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2022 (2) TMI 915 - AT - Income TaxDisallowance of interest expenses u/s. 36(1)(iii) - disallowance of financial cost attributable to capital work in progress and project work in progress - Admittedly, the assessee has huge borrowings from banks and financial institutions and when the loan was not taken for any specific purpose of acquiring of asset or execution of any project, then interest need not be capitalized to the work in progress account - HELD THAT:- We do not subscribe to the arguments taken by assessee for simple reason that when the assessee is debiting all direct and indirect expenses to project work in progress account, then it ought to have capitalized interest attributable to said project work in progress, when there was no revenue generation from said project. We further noted that as per principles of matching concept of accounting, specific cost relatable to income revenue segment needs to be capitalized, including interest if any, incurred on said project. In this case, it was claim of the assessee that although it has paid huge interest on borrowings from banks and financial institutions, but said loans have not taken for any specific purpose. At the same time, the assessee is also unable to explain with necessary evidence to prove that loans taken from banks and financial institutions are not for any specific purpose of acquisition of any asset or execution of project. Therefore, we are of the considered view that the issue needs to go back to file of AO to ascertain correct facts with regard to nature of loan taken by the assessee and purpose for which such loans were taken. In case, the assessee has taken any loan for specific purpose of acquisition of asset or execution of project, then interest attributable to said purpose needs to be capitalized to work in progress account. Hence, we set aside the issue to file of the AO and direct to re-examine claim of the assessee in accordance with law - Assessee appeal allowed for statistical purposes.
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