Interest on Temporarily Invested Project Funds Deductible | ITAT

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Section 36(1)(iii) interest deduction

Case Details: Incline Realty (P.) Ltd. vs. Deputy Commissioner of Income-tax Central Circle - [2025] 175 taxmann.com 882 (Mumbai-Trib.)

Judiciary and Counsel Details

  • Om Prakash Kant, Accountant Member & Rahul Chaudhary, Judicial Member
  • Vijay Mehta for the Appellant.
  • Ms Vranda Matkari for the Respondent.

Facts of the Case

The assessee, a private limited company engaged in the real estate business, filed its return of income for the relevant assessment year. The assessee had raised funds by way of issue of debentures for funding the acquisition of a plot of land from TATA Steel Limited for a real estate project. The funds were raised and utilised for the acquisition of the plot of land. However, for an intervening period, the funds were deployed in growth mutual funds and fixed deposits.

The assessee claimed the interest cost pertaining to the intervening period as deduction while computing the income under the head ‘Profits & Gains of Business & Profession’. During the assessment proceedings, the Assessing Officer (AO) disallowed the deduction claimed by the assessee.

On appeal, CIT(A) confirmed the order of AO. Aggrieved by the order, an appeal was filed to the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee had raised debt capital by way of the issuance of debentures for the stated purpose of purchasing the plot of land, and the payment for the acquisition of the said plot of land was to be made after a certain period. Thus, the assessee had an interim period for which the funds were idle.

The assessee was aware that the investment made by utilising the aforesaid funds would be liquidated, and the funds received would be utilised for the purchase of the plot of land. The intention of the assessee was to earn income by way of purchase/sale of mutual funds and interest income from fixed deposits to offset the corresponding interest cost incurred in the said period.

Thus, the action of the assessee to utilise funds for making investments/deposits was necessitated on account of commercial expediency. Therefore, the assessee was correct in claiming deduction under Section 36(1)(iii).

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied