR EXECUTION OF THE PROJECT FOR PURCHASE OF DEVELOPMENT RIGHTS OF THE PLOT 4 CONTENTION OF THE A.O. THE INTEREST RELATING TO THE AREA WHICH IS UNDER CONSTRUCTION SHOULD BE CAPITALISED TO THE WORK IN PROGRESS THE INTEREST RELATING TO THE AREA WHICH IS UNDER CONSTRUCTION SHOULD BE CAPITALISED TO THE WORK IN PROGRESS THE INTEREST PAID ON THE LOAN PURCHASE OF DEVELOPMENT RIGHTS OF THE PLOT SHOULD BE CAPITALIZED TO THE WORK IN PROGRESS 5 WHETHER THE CONSTRUCTION OF THE PROJECT HAD COMMENCED YES YES NO 6 CLAIM OF INTEREST THE ASSESSEE HAS CONTENDED THAT THE ENTIRE INTEREST INCURRED BY IT SHOULD BE ALLOWED AS A DEDUCTION WHILE COMPUTING ITS PROFITS EVEN IN THE CASE OF ASHISH BUILDER, THE ASSESSEE HAS CLAIMED DEDUCTION OF ENTIRE INTEREST EXPENDITURE WHILE COMPUTING ITS INCOME THE ASSESSEE HAS STATED THAT THE INTEREST PAID IS TO BE ALLOWED AS A DEDUCTION WHILE COMPUTING ITS INCOME THE ABOVE COMPARATIVE CHART ADVOCATES FOR ALLOWING THE IN TEREST EXPENDITURE ON THE CAPITAL BORROWED FOR BUSINESS PURPOSE S IN VIEW OF THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 13. FURTHER, WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN TH E CASE OF M/S. ASHISH BUILDERS PVT. LTD. (SUPRA) HAS DECIDED AN IDENTICA L ISSUE IN FAVOUR OF THE ASSESSEE. RELEVANT PARAGRAPHS ARE BEING R EPRODUCED HEREUNDER FOR BETTER APPRECIATION OF THE ISSUE : 6. GROUND NO.1 OF THE APPEAL RELATES TO THE ADDITI ON OF SOME OF THE EXPENSES TO THE WIP ACCOUNT I.E. INTEREST ON UNSECURED LOAN/FIX ED DEPOSITS (SIC- CAR LOAN), ADVERTISEMENT EXPENSES, BROKERAGE EXPENSES AND LOAN PROCESSING FEES. ASSESSING OFFICER CONSIDERED THE ABOVE EXPENSES AS RELATABLE TO THE WORK-IN-PROGRESS ACCOUNT AND RECOMPUTED THE WIP ACCOUNT AT RS.5,33,2 8,339/-. ASSESSEE CONTENDS THAT THE ABOVE SAID EXPENDITURE IS FULLY ALLO WABLE IN THE YEAR UNDER CONSIDERATION. IN THIS REGARD, ASSESSEE RELIED ON VARIOUS ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 8 DECISIONS. THIS ISSUE IS RELEVANT FOR A.YS/APPEALS UNDER CONSIDERATION. WE SHALL TAKE UP EXPENDITURE-ACCOUNT WISE ADJUDICATION IN TH E FOLLOWING PARAGRAPHS: A) INTEREST ON UNSECURED LOANS AND FIXED DEPOSITS: IT IS THE CLAIM OF THE ASSESSEE THAT THE ENTIRE INTEREST EXPENDITURE IS AL LOWABLE AS IT IS A TIME RELATED FIXED FINANCE COST ON THE BORROWED CAPITAL. THE CLA IM 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 RO HAN 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 EX PLANATORY AND THE DECISION OF THE TRIBUNAL SUPPORTS THE CASE OF THE ASSESSEE. UNDER C OMPARABLE FACTS OF THE ASSESSEE, INTEREST COST WAS ALLOWED IN FAVOUR OF THE ASSESSEE RELYING ON BINDING JURISDICTIONAL HIGH COURT JUDGMENT IN THE C ASE 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 WHI CH IS REPRODUCED AS UNDER: '3.2. WITH REGARD TO THE INTEREST EXPENDITURE, .... ........ THE INTEREST COST ON THE CORRESPONDING CAPITAL BORROWED WOULD NEVERTHELE SS 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 TI ME AFTER ITS COMPLETION. WHILE REVENUE WOULD STAND TO BE BOOKED ONLY ON THE PART, IF ANY, SOLD, THE INTEREST COST WOULD CONTINUE TO BE I NCURRED ON THE ENTIRE CAPITAL, EVEN AS NO CORRESPONDING GAIN INURES IN TE RMS 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 REAS ONS THAT INTEREST (FINANCING) COST IS NORMALLY CONSIDERED AS ONLY A P ERIOD (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 I S THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOWED BY THE ASSESSEE , I.E., ON A YEAR TO YEAR BASIS. THE SAME ALSO HAS THE SANCTION OF LAW I NASMUCH 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(1)(III) BEING ALSO SATISFIED, AND TOWARD WH ICH THE ASSESSEE RELIES ON THE DECISION IN THE CASE OF CIT VS. LOKHANDWALA CONSTRUCTION INDS. LTD.(SUPRA). THE SAME ALSO CLARIFIES THAT THE INTER EST COST IS TO ALLOWED U/S. 36(1)(III), IRRESPECTIVE OF WHETHER IT STANDS INCURRED IN RELATION TO STOCK-IN-TRADE OR ON CAPITAL ACCOUNT, AS THE SAID S ECTION DRAWS NO SUCH DISTINCTION. THE ISSUE, THOUGH, WE MAY CLARIFY, IS NOT AS TO WHETHER THE BORROWED CAPITAL STANDS UTILIZED TOWARD TRADING OPE RATIONS OR ON CAPITAL ACCOUNT; THE INSTANT CASE BEING DECIDEDLY OF THE FO RMER, BUT WHETHER THE SAID COST, HAVING BEEN INCURRED, IS TO BE CAPITALIZ ED 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 O NLY THE COST THAT IS INCURRED AND OTHERWISE ALLOWABLE, WHICH, IT MAY BE APPRECIATED, WOULD STAND TO BE CONSIDERED THUS, WHERE IT OTHERWISE QUA LIFIES FOR BEING RECKONED AS A PART OF THE COST OF PRODUCTION/CONSTR UCTION, AND THUS OF THE INVENTORY OR THE PROJECT COST AS AT THE YEAR-END. T HE DEDUCTIBILITY OF THE SAID COST U/S. 36(1)(III) IS THUS NEITHER IN DOUBT NOR IN DISPUTE. FURTHER, IT MAY ALSO BE IN PLACE TO STATE THAT SECTION 36(1)(II I) STANDS SINCE AMENDED BY FINANCE ACT, 2003 W.E.F. 01/4/2004, BY WAY OF IN SERTION OF A PROVISO THERETO, SO THAT ANY INTEREST COST ON CAPITAL ACCOU NT IS TO BE NECESSARILY CAPITALIZED. ACCORDINGLY, IT IS ONLY THE INTEREST C OST FOR THE PERIOD POST ACQUISITION OF A CAPITAL ASSET, THAT WOULD STAND TO BE DEDUCTIBLE IN COMPUTING THE BUSINESS INCOME QUA THE BUSINESS OF W HICH THE RELEVANT ASSET IS A OR IS TO CONSTITUTE A PART (ALSO REFER E XPLANATION 8 TO S.43(1)). THE SAID DECISION MAY, THUS, IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, AS WELL AS THE AMENDED LAW, NOT BE OF MUCH AS SISTANCE.' 7. WE HAVE ALSO PERUSED THE SAID BINDING HIGH COURT JUDGMENT IN THE CASE OF M/S. LOKHANDWALA CONSTRUCTION INDUSTRIES LTD. (SUPR A) AND FIND THE SAME IS RELEVANT FOR THE FOLLOWING CONCLUSION - 'CONSTRUCTI ON PROJECT UNDERTAKEN BY THE ASSESSEE BUILDER CONSTITUTED ITS STOCK IN TRADE AND THE ASSESSEE WAS ENTITLED TO ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 9 DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT IN RE SPECT 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 DYE ING AND PRINTING WORKS 34 ITR 265 BOMBAY, HON'BLE BOMBAY HIGH COURT CONCLUDED THAT THE INTEREST EXPENDITURE RELATING TO THE BORROWED CAPITAL IS ALLOW ABLE UNDER SECTION 36(1)(III) OF THE ACT. THE RELEVANT LINES FROM THE PARA 4 REA DS AS UNDER:- 'THAT, WHILE ADJUDICATING THE CLAIM FOR DEDUCTION U NDER SECTION 36(1)(III) OF THE ACT THE NATURE OF EXPENSE - WHETHER THE EXPENDITURE WAS ON CAPITAL ACCOUNT OR REVENUE ACCOUNT - WAS IRR ELEVANT AS THE SECTION ITSELF SAYS THAT INTEREST PAID BY THE A SSESSEE ON THE CAPITAL BORROWED BY THE ASSESSEE WAS AN ITEM OF DEDUCTION. THAT THE UTILIZATION OF CAPITAL WAS THE RELEVANT FOR THE PUR POSE OF ADJUDICATING THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. (REFERRING TO THE JUDGMENT IN THE CASE OF CALI CO) IT WAS LAID DOWN THAT WHERE AN ASSESSEE CLAIMS DEDUCTION OF INTEREST P AID ON THE CAPITAL BORROWED ALL THAT THE ASSESSEE WAS TO S HOW THAT THE CAPITAL WHICH WAS BORROWED WAS USED FOR BUSINESS PURP OSE 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 MATTE R WE ARE OF THE OPINION THAT THE ASSESSEE IS ENTITLED TO CLAIM ENTIRE INTEREST DEDUCTIO N RELATABLE TO THE CAPITAL BORROWED AND UTILIZED FOR BUSINESS PURPOSE S IN THE YEAR UNDER CONSIDERATION. RESULTANTLY, WE DISAPPROVE THE DECISION OF THE ASSESSING OFFICER/CIT(APPEALS) IN TRANSFERRING THE INTEREST EXPENDITURE TO WIP ACCOUNT. THEREFORE, ASSESSEE IS JUSTIFIED IN DEBITING THE SA ME TO THE P&L ACCOUNTS OF THE RESPECTIVE ASSESSMENT YEARS. THUS, WE ORDER THE ASS ESSING 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 (III) OF SECTION 36(1) OF THE ACT SUPPORTS THE ASSESSEES 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. ASHIS H BUILDERS PVT. LTD. (SUPRA) IRRESPECTIVE OF THE METHOD OF ACCOUNTING O F RECOGNISING THE INCOME FOLLOWED BY THE ASSESSEE. THE PRESENT CASE IN VOLVES 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/- AN D RELATED CAPITAL BORROWED WAS NOT UTILISED BY THE ASSESSEE FOR BUS INESS PURPOSES OF THE ASSESSEE. ITA NO. 80/PUN/2016 M/S. KOLTE PATIL DEVELOPERS LTD., 10 THEREFORE, IN OUR CONSIDERED OPINION, THE CLAIM OF THE ASSESS EE IN CAPITALISING THE INTEREST EXPENDITURE OF RS.3,00,57,566/- TO T HE WIP ACCOUNT WHICH WAS THE BASE FOR COMPUTING OR RECOGNISING THE TAXABLE PROFITS OF THE YEAR IS IN ACCORDANCE WITH THE DECLARED POLIC Y OF PERCENTAGE COMPLETION METHOD FOR INCOME RECOGNITION. IN OUR VIEW, THE CLAIM OF THE ASSESSEE IS FAIR AND REASONABLE. THEREFORE, THE ORDER OF CIT(A) ON THIS ISSUE IS REQUIRED TO BE REVERSED. ACCORDINGLY, GROUND NO S. 1 TO 6 RAISED BY THE ASSESSEE ARE ALLOWED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF NOVEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 15 TH NOVEMBER, 2017. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) - 1 1 , PUNE CIT - 1 1 , PUNE , , B BENCH PUNE; / GUARD FILE.