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TMI Blog2021 (12) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has paid interest for acquisition of an asset, the said asset is in the nature of stock in trade of business and the moment, the assessee acquires the asset which partakes the nature of stock in trade and thus, interest paid on capital borrowed for acquisition of stock in trade is deductable irrespective of the fact that said stock in trade was sold or not during the relevant financial year. This legal position is supported by the decision in the case of Taparia Tools Ltd [ 2015 (3) TMI 853 - SUPREME COURT] where it was held that interest paid on capital borrowed for the purpose of business shall be allowed as deduction for the year of payment irrespective of accounting system given by the assessee in its books of accounts. Hon ble Gujarat High Court in the case of Torrent Pharmaceuticals [ 2016 (7) TMI 1301 - GUJARAT HIGH COURT] has considered an identical issue and held that interest paid on capital borrowed for the purpose business shall be allowed as deduction in the year of payment of said interest. In this case, the assessee has paid interest on borrowed capital for the purpose of business and the same has been claimed as deduction as and when the said interest was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up front payment for interest on debentures and premium is deductible proportionately in each of years during life of debenture respectively, whereas in present case the facts and circumstances are different than the relied upon case laws, as the assessee in this case is in business of developers and builders and interest expense is not on account of Machinery purchased or Debenture issued but 'for Loan taken and the most of portion of the borrowed money has not been utilised for purchasing Non-Current Capital asset but for acquiring 'Land and Project Cost' classified as other current asset, also since the income component of Land and Project Cost has not been offered to tax, hence by following matching principle of accounting, the AO has rightfully disallowed the proportionate interest expense? 5. The ld CIT(A) erred in deleting the disallowance made u/s 36(1)(iii) in light of the Honble High Court Judgment in the case of North Eastern Electric Power Corporation Ltd in WP (C) No 279/2015 dated 23.10.2018 where it was held that Interest accrued on running / not suspended / temporarily suspended projects has to be capitalized, similarly in this case of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2,22,27,398/- has been added back to the total income. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee submitted that as per plain reading of section 36(1)(iii) of the Act, any amount of interest paid in respect of capital borrowed for the purpose of business or profession should be allowed as deduction in the year in which such interest has been paid. The assessee further submitted that the asssessee is in the business of developers and builders, has purchased properties and kept in stock in trade till it was sold. Therefore, the moment properties was purchased it partakes the nature of stock in trade and thus, interest paid on capital borrowed for the purpose of acquisition of stock in trade is deductable as and when such interest is paid. 5. The Ld. CIT(A) after considering the submissions of the assessee and also by relying upon certain judicial precedents including the decision of Hon ble Supreme Court in the case of Taparia Tools Ltd Vs JCIT (2015) 372 ITR 605 (SC) observed that the assessee has borrowed loan for the purchase of land and project and the same was treated as curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015-16 1,48,17,338 1,48,17,338 Nil Loss Return 3 2016-17 1,84,32,256 36,14,918 11,17,010 Carried forward loss of ₹ 1,48,17,338 was adjusted 4 2017-18 2,00,07,289 2,06,75,670 66,08,130 Thus the book profit, in these assessment years had been taken as Income which was declared in the tax return, The appellant reasoned that it only for the instant A.Y. 2015-16 that the revenue was insufficient to cover all the expenditure. The A. R., during the appellate proceedings, drew attention to the final accounts of the appellant as at 31St March 2015 and as at 31St March 2016. It was maintained that as at March 2015, the current assets comprising investments and `other current assets' amounted to ₹ 2,34,92,80,044. The net revenue from operations for the year ended ₹ 26,21,22,680. The appellant also furnished details of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant details of the various parties who advanced unsecured loans to the appellant. It was stated by the AO, that the company paid interest on these loans. The opening Balance was ₹ 18,37,98,561 and the closing balance stood at ₹ 23,40,14;333. In consonance with the definition of paid in Section 43(2), the interest on borrowed capital has to be treated as paid as the appellant has followed the mercantile system of accounting. In order to ascertain the claim of the appellant, the final accounts of the appc!1la.nt were perused. As on 31.03.2014 the unsecured loans amounted to ₹ 18,37,98,561. They rose to ₹ 23,40,14,333 on 31.03.2015. Hence, there was an increase of ₹ 5,02,15,772/-by way of loans and advances from related parties during the F.Y. 2014-15. The Land and Project cost under the head `Other Current Assets' was enhanced from ₹ 19,11,07,048 as 31.03.2014 to ₹ 20,57,54,359/-as on 31.03.2015. It was explained by the appellant that in the subsequent assessment year i.e. A.Y. 2016-17 the revenue from operations (gross) rose from ₹ 2,38,28,800/- (for the year ended 31/3/2015) to Rs, 26,20,72,800/-. The appellant was, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been treated as stock in trade in the books of accounts of the assessee. The assessee has paid interest on capital borrowed for the purpose of business or profession and the same has been claimed as deduction u/s. 36(1)(iii) of the Act. Since, there is a direct nexus between borrowed capital and business activity of the assessee, any interest paid on such borrowed capital needs to be allowed for the year in which such interest has been paid. The Ld. CIT(A) after considering the submissions has rightly deleted additions made by the AO and thus, order of the Ld. CIT(A) should be upheld. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 36(1)(iii) of the Act deals with interest paid on capital borrowed for the purpose of business or profession of the assessee. As per said provision, interest paid in respect of capital borrowed for the purpose of business or profession shall be allowed as deduction for the year in which such interest has been paid, except in the cases where interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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