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TMI Blog2018 (4) TMI 1918X X X X Extracts X X X X X X X X Extracts X X X X ..... - GUJARAT HIGH COURT] - Decided against assessee. Disallowance u/s. 36(1)(iii) - AO not accepted the explanation of the assessee stating that the assessee has not given any specific reason and supporting evidences to substantiate that why the interest was not capitalized towards CWIP and no borrowed funds was utilized towards purchase of various items forming part of the CWIP as on 31st March, 2012 and computed interest @ 12% on the various items forming part of the CWIP and capitalized it u/s. 36(1)(iii) - HELD THAT:- As from the proviso to section 36(1)(iii) that any interest paid in respect of capital borrowed for acquisition of an asset, even for the extension of the existing business has to be capitalized till the date on which such asset was first put to use and the same cannot be allowed as deduction. However, for want of information and supporting evidences, the assessing officer capitalized the interest @12% on the various items forming part of CWIP. After considering the above facts and judicial findings, we consider it will be appropriate to restore this issue to the file of the assessing officer for deciding afresh after taking into consideration the exact date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogress ( CWIP ) 3. Based on the facts and circumstances of the case and in law, the learned CIT(A) has erred in making disallowance of interest of ₹ 10,75,906/- under section 36(1)(iii) of the Act on account of expenditure incurred by the Appellate on CWIP. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in considering the facts that expenditure incurred on CWIP has not resulted into an extension of any existing business within the meaning of the provisio to section 36(1)(iii) of the Act and accordingly, no disallowance of interest can be made under section 36(1)(iii) of the Act. 5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in rejecting that the Appellant has sufficient owned funds to make investment in CWIP and accordingly, no interest on borrowed funds should be disallowed under section 36(1)(iii) of the Act 6. On the facts and circumstances of the case and in law, the learned CIT(A), has erred in not appreciating the fact that the Appellant has made the payments towards CWIP from its own funds and no immediate borrowings have been utilised to make the payments for the CWIP. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4. The appellant on the other hand has stated during the course of assessment proceedings as well as at the appellate stage that the contribution related to employees towards employee's contribution to ESIC was deposited in the fund after the due date mentioned in the respective Act. However, the appellant has stated that the said amounts of the employees contribution to ESI has been duly deposited before due date of filing of filing of return of income mentioned in section 139(1) of the I. T. Act, 1961. Further claimed that the appellant had engaged had engaged casual labours who were not permanent. The appellant has contributed the ESI contribution out of its own coffers without recovery thereof from the casual labours. Thus, the provisions, of section 2(24) (x) r.w.s. 36(1 )(va) are not applicable. 3.5. It is worth here to mention that the disallowance was made for the reason that employees' contribution to ESIC was not paid within the due dates specified under the ESI Act. The appellant's plea that it has engaged the casual labours only and paid them the casual labour charges is unverifiable of 2013. The ground without supporting details and evidences in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital assets acquired out of the borrowed funds during the year up to date of put to use of asset in the business. On scrutiny of the details filed by the assessee, the assessing officer has noticed that during the year under consideration the closing capital work in progress was reported at ₹ 1,79,31,767/- and the assessee has not capitalized any interest u/s. 36(1)(iii) of the act. In this respect, the assessee has explained that it has started a new factory (No.2) at Naroda GIDC, Ahmedabad and the factory has started producing ice cream from 08-02-02011. Therefore, the major part of interest pertaining to the current year is for the purpose of running the business. The assessing officer has not accepted the explanation of the assessee stating that the assessee has not given any specific reason and supporting evidences to substantiate that why the interest was not capitalized towards CWIP and no borrowed funds was utilized towards purchase of various items forming part of the CWIP as on 31st March, 2012. Consequently, the assessing officer has computed interest @ 12% on the various items forming part of the CWIP and capitalized it u/s. 36(1)(iii) of the act as per the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31/12/2011 8,542/- 1,49,60,391/- 02/01/2012 58,736/- 5,62,16,162/- 06/01/2012 27,000/- 2,52,22,648/- 20/01/2012 2,035/- 6,01,46,517/- 03/02/2012 1 ,83,784/- 8,73,74,902/- 04/02/2012 9,317/- 9,13,07,846/- 06/02/2012 2,33,396/- 9,08,84,082/- 10/02/2012 83,651/- 12,60,98,639/- 17/02/2012 1,60,792/- 13,63,32,590/- 18/02/2012 17,301/- 13,34,55,335/- 23/02/2012 1,55,850/- 1 2,58,1 0,950/- 29/02/2012 37,49,723/- 11,25,28,157/- 02/03/2012 20,81, 781/- 11,72,99,713/- 08/03/2012 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till the date on which such asset was first put to use and the same cannot be allowed as deduction. Thus, the provisions of section 36(1) (iii) are clearly applicable even in respect of the extension of the existing business and hence appellant's contention is not accepted. In view of the aforesaid discussion, the disallowance of interest claim made by the AO is found correct and justified and hence the same is confirmed. Thus the ground of appeal is dismissed. 8. We have heard the rival contentions and perused the material on record carefully. The assesseet had shown an amount of ₹ 1,79,31,767/- as closing WIP on account of investment in the new factory construction at 185A, Phase - I, Naroda, GIDC, Ahmedabad. During the year under consideration various machines were under installation by the appellant. Out of the aforesaid total cost of ₹ 1,79,31,767/-, the assesee has made the payment of ₹ 99,08,118/-with the balance unpaid at ₹ 80,23,649/-. It has been established from the findings of the Ld. CIT(A) that most of the payment towards CWIP has been made out of the overdraft balance in its cash credit account in Corporation Bank. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mso 9]> <![endif]--><!--[if gte mso 10]> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:min ..... X X X X Extracts X X X X X X X X Extracts X X X X
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