Interest on Temporarily Invested Project Funds Deductible | ITAT

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).

List of Cases Reviewed

• CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi) (para 11)
• Addl. CIT v. K.S. Gupta [1979] 119 ITR 372 (Andhra Pradesh)
• CIT v. K. Raja Gopala Rao [2002] 125 Taxman 148/252 ITR 459 (Madras)
• CIT v. Trishul Investments Ltd. [2008] 305 ITR 434 (Madras)
• Dosch Pharmaceuticals (P.) Ltd. v. Dy. CIT [2023] 156 taxmann.com 728 (Mumbai – Trib.)
• Analjit Singh v. Dy. CIT, Circle- 16 (2), Delhi [2018] 92 taxmann.com 310 (Delhi – Trib.)
• DCIT v. Neville Tuli [IT Appeal No. 3203 (Mum) of 2023, dated 26-11-2024]
• Bani Broto Banerjee v. CIT [IT Appeal No. 520(Mum) of 2023, dated 18-11-2024]
• Neera Jain v. ACIT [IT Appeal No. 1861 (Mum) of 2009, dated 22-2-2010]
• CIT v. Maithreyi Pai [1984] 18 Taxman 75 (Karnataka)
• Smt. Sita Nanda v. CIT [2001] 170 CTR 54/251 ITR 575/119 Taxman 227 (Delhi) (para 14) Distinguished

List of Cases Referred to

• CIT v. Mithlesh Kumari [1973] 92 ITR 9 (Delhi) (para 11)
• Addl. CIT v. K.S. Gupta [1979] 119 ITR 372 (Andhra Pradesh) (para 11)
• CIT v. K. Raja Gopala Rao [2002] 125 Taxman 148/252 ITR 459 (Madras) (para 11)
• CIT v. Trishul Investments Ltd. [2008] 305 ITR 434 (Madras) (para 11)
• Dosch Pharmaceuticals (P.) Ltd. v. Dy. CIT [2023] 156 taxmann.com 728 (Mumbai – Trib.) (para 11)
• Analjit Singh v. Dy. CIT, Circle- 16 (2), Delhi [2018] 92 taxmann.com 310 (Delhi – Trib.) (para 11)
• DCIT v. Neville Tuli [IT Appeal No.3203 (Mum) of 2023, dated 26-11-2024] (para 11)
• Bani Broto Banerjee v. CIT [IT Appeal No.520(Mum) of 2023, dated 18-11-2024] (para 11)
• Neera Jain v. ACIT [IT Appeal No. 1861 (Mum) of 2009, dated 22-2-2010] (para 11)
• CIT v. Maithreyi Pai [1984] 18 Taxman 75 (Karnataka) (para 11)
• Smt. Sita Nanda v. CIT [2001] 170 CTR 54/251 ITR 575/119 Taxman 227 (Delhi) (para 11).