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2019 (5) TMI 1274 - HC - Income TaxDeduction of Interest Expenditure u/s 36(1) - Capital OR revenue - method of accounting prescribed u/s 145A VS - Proviso to Section 36(1) - engaged in the business of Real Estate - interest on the borrowed capital to purchase the land - interest paid was admittedly capitalised in books - HELD THAT:- The Proviso to Section 36(1) of the Act incorporated in Part D of Chapter IV of the Act providing for the "Method of Computation of Total Income", quoted above, will, in our opinion, override the provisions of Section 145A, which is incorporated in Chapter IV of the Act relating to "Procedure for Assessment". The words in the Proviso to Section 36(1) of the Act "whether capitalised or not" will override the accounting practice followed in the Books of Accounts by the Assessee. The Assessee has admittedly capitalised the interest paid on the borrowed capital in the present case. The Assessee has also not claimed before us or before the Authorities below that the land in question was put to use in the Assessment Years in question. Mere purchase of the land in the Years in question out of the borrowed capital does not entitle the Assessee to claim such interest paid on borrowed capital as a deductible expenditure in the present Assessment Years merely on the basis of method of accounting prescribed u/s 145A which was brought in the statute to undo the effect of the decision of the Delhi High Court which quashed the CBDT Notification finding it to be ultra vires. The method of accounting provided for valuation of inventory u/s 145A does not determine the allowability of the expenditure. The Proviso to Section 36(1), which says that such claim of deduction will be allowed in the Assessment Years, when it was put to use, will override the provisions contained in Section 145A. Since the position of law and the inter play of the above provisions are very clear, we do not find any substantial question of law to be arising in the present case for our consideration. - Decided against assessee.
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