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TMI Blog2023 (10) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... To disallow the interest paid under proviso to Section 36(1)(iii) it is necessary to show that the borrowed capital was utilized for the purposes acquiring new assets or for the extension of existing business or profession. The assessing officer has not made any case here that the borrowed capital was utilized for the purposes of new unit, land or capital asset and proviso to Section 36(1)(iii) is applicable. Similar claim of the assessee was allowed in respect of AY 2011-12, AY 2012-13, AY 2013-14, AY 2014-15, AY 201718 and in AY 2020-21. No evidences has been brought on record to justify the change in stand in this particular year. There is no finding given in the assessment order for upholding different view taken by the AO in the Assessment Order for AY 2016-17 as compared to view taken by him in AY 2014-15. Assessee appeal allowed. - Sh. C. M. Garg, Judicial Member And Dr. B. R. R. Kumar, Accountant Member For the Assessee : Sh. Ajay Bhagwani, CA For the Revenue : Sh. Amitabh K. Sinha, CIT-DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the Revenue against the order of ld. CIT(A)-30, New Delhi dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crore was capitalized to inventory under respective Projects for which borrowing was made. Out of total interest capitalized under 'Inventory of Rs. 44.72 crores, interest paid of Rs. 15.74 crores was claimed through 'cost of revenue' by debit to Profit Loss a/c while balance interest paid of Rs. 28.98 crores was claimed through Computation as whole of interest paid was period cost, revenue in nature and being paid to banks and financial institutions which is covered under section 43B. 9. Computation of income for the AY 2016-17 is placed at Page no.2 of Paper Book. The assessee claimed deduction in respect of interest paid as per provisions of Section 36(1)(iii) read with Section 43B of Income Tax Act, 1961. 10. The AO requisitioned the assessee to explain vide notice dated 25.10.2018 as to why interest paid of Rs. 28.98 crores on borrowed capital should be allowed. The assessee filed detailed reply vide letter dated 13.11.2018 explaining the detailed reasons for allowing the deduction in respect of its claim for interest paid on money borrowed claimed through computation of Rs. 28,98,09,649/-. Reply filed vide letter dated 13.11.2018 is placed at page no. 48-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of Section 36(1)(iii) deals with allow ability of interest paid as business expense. The said provision as it stands during the period under consideration is reproduced as under: Section 36 (1) (iii): the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. As per provisions of Section 36(1)(iii) as reproduced above, there are three conditions for allowbility of interest paid as business expenses which are as under: i. Interest is paid by the assessee. ii. Capital is borrowed by the assessee on which interest is paid iii. Capital Borrowed is used for Business or Profession carried on by assessee. Further, as per proviso to Section 36(1)(iii), interest paid is not to be allowed as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation and Copy of Assessment order are placed at page No.117-122 of Paper Book. 16. The case of the assessee does not fall under the proviso to Section 36(1)(iii) of Income Tax Act, 1961 as the assessee is not engaged in manufacturing and amounts were not borrowed for expansion or setting up of new units which were not put to use or commercial production has not started. The AO has not made any case in the assessment order that the assessee's case is covered by the proviso to Section 36(1) (iii) of IT Act. Considering this, interest paid is not to be treated as capital expenses as interest paid in only those cases which are covered by proviso to Section 36(1)(iii) are to be treated as capital expenses and not to be allowed. Considering this, no part of interest paid in case of the assessee is to be disallowed. 17. Further, there is nothing adverse in the assessment order stating that the amount borrowed were not used for business purposes. It is a fact on record that amount borrowed was used wholly and exclusively for the purpose of business of the assessee. There is no finding by the Assessing Officer in the assessment order that interest paid was in respect of acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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