In a recent ruling, the Delhi High Court observed that the interest paid but not shown as deductible expenditure for the previous period should be permitted as prior period expenditure under the provisions of the Income Tax Act, 1961.
In the instant case, the assessee an establishment engaged in the real estate business purchased a commercial land for which substantial amount was borrowed from bank. In the first year the assessee did not claimed expenditure on account of the amount paid as interest. The assessee claimed expenditure of the same for the subsequent years which was rejected by the Assessing Officer on ground that since the expenditure was not incurred during the relevant assessment year in question the claim of prior period expenditure could not be allowed.
On appeal, the first appellate authority reversed the finding of the Assessing Officer and the ITAT confirmed the same later. Aggrieved with the order, the Revenue approached the High Court contending that the amount could not be treated as prior period expenditure.
Dismissing the appeal, the division bench comprising of Justice Ravindra S Bhat and Justice Najimi Waziri relied on the decision in KumKum Cultivation, and observed that “in the eventuality of the transaction itself maturing the likelihood of the assessee being permitted to capitalize or include the interest component as part of the cost of land has not been disputed. If such is correct course of action, the reverse situation whereby the transaction does not mature, should also attract a similar treatment that the interest paid but not shown as deductible expenditure for the previous period should be permitted as prior period expenditure.”
Read the full text of the Judgment below.
