Unitech Acacia Projects Pvt. Ltd. Vs ACIT (ITAT Delhi)
Delhi ITAT: Section 40(a)(ia) Disallowance Cannot Extend to Interest Capitalised as Work-in-Progres
In a batch of appeals involving Unitech Acacia Projects Pvt. Ltd., the Delhi ITAT held that section 40(a)(ia) applies only to expenditure claimed in the Profit & Loss Account and cannot be invoked in respect of interest that has been capitalised as Work-in-Progress (WIP). The Tribunal also dealt with TDS liability on lease rent paid to NOIDA and related authorities and the consequential interest under section 201(1A).
On the issue of TDS on annual lease rent paid to NOIDA, GNOIDA and YEIDA, the Tribunal upheld the assessee’s liability to deduct tax under section 194-I. However, following the CIT(A)’s directions, it held that interest under section 201(1A) should be computed only up to the date on which the deductee (NOIDA) filed its return of income. Accordingly, the assessee’s appeals for AYs 2008-09 and 2012-13 were partly allowed.
The Revenue’s appeal challenging the relief granted in respect of NOIDA was dismissed. The Tribunal held that the Revenue’s reliance on Adityapur Area Development Authority was misplaced because the controversy did not turn on section 10(20A); rather, the assessee’s case rested on a different statutory footing.
For AY 2015-16, the Assessing Officer had disallowed ₹5.11 crore u/s 40(a)(ia) for delayed deduction/deposit of TDS on interest paid to Unitech Ltd. The assessee explained that it followed the Percentage of Completion Method (POCM) and had debited only a part of the interest to the Profit & Loss Account, while the balance had been capitalised to Work-in-Progress. It had also voluntarily disallowed 30% of the revenue expenditure as required by section 40(a)(ia).
Accepting the assessee’s contention, the Tribunal relied on the decisions of the Mumbai ITAT in Saat Rasta Properties Pvt. Ltd. and the Kolkata ITAT in Saltee Properties Pvt. Ltd., which hold that section 40(a)(ia) cannot disallow expenditure that has never been claimed as a revenue deduction in the Profit & Loss Account. Since the capitalised interest formed part of inventory and was not claimed as an expenditure, no disallowance could be made in respect of that portion. The assessee’s appeal for AY 2015-16 was therefore allowed.
Cases Discussed
- Saat Rasta Properties Pvt. Ltd. (ITAT Mumbai), ITA No. 2464/Mum/2024
- CIT(TDS), Kanpur vs. Canara Bank (SC), Civil Appeal No. 6020 of 2018 (judgment dated 02.07.2018)
- M/s. Rajesh Projects India Pvt. Ltd., decision dated 16.02.2017
- DCIT Vs Saltee Properties Pvt. Ltd. (ITAT Kolkata), ITA No. 856/Kol/2014
- Adityapur Area Development Authority vs. UOI & Others (SC), 283 ITR 97
- NOIDA, Writ Petition No. 1338/2005, judgment dated 28.02.2011
FULL TEXT OF THE ORDER OF ITAT DELHI
The above captioned ITA No. 4527/Del/2017 filed by the appellant/assessee is against order dated 28.04.2017 of the Ld. Commissioner of Income Tax (Appeals)-41, New Delhi (hereinafter referred to as ‘the CIT(A)’) u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of order dated 28.03.2014 of Ld. AO/DCIT, TDS, Circle 51(1), New Delhi u/s 201(1)/201(1A) of the Act (hereinafter referred to as ‘the AO’) for A.Y. 2008-09.
