2021 (3) TMI 553 - AT - Income Tax

Disallowance towards interest expenses incurred on term loans availed by the assessee - HELD THAT - Loan facility has been taken against the security of the capital asset. The diversion of loan funds for non-business purposes has not been alleged by the revenue authorities. Besides, the findings of the CIT(A) is quite vague indeed. Section 36(1)(iii) of the Act governs allowability of interest paid in respect of capital borrowed for the purposes of business or profession. As held in Dy. CIT v. Core Health Care Ltd. 2008 (2) TMI 8 - SUPREME COURT there is no distinction in Section 36(1)(iii) of the Act capital borrowed for revenue purpose and capital borrowed for a capital purpose. The assessee is entitled to claim interest paid on borrowed capital after the asset is put to use for business purposes. The loan having been utilized for acquisition of capital asset in the earlier years is thus not an obstacle for treating interest expenditure as revenue expenditure under s.36(1)(iii) of the Act r.w.s. Explanation 8 to s.43A of the Act. The CIT(A) has wrongly applied the tests laid down for applicability on Section 36(1)(iii) of the Act in its non-descript order. We thus find merit in the plea of the assessee for allowability of interest claim in question. - Decided in favour of assessee.

Summary

Issues: Disallowance of interest expenses on term loans, Condonation of delay in filing appeal

Disallowance of interest expenses on term loans:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of &8377; 25,49,201/- towards interest expenses on term loans availed by the assessee for AY 2014-15. The assessee contended that the term loan was wrongly considered as capital expenditure, emphasizing that the loan was secured against assets and not utilized for acquiring capital assets. The delay in filing the appeal was attributed to inadvertence and not intentional, seeking condonation based on substantial justice over technicalities. The learned counsel highlighted that the loan was utilized for business purposes, as required by s.36(1)(iii) of the Income Tax Act, and the disallowance was unjustified. The Revenue argued that the assessee failed to prove the utilization of interest claimed for the loans' intended purpose.

Condonation of delay in filing appeal:
The Tribunal found sufficient cause to condone the short delay of 73 days in filing the appeal, considering the negligence on the part of the assessee not to prefer the appeal promptly. The delay was not deemed to have caused serious prejudice to the Revenue, and the case on merits appeared tenable based on judicial precedents. It was noted that the assessee had not acquired any capital asset during the year, and interest on the loan facility arose after the asset was put to use, supporting the claim for interest expenditure as revenue expenditure under s.36(1)(iii) of the Act. The Tribunal held that the delay was not malafide, and the appeal deserved to be proceeded on merits. The findings of the CIT(A) were considered vague, and the assessee's plea for the allowability of interest claim was upheld.

In conclusion, the appeal of the assessee was allowed based on the findings related to the disallowance of interest expenses on term loans and the condonation of the delay in filing the appeal.