ACIT Vs Giraffe Developers Pvt Ltd (ITAT Mumbai)
Summary: The Revenue challenged the order dated 15/12/2025 passed by the Commissioner of Income-tax (Appeals)-49, Mumbai for Assessment Year 2014-15, which deleted an addition of ₹13.88 crore relating to interest expenditure attributable to unsold real estate units. The assessee was engaged in real estate construction and development. The project had been completed during Financial Year 2010-11 and the Occupation Certificate (OC) was obtained on 23.12.2010. During the relevant period, the assessee claimed interest expenditure on borrowed funds used in its real estate project. Certain interest expenditure had earlier been disallowed under Section 40(a)(ia) of the Income-tax Act, 1961 due to non-compliance with TDS requirements. After the prescribed TDS conditions were subsequently fulfilled, the assessee claimed deduction of ₹13.88 crore in the year under consideration.
The Assessing Officer accepted that the statutory requirement regarding deduction and payment of TDS had been fulfilled but held that the interest attributable to unsold flats constituted part of the cost of inventory and could be allowed only when the respective flats were sold. The CIT(A), however, deleted the addition. It held that the project had already been completed and the unsold units constituted finished goods or stock-in-trade. Consequently, borrowing costs incurred after completion were to be charged to the Profit & Loss account as revenue expenditure. The CIT(A) further noted that the interest expenditure pertained to FY 2012-13, substantially after completion of the project, and that the assessee had fulfilled the statutory TDS requirement for claiming deduction under the proviso to Section 40(a)(ia).
