Case Law Details
ACIT Vs MMR Social Housing Pvt. Ltd. (ITAT Mumbai)
ITAT Mumbai held that it is an undisputed fact that loan is borrowed for the purpose of project and the said project constitutes stock-in-trade. Accordingly, interest expenditure cannot be disallowed by capitalizing it to work in progress. Such interest expenditure is revenue in nature.
Facts-
The assessee is a company engaged in the business of real estate construction and development. During the year under consideration, the assessee was developing residential project named as ‘Casa Royale’ at Thane. AO noticed that assessee had debited Rs 5,00,78,994/- on account of interest cost retained in Inventory which was claimed as revenue expenditure by the assessee. The assessee company is following mercantile system of accounting and recognizing the revenue from the above project following Percentage of Completion Method.
The assessee for the purposes of construction had borrowed interest bearing funds from the bank as well as from the group concerns. AO observed that the assessee is developing one project only and that the accounting of the Construction activity has been done in accordance with Accounting Standard 7 (AS-7) as well as Guidance Note on Accounting for Real Estate Transaction issued by the Institute of Chartered Accountants of India (ICAI). The assessee had paid interest of Rs 19.75 crores and after reducing the interest income of Rs 14.75 crores, net interest expenses of Rs 5 crores had been claimed as deduction by the assessee company.
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