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2017 (11) TMI 1894 - AT - Income TaxDisallowability of interest u/s 36(1) - interest expenditure is capitalized to WIP account and the income was recognized on the basis of Percentage Completion Method - HELD THAT:- Any amount of the interest paid in respect of capital borrowed for the business purposes constitutes an allowable deduction. The said clause (iii) of section 36(1) of the Act supports the assessee’s claim in the present case. This view is upheld in the case of CIT Vs. Lokhandwala Construction Industries Ltd. [2003 (1) TMI 93 - BOMBAY HIGH COURT] as well as the decision of the Tribunal in the case of M/s. Ashish Builders Pvt. Ltd. [2016 (11) TMI 709 - ITAT MUMBAI] irrespective of the method of accounting of recognising the income followed by the assessee. The present case involves the payment of interest of the interest paid to debenture holders, Financial institutions, Unsecured loan etc. It is not the case of the Revenue that the interest claim and related capital borrowed was not utilised by the assessee for business purposes of the assessee. The claim of the assessee in capitalising the interest expenditure to the WIP account which was the base for computing or recognising the taxable profits of the year is in accordance with the declared policy of Percentage Completion Method for income recognition.The claim of the assessee is fair and reasonable. Therefore, the order of CIT(A) on this issue is required to be reversed. Accordingly, Ground Nos. 1 to 6 raised by the assessee are allowed.
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