Interest cost incurred for acquiring land as stock-in-trade couldn’t be allowed as deduction in term of AS-16

ITO v. Khatu Shyam Builders – [2019] 107 taxmann.com 315 (Jaipur – Trib.)

Assessee was engaged in construction and development of Group housing projects.

It followed percentage project completion method for revenue recognition.

Assessee did not recognize any revenue during relevant year as it had not achieved prescribed threshold of 25 per cent of total projected construction at close of financial year.

However, assessee claimed deduction of interest on money borrowed for purchase of land as stock-in-trade. Assessing Officer (AO) rejected assessee’s claim holding that since no income had accrued, no expenses were allowable. The Commissioner (Appeals) allowed assessee’s claim for deduction. Aggrieved-AO filed the instant appeal before the Tribunal.

The Tribunal held that development of plot of land as a housing project to make it saleable where finished residential units would be sold to customers would take its own time. Thus, in terms of AS-16, any interest incurred in relation to and for purchase of such plot of land would be required to be accumulated as part of project cost and could not be claimed in year of incurrence. Therefore, impugned order passed by Commissioner (Appeals) was to be modified to aforesaid extent.