Interest on loans for unused assets must be disallowed u/s 36(1)(iii) despite interest-free shareholder funds.

Addition to capital work-in-progress on account of property - amount of interest - The argument of the availability of shareholders' fund does not apply on loans specifically taken for the purposes of acquisition of an asset which has still not been put to use during the year. In other words, if a specific loan has been taken for purchasing an asset, notwithstanding the fact that the assessee has sufficient interest-free funds, interest on such loan has to be disallowed within the ambit of proviso to section 36(1)(iii). It is only after exhausting the specific loans taken for the purpose of acquisition of an asset that the proposition of availability of shareholders' fund can be invoked for the balance amount of investment. - AT .....

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