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2022 (11) TMI 176 - AT - Income TaxDisallowing the indexed cost of expenditure - capital expenditure - Disallowance of Indexed cost of expenses by not treating the same as capital expenditure - whether these expenses can be capitalised as cost of improvement towards the land? - HELD THAT:- AO has rightly observed that none of these expenses have direct nexus in improvement of the land. Even at the appellate stage, the assessee could not demonstrate the factual matrix as to which part of expenses are related to the improvement of the land. Assessee relied on the decision in the case of Chellapalli Sugars Ltd. [1974 (10) TMI 3 - SUPREME COURT] However, it does not support the case of the assessee as no such interest expenses were there. Moreover, the proviso to section 36 clause (1) sub-clause (iii) also makes the interest on capital asset to be disallowed till it commences production. Assessee could not demonstrate any nexus in improvement of land to preoperative expenses. Hence, it cannot be capitalised. Even reliance placed by the assessee in the case of Cosmic Kitchen Pvt. Ltd. [2005 (11) TMI 530 - ITAT DELHI] is also mis-placed since the facts in assessee’s case are substantially different where none of the expenses have been incurred towards improvement of the land. As been rightly observed by the CIT(A) that whatever expenses the assessee is claiming are pre-operative expenses and they are allowable u/s 35D - The other expenses which are not allowable u/s 35D needs to be capitalised, but there has to be a direct nexus between such capitalisation of pre-operative expenses to the concerned asset. In this case, neither before the Revenue authorities nor before us, the assessee was able to explain the direct nexus of these expenses with the improvement of the land. Even the case laws relied on by the assessee is substantially different on facts. Since in the case of the assessee, the expenses were not incurred towards improvement of land, hence we do not find any reason to interfere with the findings of the CIT(A) which is hereby upheld. Grounds of appeal of the assessee are dismissed.
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