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2021 (4) TMI 115 - ITAT CHENNAIInterest expenditure disallowance u/s 36(1)(iii) - as per AO interest cost on loan borrowed for the purpose of acquisition of asset needs to be capitalized till such asset is put to use in the business of the assessee - as per CIT-A when the assessee has not yet commenced its business, the question of deduction of interest u/s.36(1)(iii) does not arise - HELD THAT:- The present case, acquisition of land for its development in the course of real estate activities of the assessee itself is a business activity. The assessee is about to complete one project and to continuing its activities has purchased another land to develop another project. The purchase of inventory is continuation of the same business activity in routine course and cannot be termed as extension of the business activity. The term ‘put to use’ applies to capital asset only because capital asset is held to facilitate the business activity and sometimes it needs to be prepared after its acquisition for being used to facilitate business activity. As against this, purchase and holding of inventory itself is a business activity. Respectfully following the decision of case of CIT Vs. Aditya Propcon Pvt. Ltd. [2017 (11) TMI 392 - RAJASTHAN HIGH COURT], we are of the considered view that interest paid on loan borrowed for purchase of land and holding it as inventory cannot be considered as acquisition of capital asset for the purpose of disallowing interest by invoking provisions of proviso to section 36(1)(iii) - AO well as the learned CIT(A) without appreciating legal position has disallowed interest paid on loans u/s. 36(1)(iii) of the Act. Hence, we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to delete the addition made towards disallowance of interest under section 36(1)(iii) of the Act. Appeal filed by the assessee is allowed.
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