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TMI Blog2023 (11) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... eleted addition and directed the AO not to reduce the said amount and allow it to be capitalized under project expenses - HELD THAT:- As there is no findings by the AO nor any submission by the ld Sr. DR to show that the interest paid by the assessee was penal in nature. Per contra, from the findings and observations of ld CIT(A), as has been reproduced hereinabove, it is clear that the after evaluation of documentary evidence including agreement with the Noida Authority, CIT(A) noted that the interest claimed by the assessee neither relates to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority and thus parable as per the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized under project expenses. 3. Ld. Sr. DR supported the assessment order and submitted that the ld CIT(A) has erred in law in deleting the disallowances of Rs. 8,35,81,377/- on account of Penal Interest to new Okhla Industrial Development Authority and in directing the AO not to reduce the said amount and allow it to be capitalized under project expenses. 4. Drew our attention towards relevant parts of the assessment order the ld Sr DR submitted that the AO rightly made disallowance in of penal interest out of project expenses (work in progress) by holding that the interest being penal in nature is clearly not allowable under the provisions of the Act. The ld Sr. DR submitted that the assessee has been granted relief by the ld CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO denied capitalization of interest paid to Noida authority by holding and alleging that the same is penal in nature, thus, not allowable under the provisions of the Act. On the other hand from the relevant part of the first appellate order, we note that the ld CIT(A) recorded following findings for grant of relief to the assessee and allowing the assessee to capitalized impugned amount of interest paid, which reads as follows: 7.1 I have carefully considered the assessment order, submissions by the appellant and the case laws relied upon. 7.2 It is observed from the profit loss account for the year ended 31.03.2015 that no revenue from operations has been shown and no such interest expenses have been claimed / shown or route ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure] 7.6 In this regard, first of all the interest has not been claimed as expenditure with the meaning of section 37 of the Act or any other section as stated (30 to 36). Further, this is treated by the appellant as work in progress and for the year under consideration, shown as work in progress, which is capital in nature. Therefore, it cannot be treated as not allowable. 7.7 Now coming to the contention of the appellant that simple interest, paid on delayed payment is not penal in nature. Further, the ratio laid down in case laws relied upon by the appellant are applicable to the issue of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... da Authority, the ld CIT(A) noted that the interest claimed by the assessee neither relates to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority and thus parable as per the agreement @3% of the default amount for the period of delay in such payment. With these observations, the ld CIT(A) allowed the assessee to capitalize the interest paid by the assessee to Noida Authority. The ld CIT(A) also observed that the said interest amount have been incurred towards project expenses and not liable to be reduced from the project expenses, being part and parcel of the project cost as additional interest payment due to delay in payment of lease ..... X X X X Extracts X X X X X X X X Extracts X X X X
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