INCOME TAX ACT, 1961

Section 145

Accounting method - Computation of profit - Deduction of interest expenditure under section 36(1) -

Assessee was engaged in the business of Real Estate. The sole issue arose as to whether Tribunal was right in law in holding that interest expenditure was Capital in nature since assessee had in its books, included interest portion related to projects as its work in progress in its books, and claimed them as a deduction in income computation memo for the purposes of tax payments. Held: Assessee had admittedly capitalized the interest paid on borrowed capital and also had not claimed that land in question was put to use. Mere purchase of land in question out of the borrowed capital did not entitle assessee to claim such interest paid on borrowed capital as a deductible expenditure only on the basis of method of accounting prescribed under section 145A. Method of accounting provided for valuation of inventory under section 145A does not determine the allowability of the expenditure. Proviso to section 36(1), which says that such claim of deduction would be allowed when it was put to use, would override the provisions contained in section 145A. Therefore, appeal of assessee was dismissed.

REFERRED : The Chamber of Tax Consultants & Anr. v. Union of India & Ors. (2018) 400 ITR 178 (Delhi) : 2017 TaxPub(DT) 4727 (Del-HC) and Shri Mahindra World City Developers Ltd. v. Asstt. CIT [I.T.A. Nos. 2084, 2085 & 2086/Chny/2016, dt. 27-6-2018]

FAVOUR : Against the assessee.

A.Y. :

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