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2015 (9) TMI 1353 - ITAT DELHI

2015 (9) TMI 1353 - ITAT DELHI - TMI - Disallowance u/s 36(1)(iii) - CIT(A) held that the capital work in progress in the balance sheet is shown at ₹ 6,59,49,078/-, therefore, interest attributable to such amount has to be disallowed in view of the proviso to section 36(1)(iii) - as the assessee has already disallowed interest to the extent of ₹ 33,55,108/- on capital work in progress, therefore, credit for the said amount was allowed CIT(A) restricted the disallowance at ₹ 45, .....

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the extension took place throughout the year, one cannot apply the rate of interest 12% on each item. The assessee has given a detailed chart regarding the calculation of interest pertaining to each restaurant which is amounting to ₹ 33,22,108/-. As the interest was payable on each restaurant starting at different months during the year it is not correct on the ld.CIT(A) to apply the rate of interest for the full year. The assessee has applied mean method and arrived at ₹ 2,37,02,311 .....

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ustice, we remit the issue back to ld.A.O for verifying the interest capitalized by the assessee with a direction that the disallowance should not be on notional basis. The assessing officer is further directed that in the event the working provided by the assessee, that has been reproduced in hereinabove appears to be correct, he may allow the same. - Decided in favour of assessee for statistical purposes. - I.T.A .No. 6176/Del/2012 - Dated:- 2-9-2015 - SHRI T.S. KAPOOR AND SMT. BEENA PILLAI, J .....

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781/- out of total disallowance of ₹ 7913889/- made by the ld. AO by invoking the provisions of proviso to section 36(1)(iii) of the Income Tax Act on the grounds that interest must have been expended by the appellant company on sums invested on capital work in progress outstanding as on 31.03.2009 amounting to ₹ 65949078/-; b) The ld. CIT(A) has failed to appreciate that the ld. AO had made disallowance out of interest paid by using a very non scientific and crude method by applying .....

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e ld. AO @ 12% on the closing balance of Capital Work in Progress of ₹ 65949078/- without appreciating the fact that major part of the CWIP have been incurred out of non-interest bearing shareholders funds and also capital expenditure have been incurred throughout the year and interest can only be disallowed on pro-rata basis and not for the entire year. The appellant craves leave to add, alter amend, delete forego or modify any of the grounds of appeal before or at the time of hearing. 2. .....

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77; 65949078/-. And has paid interest of ₹ 118609032/-. During assessment proceedings assessee was asked to explain as to why the proportionate interest, not be disallowed. The assessee submitted that, he has his own capital and reserve & surplus, accordingly no disallowance shall be made. The plea of the assessee has been examined by the ld. A.O. It was noticed that out of the total funds available with the company the company has made investment and has also given loan and advances. .....

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rk in progress of ₹ 6,59,49,078/- and added to the total income u/s 36(1)(iii) of the IT Act. Capital work in progress 6,59,49,078/- Bank rate 12% 79,13,889/- 4. Aggrieved by the order passed by the A.O, the assessee went into appeal before Ld. CIT(A). The Ld. CIT(A) held that the capital work in progress in the balance sheet is shown at ₹ 6,59,49,078/-, therefore, interest attributable to such amount has to be disallowed in view of the proviso to section 36(1)(iii) of the IT Act. Ho .....

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n account of plant and machinery for the year under consideration is only ₹ 4,74,04,622. It is an admitted position that the assessee has already disallowed ₹ 33,55,108/- on account of interest and same has been capitalized in the balance sheet(pages 134 & 144). The Ld. A.R submitted that the capital work in progress as per balance sheet is ₹ 6,59,49,078/- which includes the closing balance of the previous assessment year. The Ld. A.R, therefore submitted that, at the most .....

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36 (1) (iii) of the I.T. Act, 1962, which reads as under:- (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- …………… (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession: Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for e .....

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ithin the meaning of this clause . This provision for capitalization of Interest was held to be effective prospectively i.e. w.e.f. 01.04.2004 Interest on borrowings, for the purpose of Business or Profession has been well recognized deduction, statutorily admissible to the taxpayer in computing the taxable income from Business or Profession. The law on the issue is well settled and has been clearly laid down by a number of decisions of Hon ble Supreme Court and High Courts in various cases. Onc .....

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4 (SC) has held that; Section 36(1)(iii) of the 1961 Act has to be read on its own terms. It is a Code by itself. Section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business. It does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset, because of that the section requires is that the assessee must borrow the capital for the purpose of his business. This dichotomy between the borrowing of a loan and actual app .....

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ttracts the provisions of section 36(1)(iii). 11. Similar is the view taken by the Hon ble High Court of Punjab and Haryana in the case of CIT Vs. Vardhaman Polytex Ltd., reported in (2008) 229 ITR 152(FB). 12. In view of the above judicial pronouncement as well as the amendment by way of insertion of proviso to section 36(1) (iii), the interest on monies borrowed for acquiring a capital asset would be disallowed till it is brought to use on the basis that it would add to the cost of the asset. .....

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