The assessee is engaged in the business of land development for industrial, commercial and residential use, acquired loan for purchase of a land for its project. The cost of land and related development expenditure was disclosed as work-in-progress as company expected to incur further costs on land and infrastructure development. The assessee contended that since the assessee was engaged in the business of real estate, even though interest paid on the borrowed capital to purchase the land in question was capitalised in the books of account and was shown as work-in-progress in the balance sheet, after insertion of section 145A with effect from 1-4-2017 by the Finance Act, 2018 provided for specific method of valuation of inventory (the land in question) by the assessee and the interest paid on capital borrowed, irrespective of it being capitalised or not, was required to be allowed as deduction while computing the income for the assessment years in question. The proviso to section 36(1)(iii) incorporated in Part D of Chapter IV of the Act providing for the Method of Computation of Total Income will override provisions of section 145A, which is incorporated in Chapter IV of Act relating to procedure for assessment. The words in the proviso to section 36(1) ‘whether capitalised or not’ will override the accounting practice followed in the books of account by the assessee. The assessee has admittedly capitalised the interest paid on the borrowed capital in the present case. The assessee has also not claimed that the land in question was put to use in the assessment years in question. Mere purchase of the land in the years in question out of the borrowed capital does not entitle the assessee to claim such interest paid on borrowed capital as a deductible expenditure in the present assessment years merely on the basis of method of accounting prescribed under section 145A which was brought in the statute to undo the effect of the decision of the Delhi High Court in Chamber of Tax Consultants v. Union of India  (2018) 400 ITR 178 (Delhi) (HC) which quashed the CBDT Notification No. 87 of 2016 dated 29.9.2016 finding it to be ultra vires.

Dismissing the appeal the Court held that method of accounting provided for valuation of inventory under section 145A does not determine the allowability of the expenditure. The proviso to section 36(1)(iii), which says that such claim of deduction will be allowed in the assessment years, when it was put to use, will override the provisions contained in section 145A. Since the position of law and the inter play of the above provisions are very clear, there is no any substantial question of law to be arising in the present case for our consideration. Accordingly the interest is not allowable as deduction. (AYs. 2010-11-2012-13)