INCOME TAX OFFICER, Jaipur V. ADITYA PROPCON P LTD., Jaipur

ITA 917/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3591 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C GUPTA
• Assessee Lawyers: DEEPAK KHANDELWAL CA DHK
• Keywords: Capital asset; Revenue expenditure

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 917/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2013-14. THE INCOME TAX OFFICER, WARD 7(2), JAIPUR. CUKE VS. M/S. ADITYA PROPCON PVT. LTD., A-2, PUSHP ENCLAVE, PRATAP NAGAR, SANGANER, SECTOR- 5, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACD 6226 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI K.C. GUPTA (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI DEEPAK KHANDELWAL (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 22.05.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 23/05/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 20 TH SEPTEMBER, 2017 OF LD. CIT (A)-2, JAIPUR FOR THE ASSESSMENT YEAR 2013-14. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- 2 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE ITAT WAS JUSTIFIED IN HOLDING THAT THE VALUATION OF INVENTORY OF PROJECT-2 SHOULD NOT INCLUDE INTERE ST EXPENDITURE WITHOUT APPRECIATING THE FACT THAT PARA 14 AND 16 O F THE AS-16 AND NOT PARA 7 AND 17 OF THE A-16 ARE SQUARELY APPL ICABLE TO THE CASE OF THE ASSESSEE AND MERELY BECAUSE THE LAND RA TES DID NOT INCREASE FOR A COUPLE OF YEARS DOES NOT RENDER THAT THERE IS NO FUTURE ECONOMIC BENEFIT TO THE ASSESSEE. 2. WITHOUT PREJUDICE TO THE GROUND OF APPEAL NUMBER 2, THE HONBLE ITAT FAILED TO APPRECIATE THAT THE ALLOWABILITY OF INTEREST EXPENDITURE OF RS. 3,24,92,621/- U/S 36(1)(III) OF THE INCOME TAX ACT, 1961 WOULD IMPLY THAT THE INTEREST EXPENDITURE IS NOT TO BE INCLUDED IN THE VALUATION OF INVENTORY AS VALUATION OF INVENTORY IS GOVERNED BY ACCOUNTING STANDARDS PRESCRIBED BY THE ICAI? 3. WITHOUT PREJUDICE TO THE GROUND OF APPEAL NUMBER 2, THE HONBLE ITAT FAILED TO APPRECIATE THE INCONSISTENCY IN THE VALUATION OF INVENTORY OF THE ASSESSEE ON THE ONE HAND. THE ASSE SSEE INCLUDED THE INTEREST EXPENDITURE IN THE INVENTORY OF PROJECT-1 AND ON THE OTHER HAND, THE ASSESSEE DID NOT INCLUDE THE INTEREST EXPENDITURE IN THE INVENTORY OF PROJECT-2. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE ITAT FAILED TO APPRECIATE THE INCON SISTENCY THE VALUATION OF INVENTORY OF THE ASSESSEE ON THE ONE H AND, THE ASSESSEE INCLUDED THE INTEREST EXPENDITURE IN THE I NVENTORY OF PROJECT 1 AND ON THE OTHER HAND THE ASSESSEE DID NO T INCLUDE THE INTEREST EXPENDITURE IN THE INVENTORY OF PROJECT-2. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, WITHDRAW OR INSERT ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. WE HAVE HEARD THE LD. D/R AS WELL AS THE LD. A/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS TW O PROJECTS NAMED AS 3 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. PROJECT-1 AND PROJECT-2. HOWEVER, THE REVENUE RECEI PTS HAVE BEEN SHOWN ONLY FROM PROJECT-1 AND NO RECEIPTS HAVE BEEN SHOWN FROM THE PROJECT-2. THE AO ACCORDINGLY DISALLOWED THE INTEREST EXPENDITURE AND CAPITALIZED THE SAME ON THE GROUND THAT NO ACTIVITY HAS BEEN CARRIED OUT IN RESPECT OF PROJECT-2. THE LD. CIT (A) HAS DELETED THE ADDITION MADE BY THE AO IN PARA 2.3 AS UNDER :- 2.3. I HAVE PERUSED THE FACTS OF THE CASE, THE ASSE SSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. AS NOTED BY T HE AO, THE ASSESSEE HAS TWO PROJECTS NAMED AS PROJECT 1 AN D PROJECT 2 AND DURING THE YEAR REVENUE RECEIPTS WERE SHOWN ONLY FROM PROJECT 1. SINCE NO ACTIVITY HAD BEEN CAR RIED ON IN RESPECT OF PROJECT 1 AND REVENUE RECEIVED FROM THE SAME, THE INTEREST EXPENDITURE WAS CAPITALIZED BY THE ASS ESSING OFFICER AND REVENUE EXPENDITURE WAS NOT ALLOWED. IN THE PRESENT PROCEEDINGS, THE AUTHORISED REPRESENTATIVE STATED THAT THE ISSUE HAS BEEN DECIDED IN ASSESSEE'S OWN C ASE FOR EARLIER YEARS WHEREIN IT HAS BEEN HELD AS FOLLOWS I N ITA NO. 762/JP/2012A.Y. 2009-10: 'WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND ALSO THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND THAT THE BOOKS OF ACCOUNTS OF THE AS SESSEE ARE AUDITED AND THE ID. AUDITOR HAS NOT GIVEN ANY A DVERSE COMMENT FOR NOT FOLLOWING THE ACCOUNTING STANDARDS WHICH ARE MANDATORY FOR A COMPANY U/S 211 OF THE COMPANIES ACT, 1956. WE ALSO FIND THAT THERE IS NO DISPUTE THAT THE SAID LAND IS PART OF INVENTORY FOR THE ASS ESSEE AND IS NOT A CAPITAL ASSET. THE ASSESSEE HAS PRODUCED E VIDENCES OF NO INCREASE IN THE LAND PRICE AND AO HAS NOT BRO UGHT 4 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. ANYTHING ON RECORD TO SUPPORT THAT THE ASSESSEE WOU LD BE ABLE TO REALISE THE INTEREST COST INCURRED OVER AND ABOVE THE COST OF PURCHASE OF LAND. IN SUCH CIRCUMSTANCES , AS PER BASIC ACCOUNTING PRINCIPLES OF VALUATION OF INVENTO RY THAT THE INVENTORY IS TO BE VALUED AT COST OR NET REALIS ABLE VALUE WHICH-EVER IS LOWER. THE UNCONTROVERTED EVIDENCES S HOW THAT THERE IS NO BUYER OF THE SIMILAR LAND IN SAME VICINITY AT THE PRICE WHICH IS LESSER THAN THE PRICE PAID BY TH E ASSESSEE AND THEREFORE, WE ARE CONVINCED WITH THE C IT(A) AND THE AIR OF THE ASSESSEE THAT THE INVENTORY OF L AND CANNOT BE VALUED AT A PRICE HIGHER THAN IT IS BOUGH T. LD. A/R HAS STATED THAT THE ASSESSEE HAS NOT TAKEN UP T HE PROJECT ACTIVITY EVEN TILL 31.3.2013. THE DELAY IN P ROJECT IS FOR ECONOMIC REASONS. IN SUCH CIRCUMSTANCES, THE AS -16 DOES NOT ALLOW CAPITALISATION OF INTEREST COST ALON GWITH THE COST OF LAND. IT ALLOWS CAPITALISATION OF INTEREST COST ONLY DURING NORMAL PERIOD OF CONSTRUCTION AND NOT FOR INORDINATE DELAY IN THE CONSTRUCTION ACTIVITY DUE T O ADVERSE MARKET FORCES. THERE IS SPECIFIC REQUIREMENT OF AS- 16, NOT TO CAPITALISE THE INTEREST COST ALONG WITH THE COST OF LAND IF IT IS HELD WITHOUT ANY ASSOCIATED DEVELOPMENT ACTIV ITY. ACCORDINGLY, THE ACCOUNTING TREATMENT OF THE INTERE ST COST IS PERFECTLY IN LINE WITH THE ACCOUNTING STANDARDS. WE FURTHER FIND THAT DESPITE ANY ACCOUNTING TREATMENT, THE INTEREST ON CAPITAL BORROWED FOR THE PURPOSE OF BUS INESS IS ALLOWABLE U/S 36(1)00. WE ARE THEREFORE, OF THE OPINION THAT THE INTEREST ON FUNDS BORROWED TO PURCHASE LAN D WHICH IS PART OF INVENTORY OF THE ASSESSEE COMPANY IS AN ALL OWABLE DEDUCTION U/S 36(1)(III).' THIS ORDER HAS BEEN FOLLOWED BY THE COORDINATE BENC HES OF THE ITAT JAIPUR FOR A.Y. 2010-11 & 2011-12 ALSO. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL IS ALLOWED. 5 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. THUS THE LD. CIT (A) HAS DECIDED THE ISSUE BY FOLLO WING THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. WE FURTHER NOTE THAT THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE VIDE ORDER DATED 10 TH OCTOBER, 2017 IN DB IT APPEAL NO. 82/2014, 163 & 1 64/2017 HAS HELD IN PARA 9 TO 12 AS UNDER :- 9. HE FURTHER CONTENDED THAT THE TRIBUNAL HAS ALSO COMMITTED ERROR OBSERVING AS UNDER:- '18. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD AND ALSO THE ORDERS OF THE AUTH ORITIES BELOW. WE FIND THAT THE BOOKS OF ACCOUNTS OF THE AS SESSEE ARE AUDITED AND THE ID. AUDITOR HAS NOT GIVEN ANY A DVERSE COMMENT FOR NOT FOLLOWING THE ACCOUNTING STANDARDS WHICH ARE MANDATORY FOR A COMPANY U/S 211 OF THE COMPANIE S ACT, 1956. WE ALSO FIND THAT THERE IS N DISPUTE THA T THE SAID LAND IS PART OF INVENTORY FOR THE ASSESSEE AND IS N OT A CAPITAL ASSET. THE ASSESSEE HAS PRODUCED EVIDENCES OF NO INCREASE IN THE LAND PRICE AND AO HAS NOT BROUGHT A NYTHING ON RECORD TO SUPPORT THAT THE ASSESSEE WOULD BE ABL E TO REALISE THE INTEREST COST INCURRED OVER AND ABOVE T HE COST OF PURCHASE OF LAND. IN SUCH CIRCUMSTANCES, AS PER BASIC ACCOUNTING PRINCIPLES OF VALUATION OF INVENTORY THA T THE INVENTORY IS TO BE VALUED AT COST OR NET REALISABLE VALUE WHICH -EVER IS LOWER. THE UNCONTROVERTED EVIDENCES SHOW THAT THERE IS NO BUYER OF THE SIMILAR LAND IN SAME VICINITY AT THE PRICE WHICH IS LESSER THAN THE PRICE PAID BY TH E ASSESSEE AND THEREFORE, WE ARE CONVINCED WITH THE C IT(A) AND THE A/R HAS STATED THAT THE ASSESSEE HAS NOT TA KEN UP THE PROJECT ACTIVITY EVEN TILL 31.3.2013. THE DELAY IN PROJECT IS FOR ECONOMIC REASONS. IN SUCH CIRCUMSTANCES, THE AS -16 DOES NOT ALLOW CAPITALISATION OF INTEREST COST ALONGWITH THE COST OF LAND. IT ALLOWS CAPITALISATION OF INTEREST COST ONL Y DURING NORMALLY PERIOD OF CONSTRUCTION AND NOT FOR INORDIN ATE DELAY IN THE CONSTRUCTION ACTIVITY DUE TO ADVERSE MARKET FORCES. THERE IS SPECIFIC REQUIREMENT OF AS-16, NOT TO CAPI TALISE THE INTEREST COST ALONG WITH THE COST OF LAND IF IT IS HELD WITHOUT ANY ASSOCIATED DEVELOPMENT ACTIVITY. ACCORDINGLY, T HE ACCOUNTING TREATMENT OF THE INTEREST COST IS PERFEC TLY IN LINE WITH THE ACCOUNTING STANDARDS. WE FURTHER FIND THAT DESPITE ANY ACCOUNTING TREATMENT, THE INTEREST ON CAPITAL B ORROWED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE U/S 36(1) (III ). A PROVISO HAS BEEN INSERTED W.E.F. 1.4.2004 WHICH READS AS UN DER:- 6 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. 'PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN A SSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT ); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET T ILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION'. THE PROVISO SPECIFICALLY REFERRED TO THE INTEREST P AID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ANY ASSET FO R EXTENSION OF EXISTING BUSINESS. THE PRESENT CASE IS OF ACQUIS ITION OF LAND FOR ITS DEVELOPMENT IN COURSE OF REAL ESTATE ACTIVI TY OF THE ASSESSEE. ASSESSEE IS ABOUT TO COMPLETE ONE PROJECT AND TO CONTINUE THE ACTIVITIES HAS PURCHASED ANOTHER LAND TO DEVELOP ANOTHER PROJECT. THE ARGUMENT OF THE ID. DR THAT TH E PROVISO WOULD APPLY TO THE ASSESSEE'S CASE CANNOT BE ACCEPT ED. WE ARE OF THE CONSIDERED OPINION THAT THE PURCHASE OF INVENTORY IS CONTINUATION OF THE SAME BUSINESS ACTIVITY IN ROUTI NE COURSE AND CANNOT BE TERMED AS EXTENSION OF THE BUSINESS A CTIVITY. THE PROVISO HAS BEEN INSERTED TO DISENTITLE CLAIM O F INTEREST ON FUNDS BORROWED FOR ACQUISITION OF CAPITAL ASSETS FO R THE PERIOD UPTO THE ASSET IS PUT TO USE. THE TERM 'PUT TO USE' HERE APPLIES TO CAPITAL ASSET ONLY BECAUSE A CAPITAL ASSETS IS H ELD TO FACILITATE THE BUSINESS ACTIVITY AND SOMETIMES IT N EEDS TO BE PREPARED AFTER ITS ACQUISITION FOR BEING USED TO FA CILITATE THE BUSINESS ACTIVITY. AS AGAINST THIS, PURCHASE AND HO LDING OF INVENTORY ITEM ITSELF IS A BUSINESS ACTIVITY. IN AB SENCE OF THIS PROVISO, SECTION 36(1)(III) EARLIER ENTITLED ASSESS EE TO CLAIM INTEREST IN RESPECT OF CAPITAL ASSETS, EVEN UNDER C ONSTRUCTION AS HELD IN VARIOUS JUDGMENTS POINTED OUT BY THE LD. AR OF THE ASSESSEE. THE INTEREST WAS FOUND ALLOWABLE DESPITE ITS CXAPITALIZATION IN THE BOOKS OF ACCOUNTS IN THE JUD GMENTS. WE ARE THEREFORE, OF THE OPINION THAT THE INTEREST ON FUNDS BORROWED TO PURCHASE LAND WHICH IS PART OF INVENTOR Y OF THE ASSESSEE COMPANY IS AN ALLOWABLE DEDUCTION U/S 36(1 )(III). WE ACCORDINGLY REJECT THIS GROUND OF THE DEPARTMENTAL APPEAL ALSO. 10. COUNSEL FOR THE RESPONDENT HAS SUPPORTED THE OR DER OF THE AUTHORITIES AND CONTENDED THAT THE BOTH THE AUTHORI TIES HAVE RIGHTLY HELD IN FAVOUR OF THE ASSESSEE INASMUCH AS EVEN IF THE CONTENTIONS WHICH HAVE BEEN ADVANCED BY THE DEPARTMENT, NO TAX LIABILITY HAS BEEN REDUCED OR THERE IS ANY CASE OF EVASION OF TAX . 11. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKE N BY BOTH THE AUTHORITIES I.E. CIT (A) AND TRIBUNAL. 12. IN THAT VIEW OF THE MATTER, THE ISSUE IS ANSWER ED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 7 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. IN VIEW OF THE CONSISTENT VIEW TAKEN BY THE TRIBUNA L AS WELL AS THE BINDING PRECEDENTS OF HONBLE HIGH COURT, WE DO NOT FIND AN Y ERROR OR ILLEGALITY IN THE IMPUGNED ORDER OF LD. CIT (A). 3. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23/05/2 018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 23/05/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ITO WARD 7(2), JAIPUR. 2. THE RESPONDENT M/S. ADITYA PROPCON PVT. LTD., JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 917/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 8 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR. 9 ITA NO. 917/JP/2017 M/S. ADITYA PROPCON PVT. LTD., JAIPUR.