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2014 (10) TMI 1045 - AT - Income TaxDisallowance of interest expenditure u/s 36 (1)(iii) - disallow interest expenses in total disregard of the facts and figures furnished to establish acquisition and use of asset by the appellant - interest was paid on account of capital borrowed towards the acquisition of asset - HELD THAT:- The purpose of the borrowing has to be determined on the facts of each case. Then the use of the capital borrowed is required to be examined. From A.Y. 2004-05 the borrowing is shown specifically for the purpose of acquiring a capital asset. So, the out come of this proviso is that the interest would not be admissible for deduction till date the new asset is brought to use. An option is available to the assessee to capitalized the interest amount. The effect of the “proviso to Section 36(1)(iii) inserted with the fact of 2004-05 is to disallow interest on Money borrowed for acquiring capital asset till the date on which the asset is brought to use; even if it is for expansion of existing business. As per our humble understanding, the law had always made a difference between money borrowed for existing business, whether it is for expansion or otherwise, with that the money borrowed for setting up an altogether new business - now as per this insertion of the proviso the Revenue Department felt that the expansion of business should be put on par with a new business and that interest on borrowing for capital asset for the purposes of expansion should also be treated as part of capital expenditure in the case of Hindustan Zinc Limited . [2003 (7) TMI 21 - RAJASTHAN HIGH COURT]. The undisputed fact is that in terms of the agreements, which are placed on record; the assessee ‘APPL’ has agreed to purchase the said unit. The agreement dated 21st day of May, 2003 has clearly mentioned that MIL desired to transfer and APPL had desired to purchase the said unit with a clear and marketable title. From this agreement, it is also evident that MIL had only permitted APPL as licensee to enter upon the said unit till the completion of sale. Which means that the process of transfer of the property was going on at the time when those agreements were signed, the assessee was in the process of acquiring the said units, (an asset) during the relevant period. Therefore, the AO was of the view that an expenditure incurred, such as interest expenditure, was required to be capitalized for the period during which the capital asset has not been transferred in the name of the assessee. A serious option has been raised by the AO that had this property was owned by the assessee “APPL”, then it should have been disclosed in the balance sheet under the schedule of assets, but it was not so. Reasons given by the AO for the impugned disallowance appears to be sustainable in the eyes of law. We have to see the applicability of the proviso annexed to Section 36(i)(ii) that whether interest is allowable in respect of money borrowed for “acquisition” of an asset. Then, the appellant has cited the case law of Bright Automobiles and Plastics Ltd. [2004 (9) TMI 24 - MADHYA PRADESH HIGH COURT] to explain the definition of term “acquiring” is for the purpose of Sec.35AB and held that assessee need not become absolute owner of know-how. We are of the view that there in point in mixing up the issue with the other provisions of IT Act and to be strictly decided in the light of the language of Section 36(i)(iii) to be read alongwith the proviso inserted by the statute. Exactly this was opined by the Hon’ble Supreme Court in the case of Core Health Care Ltd.[2008 (2) TMI 8 - SUPREME COURT] that Section 36(i)(iii) has to be read on its own terms because it is a code by itself. Therefore; finally we hereby conclude that the disallowance was rightly made by the Revenue Department in all the years hence confirmed. Resultantly grounds are dismissed. Disallowance of depreciation was that the Director of the Company had purchased the motor car in his name - HELD THAT:- The bill for the purchase of the car was also in the name of the Director. Hence, it was held that since the assessee company was not the legal owner of the motor car, therefore, claim of depreciation was not allowable. CIT(A) has confirmed the action of the AO. Now before us an order in the case of ITO Vs. Typhoon Financial Services [2011 (1) TMI 1567 - ITAT AHMEDABAD] as held CIT(A) gave a specific finding that the motor car was purchased out of the funds of the assessee-company and was also used for the purpose of business of the assessee-company. Merely because the registration was in the name of one of the directors would not disallow the claim of the assessee. - Decided in favour of assessee.
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