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2022 (12) TMI 356 - AT - Income TaxDisallowance u/s 36(1)(iii) - AO held that the assessee did not capitalize any interest on such loans in respect of land classified as ‘current asset’ - interest capitalization in case of ‘fixed asset’ and not with respect to ‘current asset’ - CIT-A deleted the addition by holding that the land is stock-in-trade - HELD THAT:- Undisputedly, the stock-in-trade are to be valued on conservative basis on lower of cost or market value. The interest costs are not to be capitalized along with stock-in-trade. This being so, the interest cost so paid by the assessee towards stock-in-trade would be revenue expenditure for the assessee. This situation would be akin to a situation wherein the assessee has borrowed working capital loans to procure stock and paid interest on such loans. In such a case, the interest costs are not to be capitalized with stock-in-trade but interest payment would become part of trading operations for the assessee and the same are allowable as revenue expenditure. The proviso to Sec.36(1)(iii) as introduced w.e.f. 01.04.2004 would apply only in situation wherein the capital has been borrowed for acquisition of fixed assets and not otherwise. The Hon’ble Court Ceebros Hotels (P.) Ltd. [2021 (10) TMI 686 - MADRAS HIGH COURT] inter-alia, confirmed the stand of Tribunal that the term ‘put to use’ in the proviso to Sec.36(1)(iii) would apply to capital assets / income earning apparatus facilitating the business activity and therefore, the statute envisages the importance of such capital asset should be put to use in the business in contradistinction to the inventory of the assessee. The decision of Bangalore Tribunal in DCIT vs. Cornerstone Property Investment (P) Ltd. [2020 (8) TMI 366 - ITAT BANGALORE] also support the view that interest paid on borrowed funds for acquisition of land which was an inventory would be allowable u/s 36(1)(iii). The decision of Hon’ble High Court of Madras in the case of Mahindra World City Developers Ltd. [2019 (5) TMI 1274 - MADRAS HIGH COURT] as referred to by Ld. Sr. DR, is a case wherein proviso to Sec.36(1)(iii) has been found to be applicable and this case laws deals with interest on capital borrowed to acquire capital assets. Therefore, this case law does not apply to the facts of case before us. Revenue appeal dismissed.
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