Interest Amount incurred towards Project Expenses cannot be Deducted from Project Expenses: ITAT upholds order of CIT(A) [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that Interest amount incurred towards project expenses not liable to be reduced from project expenses

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)[CIT(A)] on the ground that the CIT(A) erred in law in deleting the disallowance of Rs. 8,35,81,377/- on account of Penal Interest and in directing the AO not to reduce the said amount and allow it to be capitalized under project expenses.

It was brought to the attention of the tribunal that the impugned interest claimed by the assessee wasneither related to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority and payable as per the agreement at 3% of the default amount due to delay for the payment of lease amount.

The additional interest payment was as per agreement and the same was not in penal in nature therefore, the assessee rightly capitalized the same as work in progress. Further, drawing the tribunal’s attention, it was submitted that the AO himself noted that the assessee has not claimed but has only capitalized the same under the head project expenses (work in progress), thus, the same will not have any bearing the on the taxable income for the year under consideration, but will have bearing only on further profits/ income.

On careful consideration, the tribunal noted that the AO denied capitalization of interest paid to Noida authority by holding and alleging that the same waspenal in nature, thus, not allowable under the provisions of the Act. On the other hand from the relevant part of the first appellate order, the tribunal noted that the ld CIT(A) recorded following findings for grant of relief to the assessee and allowing the assessee to capitalized impugned amount of interest paid.

The bench observed that it was clear that the after evaluation of documentary evidence including agreement with the Noida Authority, the CIT(A) noted that the interest claimed by the assessee neither related to any offence or arising out of any prohibition in law or any infraction of law but related to the delay in payment for the lease amount to the Noida Authority and thus parable as per the agreement

The two-member bench consisting of C.M. Garg (Judicial Member) and M. Balaganesh (Accountant Member) inclined to agree with the conclusion of the CIT(A), where the authority directed the AO not to reduce the amount of interest from the work in progress and allow the same to be capitalized under the project expenses.  Accordingly, the appeal was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates