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TMI Blog2020 (8) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... rowings and on this aspect, we hold that such expenses are allowable by respectfully following this judgment of Hon ble Apex Court. The remaining amount of interest expenditure on ICDs and NCDs etc., we find that such expenditure is interest on borrowing for acquiring or carrying the inventory and therefore tribunal order rendered in the case of DLF Ltd . [ 2019 (6) TMI 1288 - ITAT DELHI ] is relevant. Tribunal considered in that case the provisions of section 36 (1) (iii) and its proviso and held that this proviso is the only restriction if conditions of section 36 (1) (iii) are satisfied and the proviso is applicable only when the borrowing is made in respect of acquisition of a capital asset for the period up to user of the asset and inventory is not a capital asset and therefore, interest on borrowing used for inventory is allowable u/s 36 (1) (iii). Before us, the learned DR of the revenue has argued that the judgments followed by CIT (A) are not applicable but in reply to the argument of the learned AR of the assessee as per which, he placed reliance on this tribunal order rendered in the case of DLF Limited vs. ACIT (Supra), she could not point out any judgment of any Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther in facts and in law, the CIT(A) was justified in holding that interest expenditure should be allowed even in the back ground that assessee had not offered any income from the project. 2. Whether on facts and in law, the CIT(A) was justified in holding that *. interest expenditure should be allowed by allowing a fresh plea not raised before AO, thereby, violating Rule 46A. 3. Whether on facts and in law, the CIT(A) was right in deleting the disallowance u/s.14A even in the back ground that AO had followed due procedure as per law. 3. Regarding the deletion of the interest by CIT (A), learned DR of the revenue supported the assessment order and in this regard, she also submitted that in Para 4..7 of his order, learned CIT (A) has noted about two judgments of Hon ble apex court rendered in the case of India Cements Ltd. vs. CIT as reported in 60 ITR 52 and in the case of Jeewanlal (1929) Ltd. vs. CIT as reported in 74 ITR 753 and also noted about a judgment of Hon ble Rajasthan High Court rendered in the case of CIT Vs. Secure Meters Ltd. Ltd. as reported in 175 Taxman 567 and deleted the disallowance of interest made by the AO by following these three judgments but this was her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d learned CIT (A) has only deleted the disallowance made by the AO and as per this tribunal order and various judgments followed by CIT (A), the order of CIT (A) has no infirmity and it should be confirmed. Regarding the second issue i.e. deletion of the disallowance made by the AO u/s 14A, he supported the order of CIT (A). He pointed out that in Para 5.12 of his order, learned CIT (A) has noted that it is logical that unless there is exempt income, section 14A should not trigger and he noted about the decision of the special bench of the tribunal rendered in the case of Chemiinvest Ltd. Vs. ITO, 121 ITD 318 as per which, the issue was decided against the assessee but he followed various judgments of various High Courts noted by him in the same para and deleted the disallowance by following those judgments of various High Courts. He submitted that the order of the special bench of the tribunal is later reversed by Hon ble Delhi High Court in the case of Chemiinvest Ltd. Vs. ITO as reported in 378 ITR 33. Both sides agreed that in the next year i.e. A. Y. 2014 15, the facts and the issues in dispute are same and in that year, it can be decided on similar line. 5. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tached to financial statements and we are of opinion that these notes have arisen in the financial statement of the assesse because of the issue of applicability of Accounting Standard 16 issued by the ICAI. According to Accounting Standard 1 i.e. disclosure of accounting policies, each and every company is required to disclose the accounting policy with respect to various significant income, expenditure and assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable to it is required to be capitalised in the books of accounts as per AS -16. Therefore we do not agree with the arguments. of AR that AS -16 does not apply to inventory. However, those are the provisions which are applicable for the maintenance of the accounts of the company and interest is allowable according to provisions of section 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of. deciding the claim of deduction under section 10(2) (iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the Project of construction of flats under the Kandivali Project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali Project constituted the stock-in-trade of the assessee. That, the Project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under section 36(1)(iii). Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Honourable Bombay High court in case of CIT V Reliance Utilities Power limited 313 ITR 340 has held that The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. Therefore we are of the view that presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [131 taxman 810] and CIT V Reliance Utilities Power limited [313 ITR 340]. We reverse the order of the CIT (A) confirming the disallowance of expenditure of ₹ 27.40 crores and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act. 6. From the above para of this tribunal order, it comes out that in that case, the tribunal has duly considered AS 16 and held that provisions of Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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