TMI Blog2019 (4) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... Unlike, section 37 which expressly excludes an expense of a capital nature, section 36(1)(iii) emphasizes is the user of the capital and not the user of the asset which case into existence as a result of borrowed capital. The legislature has, therefore. made no distinction in section 36(1)(iii) between “capital borrowed for a revenue purpose” and “capital borrowed for a capital purpose”. An assessee is entitled to claim on borrowed capital provided that capital is used for business irrespective of what may be the result of using the capital which the assessee has borrowed. Further, the words “actual cost” do not find place in section 36(1)(iii) of the Act. In this case, assessee has taken loan from Bank/financial institution and paid int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the appellant s case, the learned CIT(A) has grossly erred in altogether omitting to consider Grounds No.3 and 4 of the appellant s appeal before him reading as under: 3. On the facts and in the circumstances of the case, the learned Assessing Officer erred in initiating penalty proceedings u/s.271(1)(c) of the I.T.Act. 4. On the facts and in the circumstances of the case, the learned Assessing Officer erred in charging interest under sections 234A, 234B, 234C and 234D of the I.T. Act. 3. Briefly stated, facts are that the assessee-company is engaged in the business of providing Dredger and other infrastructure facilities. There were addition of ₹ 21,10,50,561/- to the total asset which comprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,575/- on such loan. The disallowance of proportionate interest expenses on Capital WIP of ₹ 16,47,56,851/- is restricted from the date of sanction of loan to the balance sheet date as against the disallowance made for the whole year while passing assessment order. Thus capitalization of interest u/s.36(1)(iii) is restricted to ₹ 93,88,884/- on the addition to capital WIP of ₹ 16,47,56,851/- from the date of sanction of loan as against disallowance made for the whole year in the assessment order. 4. Aggrieved by the order of the Ld.CIT(A), assessee is now in appeal before us. 5. We have heard the Ld. Representatives appearing for the respective parties. We have perused the relevant material available on record. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be the result of using the capital which the assessee has borrowed. Further, the words actual cost do not find place in section 36(1)(iii) of the Act. 7. In the matter of Vardhaman Polytec Ltd. vs. CIT (1979) 118 ITR 200 (SC). The Hon ble Supreme Court has held that we need to see nexus between the advancing of funds and business interest and there are three ingredients: (i) The money, i.e. capital must have been borrowed by the assessee. (ii) It must have been borrowed for business purpose. (iii) The assessee must have paid interest on borrowed amount that he had shown the same as item of expenditure. 8. In this case, assessee has taken loan from Bank/financial institution and paid interest and the same is reflecting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the appellant. 3. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in dismissing Ground No.7 of the appellant s appeal before him challenging the initiation of penalty proceedings u/s.271(1)(c), as premature. He ought to have appreciated, inter alia, that in the peculiar facts and circumstances of the appellant s case, there being absolutely no warrant/justification for initiating the penalty proceedings, he ought to have ordered for their being dropped, thereby saving both the appellant and the Department from long drawn unnecessary litigation. 13. Since relief has been granted by us in the connecting appeal of the assessee(supra) and in this appeal only assessment year and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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