2022 (1) TMI 690 - AT - Income Tax

Disallowance of interest u/s 36(1)(iii) - interest paid on loans borrowed for the purpose of acquisition of fixed assets were not put to use - Assessee failed to produce the proofs of the machinery put to use - onus was on the assessee to prove that the borrowed capital was actually put to use and there is commencement of a business from the installed machineries and asset as well as the working capital is also poured into the business - CIT-A deleted the addition - HELD THAT - It is an admitted fact that the assessee company had commenced operation, worked at 20% of its capacity which clearly denotes that the assets were put to use and the fact that there is no outstanding capital in working progress as on 31.03.2012 also goes to prove this fact. Thus, there is no evidence on record to say that the assets were not put to use. The mere fact that the assessee company had worked at 20% of the capacity does not imply that the assets were not put to use. In-fact, it clearly indicates that the assets were put to use and the assessee is entitled to depreciation. In the light of the above factual position, the provisions of section 36(1)(iii) have no application and we do not find any illegality in the order of the ld. CIT(A). Thus, we do not find any merit in the first ground raised by the Revenue. Hence, the first ground of appeal stands dismissed. Addition of depreciation and the additional depreciation - HELD THAT - As clearly held that the assets were put to use and, therefore, the assessee is entitled to claim the depreciation and the additional depreciation. Therefore, we do not find any error in the findings of the ld. CIT(A) allowing the depreciation and the additional depreciation - Appeal filed by the Revenue stands dismissed.

Summary

Issues Involved:
Appeal against order of CIT(A) for assessment year 2012-13 regarding disallowance of interest u/s 36(1)(iii) and addition of depreciation and additional depreciation.

Analysis:

1. Disallowance of Interest u/s 36(1)(iii):
The Revenue contended that the assets were not put to use, justifying the disallowance of interest paid on loans borrowed for acquiring fixed assets. The Assessing Officer based this disallowance on the lack of proof of machinery use, low capacity utilization, and advance payment to another company. However, the CIT(A) disagreed, stating that fixed assets were capitalized and in use. The Tribunal upheld this decision, emphasizing that working at 20% capacity did not negate asset use. The Tribunal ruled that once a business is ready to operate, depreciation can be claimed. As the assets were in use and no outstanding capital was in progress, the disallowance was unjustified. Therefore, the Tribunal dismissed the first ground of appeal.

2. Addition of Depreciation and Additional Depreciation:
The Revenue challenged the deletion of depreciation and additional depreciation. However, since the Tribunal found that the assets were indeed put to use, the assessee was entitled to claim depreciation and additional depreciation. Consequently, the Tribunal found no error in the CIT(A)'s decision to allow depreciation and additional depreciation. Therefore, the grounds of appeal related to depreciation were also dismissed.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT(A)'s order, upholding the decision that interest disallowance was unwarranted as the assets were in use, entitling the assessee to claim depreciation and additional depreciation.