Birla Infrastructure Ltd ( Earlier ... vs Assessee

/Assessee by : Shri K.Shivaram /Revenue by : Shri Pavan Kumar Beerla Date of Hearing : 19/11/2014 Date of Pronouncement : 21/01/2015 ORDER

PER R.C.SHARMA (A.M.) :

This is an appeal filed by the assessee against the order of CIT(A),

dated 31-8-2010, for the assessment year 2004-05, in the matter of order

passed u/s.143(3) of the I.T.Act.

2. In ground No.1, assessee is aggrieved for disallowance of interest

of Rs.21,77,370/-. Facts in brief are that assessee company filed its

return of income on development on project completion method. During

the year under consideration, the assessee company has disclosed its

income on completion method of Juhu project, wherein financial charges-

have been claimed. In the assessment order, the A.O. observed that the 2 ITA No.1542/2011

assessee is running Matunga Project wherein WIP of Matunga Project is

Rs.3, 15,89,734/-. The A.O. very specifically observed that the appellant

company merely received credit of advances for Matunga project of

Rs.57,49,603/- only. In addition to this, the A.O. has taken note of the

assessee company balance sheet, wherein the A.O. noticed capital of

Rs.IO Lakhs and Reserves & Surplus of Rs.19,20,442/- only. Thus, he

concluded that the assessee company's own fund is only Rs.29,20,422i-

in addition to advances received against Matunga Project

ofRs.57,49,603/-. The A.O. very specifically mentioned that assessee's

borrowing is Rs.3,28,35,307/- from company Mis Lakshmi Properties Ltd.

to which the interest of Rs. 70,40,236/- has been paid. The A.O. has very

categorically made detailed analysis of assessee's own fund, capital and

reserves and surplus, WIP of Matunga Project, Borrowings of the

assessee's company and its utilization in detail on page-2 & 3 of the

assessment order, which is based on assessee's own submission, profit

and loss account and balance sheet of the assessee company for the

year ending 31.03.2004 and thereafter disallowed interest claim of

Rs.21,77,370/- on the plea that such interest pertains to Matunga Project

which was in progress during the year and profit of which was not offered

for taxation during the year.

3. By the impugned order after calling remand report, the CIT(A)

recorded a finding to the effect that the AO has taken note of even cash

flow statement and after detailed analysis of the same, the AO has very

specifically reported that out of the total borrowed funds of

Rs.3,28,35.307/- from Lakshrni Properties Ltd., the appellant has utilized 3 ITA No.1542/2011

only 1 crore towards repayment of inter corporate deposits. He also tried

to prove very specifically in its report dated 11/03/2010 that

Rs.2,01,35,307/- only was utilized towards Juhu project. Further to that, I

also intend to point out that assessee's this contention that loan borrowed

from HDFC of Rs.1,15,00,000/- was only utilized for Matunga Project

against total WIP of Rs.3,15,89,734/- is not tenable. Having perused the

term loan agreement dated 23/01/04 between the assessee company and

HDFC, it is evident that merely Rs.40 Lacs was given to the assessee

company as on 23/01/04 vide cheque No.0483409 by HDFC when the

remaining loan 75 Lacs was disbursed to the assessee company is not

evident from the details filed by the assessee. In addition to this, the

A.O.'s report clearly suggest that the assessee company was having its

capital and reserves and surplus to Rs.29,20,422/- only, where as WIP of

Matunga Project was Rs.3,15,89,734/-. Accordingly, CIT(A) upheld the

disallowance of claim of interest, against which assessee is in appeal

before us.

4. We have considered rival contentions as well as order of the lower

authorities and the remand report sent by the AO and found that the A.O.

has very categorically analyzed WIP, the source available for investment

by the assessee company. In view of all these facts and submission

available, the CIT(A) observed that the A.O. was justified in allocating

expenses of Rs.21,77,370/- on Matunga Project as interest cost, which

deserves to be allocated in this account i.e. Matunga Project. In view of

the fact that the assessee was offering income on the completion of the

project and once the interest cost is attributed to the Matunga Project, 4 ITA No.1542/2011

which deserves to be added in the amount of work-in-progress of

Matunga Project. We found that the Matunga Project has been completed

in the assessment year 2007-08. Accordingly, we direct the AO to

increase opening balance of work-in-progress of Matunga Project for the

assessment year 2007-08 and to allow claim of deduction while

computing profit of Matunga Project for the assessment year 2007-08. We

direct accordingly.

5. The assessee is also aggrieved for disallowance of Rs.2,54,500/-

as prior period expenses. We have considered rival contentions and

carefully gone through the orders of the authorities below. We found that

the AO in its assessment order has stated that the assessee has claimed

following expenses incurred by M/s Lakshrni Properties Ltd. prior to

entering into the development agreement with it.

1. Patki & Dadarkar Tech Consultants P.Ltd 1,75,700 Paid in 1993

2. N.B.Dharmadhikari 55,000 Paid in 1996 & 1997

3. M.G.memani 23,800 Paid in 1998 2,54,500

Since the above expenses relate to the period prior to the date of

development agreement with M/ s. Lakshmi Properites Ltd, the assessee

was not having any legal liability of Rs.2,54,500/- towards M/s. Laxmi

Projects. The CIT(A) has also confirmed the finding of AO. Accordingly,

no interference is required in the order of CIT(A) confirming disallowance

of Rs.2,54,500/-.

6. In the result, appeal of the assessee is allowed in part for

statistical purposes.

5 ITA No.1542/2011

Order pronounced in the open court on this 21st January.2015.

21st Jan,2015

Sd/- Sd/-

( ) ( ) (VIVEK VARMA) (R.C.SHARMA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER Mumbai; Dated 21/01/2015 /pkm, PS Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. / The CIT(A)-X, Mumbai. 4. / CIT 5. / DR, ITAT, Mumbai / BY ORDER, 6. Guard file.

//True Copy//

(Asstt. Registrar) / ITAT, Mumbai