2023 (9) TMI 544 - ITAT BANGALORE

Disallowance of proportionate interest u/s. 36(1)((iii) - loan taken for construction of building for the year under consideration on which the assets were not put to use in terms of proviso to section 36(1)(iii) as per the calculations submitted by the assessee at the time of assessment - HELD THAT:- The calculation of interest to be capitalized - details of lease commencement date as per rental invoice have been given. On examination of the same, the lease commencement dates are different, it clearly shows that different units were put to use on different dates which are less than/more than 180 days in a year. Earlier, the assessee itself capitalized the interest in the previous AY for the units which were not completed and/or not put to use.

Assessee has treated it as revenue expenditure in the impugned AY which is not correct as per section 36(1)(iii) & the proviso is very clear. On going through the facts of the case, the assessee has not satisfied the conditions laid down in proviso of section 36(1)(iii). Accordingly, we find merit in the submission of the ld. DR regarding disallowance of interest claimed as revenue expenditure should be capitalized. In view of the above, ground Nos.1.1 & 1.2 are rejected.

Assessee has claimed that if interest is capitalized, then the assessee is eligible for depreciation on such capitalized portion of interest - We note that 2,35,579 sq.ft. was leased out on different dates as per column 04 of lease commencement and as per col.no.5 of PB page No. 26 , the assessee has raised invoice for rent on different dates, accordingly the assets were put to use for the business of assessee during the year as the date mentioned therein & out of 2,35,579sq. ft. the 15075 sq. ft were leased out on 11.07.2017 as per the letter dated 01.09.2023. Therefore the assessee is eligible for depreciation as per section 32(1) r.w.s. 43(1) of the Act. We direct the AO to grant depreciation on interest capitalized as per law and for subsequent years also.We allow ground No.1.3 in the above terms.

Disallowance u/s. 14A even when there is no exempt income received by the assessee - We have gone through the financial statements of the assessee at Note No.21, the assessee has not shown any exempt income in the form of dividend or any other exempt income. It is not in dispute that the assessee has paid interest during the year.

AR also relied on the various judgments including the judgment of Hon’ble jurisdictional High Court in the case of Sterling Developers Pvt. Ltd. [2021 (3) TMI 1422 - KARNATAKA HIGH COURT] where it is held that when there is no exempt income, no disallowance can be made. During the year the assessee has not reported any exempt income from the investments made. There is also amendment made by the Finance Act, 2022 w.e.f. 1.4.2022 is not from retrospective effect as decided by the Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd.[2022 (7) TMI 1093 - DELHI HIGH COURT]