Manoj Kumar Aggarwal ORDER
Manoj Kumar Aggarwal, Member (A)
1. Aforesaid appeal by Revenue for Assessment Year (AY) 2016-17 arises out of the order of learned Commissioner of Income Tax (Appeals)-1, Chennai [CIT(A)] dated 05-08-2020 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 24-12-2018. The revenue has filed concise grounds of appeal which read as under:
1. The order of the CIT(A) is contrary to law, facts and circumstances of the case.
2. Whether the Id. CIT(A) had erred in deleting the addition made u/s. 36(1)(iii) by holding that the land is stock-in-trade, overlooking the rationale of the various case laws relied upon by the assessing officer which were discussed in the assessment order and especially in the wake of recent decision of jurisdictional high court in the case of M/s. Mahindra World City Developers Ltd. V. Assistant Commissioner of Income Tax, Company Circle IV(1), Chennai (TCA Nos. 245, 247 & 248 of 2019), where it has been held that- "Mere purchase of the land out of the borrowed capital does not entitle the assessee to claim such interest paid on borrowed capital as a deductible expenditure.
3. Whether the Id. CIT(A) has erred in relying on the Hon'ble Bombay High Court decision in the case of M/s. Jayantilal Investments v. Assistant Commissioner of Income-tax (IT Appeal No. 519 of 2003) where the assessment year involved was for AY 1988-89 i.e., prior to amendment by addition of proviso to Section 36(1)(iii) of the Act which is in effect from 01.04.2004 and since is not applicable in this present case of assessee.
2. The Registry has noted delay of 02 days in the appeal, the condonation of which has been sought by Ld. Sr. DR. Considering the period of delay, we condone the delay and admit the appeal for adjudication on merits.
3. The Ld. Sr. DR assailed the findings of Ld. CIT(A) in the impugned order and filed written submissions. Reliance has been placed on the decision of jurisdictional High Court in the case of Mahindra World City Developers Ltd. vs. ACIT MANU/TN/2122/2019 : (107 Taxmann.com 16; 22.04.2019). The Ld. Sr. DR submitted that as per proviso to Sec. 36(1)(iii) as introduced w.e.f. 01.04.2004, the amount of interest paid, in respect of capital borrowed for acquisition of any asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.
On the contrary, Ld. AR submitted that the disallowance would not be justified as held by jurisdictional High Court in the case of CIT vs. Ceebros Hotels (P.) Ltd. (MANU/TN/7432/2021 : 131 Taxmann.com 181; 05.10.2021). The copies of the decisions upon have been placed on record. Having heard rival submissions, our adjudication would be as under.
Assessment Proceedings
4.1. The assessee being resident corporate assessee is stated to be engaged in civil construction. The assessee held land of Rs. 853.52 Lacs and classified the same as 'current asset'. The assessee paid interest of Rs. 944.55 Lacs which led Ld. AO to compute disallowance u/s. 36(1)(iii). The Ld. AO held that the assessee did not capitalize any interest on such loans in respect of land classified as 'current asset'.
4.2. Upon perusal of details, it transpired that the variety of land was purchased during financial year 2012-13. Few parcels of land were sold as such whereas few parcels of land were kept for future development of residential projects. The residential construction was in progress in one of the land parcels. The assessee submitted that it was engaged in the business/infrastructure construction and construction of flats. Buying of land and sale thereof was part of its business activity.
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