ACIT Vs Maximal Infrastructure Private Limited (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, has dismissed an appeal by the revenue department, reinforcing the principle that interest paid on External Development Charges (EDC) is a deductible business expenditure and not a capital or penal expense. The case, ACIT vs Maximal Infrastructure Private Limited, centered on a disallowance of Rs. 5.47 crore that the Assessing Officer (AO) had made and the Commissioner of Income Tax (Appeals), or CIT(A), had reversed.
The dispute arose during the Assessment Year 2015-16. The assessee, Maximal Infrastructure Pvt. Ltd., had paid interest to the Haryana Urban Development Authority (HUDA) for the delayed payment of External Development Charges. The company claimed this interest payment as a revenue expenditure, meaning it could be deducted from its income.
The Assessing Officer, however, rejected this claim during the scrutiny assessment. The AO provided three reasons for the disallowance:
1. Penal in Nature: The AO argued that the interest was a penalty for delayed payment and therefore not an allowable business expense.
2. Capital in Nature: The AO contended that EDC charges and the interest on them were part of the project’s cost, which would be recovered from buyers. Therefore, the interest should be treated as a capital expenditure that forms part of the work-in-progress, not a revenue expense.
3. Part of Project Cost: The AO asserted that the interest was related to the cost of materials and services for the housing project, which constitutes the company’s stock, not a fixed asset.
4. The CIT(A) reviewed the assessment order and overturned the AO’s disallowance. The CIT(A) relied on a similar case, Triveni Ferrous Infrastructure P. Ltd. vs. DCIT, where a similar payment of interest to HUDA was held to be a revenue expenditure.
Precedents and Tribunal’s Analysis
