Assessee entitled to claim Finance Charges after completion of Project goes contrary to findings of Income Tax Authorities: Karnataka High Court remands matter to ITAT [Read Judgment]

The Karnataka High Court while remanding the matter back to the Income Tax Appellate Tribunal (ITAT) held that the assessee entitled to claim finance charges after completion of the Project goes contrary to findings of Income Tax Authorities.

The assessee, M/s Southern Hills Developers Pvt. Ltd. is a private limited company incorporated under the Companies Act, 1956, and was carrying on the business of executing engineering contracts and development of real estates. The Assessing Officer during assessment proceedings noted that the assessee has shown sales on the basis of the recognition of revenue from a project which was jointly executed with a partner. The Assessing Officer opined that finance charges claimed by the assessee were not related to the borrowings used for the said project but may be used in respect of loans raised for work in progress where revenue had not been recognized. Accordingly, the Assessing Officer disallowed the entire amount claimed as finance charges and treated the same as capitalized under work progress.

The appellant-assessee submitted that the Tribunal was not justified in upholding the disallowance in respect of finance charges amounting to Rs.1,45,72,724/- from out of the original disallowance of Rs.3,43,72,724/- holding that the finance charges pertaining to ‘Nitesh Buckingham Gate’ [NBG] alone are allowable. The learned Senior Counsel argued that the entire finance charges of Rs.3,43,72,724/- incurred by the appellant was allowable under section 36[1][iii] of the Act as the same pertains to the interest on borrowed funds used for the purpose of the business and there was no justification to allow only part of the interest.

The division bench of Justice S. Sujatha and Justice Ravi V. Hosmani noted that finance charges claimed by the assessee were allowed in the previous year of the assessee in support of the contention that the assessment made during the earlier years ought to have been considered during the year in question, the judgment relied on Sridevi Enterprises also has not been properly appreciated by the Tribunal.

Therefore, the High Court deemed it appropriate to set aside the impugned order and remand the matter for reconsideration by the Tribunal keeping open all the rights and contentions of the parties.

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