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2014 (1) TMI 1433 - AT - Income TaxDeletion of disallowance of Interest Held that - The assessee was sanctioned a term loan of Rs.600 lakhs by IDBI Bank - The last installment of this term loan was availed by the assessee on 5.3.2003 - The assessee had already capitalized an amount of Rs.28.31 lakhs out of interest during the period ending 31.3.2003 - After this term loan the assessee did not take any term loan rather it repaid a part of this term loan and the balance outstanding as on 31.3.2005 is Rs.460 lakhs - The other loans taken by the assessee were car loans, the interest on which is definitely a revenue in nature as the cars were put to use immediately - The assessee also earned cash accrual exceeding Rs.4 crores each in the preceding year and in the year under consideration as is apparent from the annual accounts placed in the file - Besides the term loan the assessee was sanctioned working capital limit from Bank of Baroda vide letter dated 30.6.2005 and balance outstanding as on 31.3.2005 on account of working capital, the interest on which cannot be said to have been incurred for making investment in capital assets there was no infirmity of CIT(A) Decided against Revenue.
Issues:
1. Disallowance of interest amounting to Rs.11,22,000 2. Capitalization of interest on loans used for capital assets 3. Appeal against the order of Ld CIT(A) Issue 1: Disallowance of interest amounting to Rs.11,22,000 The case involved the disallowance of interest of Rs.11,22,000 by the Ld CIT(A), which was raised by the revenue in an appeal. The Assessing Officer observed that the assessee had made investments in fixed assets using loans, and thus, interest on these loans should have been capitalized. The Assessing Officer calculated an amount of Rs.20.82 lakhs as interest on loans used for capital assets, resulting in a net addition of Rs.11.22 lakhs. The Ld CIT(A) deleted this addition after considering the submissions of the assessee, stating that no direct nexus could be established between interest-bearing funds and the purchase of fixed assets. The Ld CIT(A) found that the assessee had substantial cash available to fund its fixed assets, leading to the deletion of the addition. Issue 2: Capitalization of interest on loans used for capital assets The revenue appealed against the order of Ld CIT(A) regarding the disallowance of interest. The ITAT Delhi examined the details of the loans taken by the assessee, including a term loan and working capital loan. It was noted that the term loan had been repaid partially, and the balance outstanding did not warrant the capitalization of interest. Additionally, car loans taken by the assessee were considered revenue in nature as the cars were immediately put to use. The working capital limit sanctioned by the Bank of Baroda was also analyzed, and it was concluded that the interest on this working capital loan was not incurred for making investments in capital assets. Considering these facts, the ITAT Delhi upheld the order of Ld CIT(A) and dismissed the revenue's appeal. Issue 3: Appeal against the order of Ld CIT(A) During the appeal hearing, the Ld DR sought an adjournment, which was rejected by the ITAT Delhi as the matter was deemed small and could be disposed of based on the findings of Ld CIT(A). The Ld DR relied on the assessment order, while the Ld AR supported the decision of Ld CIT(A) to delete the disallowance of interest. After hearing both parties and reviewing the records, the ITAT Delhi found no infirmity in the order of Ld CIT(A) and dismissed the revenue's appeal. The judgment was pronounced on October 25, 2013. This detailed analysis of the judgment provides insights into the issues raised, the arguments presented, and the final decision reached by the ITAT Delhi in the case.
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