The Delhi ITAT has allowed the interest expenses are attributable to the ongoing development projects.

The assessee filed return of income declaring loss of Rs.33,22,070/- for the Assessment Year 2014-15 in question. The return so filed was subjected to scrutiny assessment. In the course of the scrutiny assessment, the Assessing Officer inter alia observed that the assessee-company is in the process of developing agricultural land located at an outskirt of Amritsar for the purposes of residential colony having two projects namely, Mega project and Global Project. 

The assessee-company has obtained secured loan from NBFC namely, Reliance Capital Ltd. to complete the projects in hand and has incurred interest on such loan taken for the purposes of development of land in the year 2008. The Assessing Officer thus observed that the interest expenses to the tune of Rs.28,80,527/- are attributable to the ongoing development projects and thus are capital in nature and hence wrongly claimed to be in the revenue field. The interest expenses are thus disallowed.

The assessee argued that where the assessee-company was engaged in construction of building and undertook a project and obtained certain loans for such work in progress and where the project obtained constituted stock-in-trade, the interest paid on borrowed capital was allowable deduction under Section 36(1)(iii) of the Act. 

The issue raised was whether the interest expenses incurred are capital in nature and requires to be capitalized with the cost of the development project or whether such interest expenses can be treated as revenue expenses as claimed by the Assessee.

The tribunal held that the interest expenses is being claimed from last several years and is being claimed in the subsequent assessment years as well. The Revenue has accepted the stand of the assessee that interest expenses incurred are revenue in nature in the identical facts situation in all these years except the assessment year 2014-15 in question.

Case Title: Tewari and Gangahar Infrastructure Pvt. Ltd. V/s ACIT