TMI Blog2020 (2) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... of asset cannot be allowed as deduction. In other words, interest expenditure has to be necesssarily capitalised. The judicial pronouncements relied on by the Ld. AR relates to the case laws prior to the introduction of proviso to section 36(1)(iii). Admittedly, the proviso to section 36(1)(iii) of the Act is applicable during the relevant assessment year, namely 2008-09 and since the asset (land) has not been put to use by the assessee, the interest expenditure for acquiring the same cannot be allowed as a deduction - Decided against assessee. - I.T.A. No.575/Coch/2019 - - - Dated:- 3-2-2020 - Shri George George K., Judicial Member For the Assessee : Shri R.V. Viswanathan, CA For the Revenue : Shri Mritunjaya Sharma, Sr. DR ORDER PER GEORGE GEORGE K.,JUDICIAL MEMBER: This appeal at the instance of the assessee is directed against the order of the CIT(A), Kozhikode dated 10.07.2019. The relevant assessment year is 2008-09. 2. The solitary issue that is raised is whether the CIT(A) is justified in upholding the addition of ₹ 12 lakhs made by the Assessing Officer on account of disallowance of interest expenses, for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) that the contention of the assessee that the land is the business asset and would be used for the purpose of business is only an afterthought to avoid tax. The relevant finding of the CIT(A) reads as follows: 7.2 I have considered the submissions of the Appellant. The Appellant has not been able to prove with any evidence that the advance given for the asset or property purchase is for the purpose of running or augmenting the business of the firm. There is a direct nexus between the loan and the purchase of an asset which is not a business asset till today. After expiry of 10 years, the asset has not put to use but is standing as a dead investment in the name of the firm. Hon ble Punjab Haryana High Court in 286 ITR 1 came to a finding that any fund which was advanced without carrying any interest and without any business purpose the interest to the extent the advance had been made without carrying any interest is to be disallowed u/s.36(1)(iii). Such borrowings to the extent cannot be possibly to be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. As stated, the Appellant did not derive any benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurring in section 36(1)(iii) is wider in scope than the expression occurring in section 57(iii). This phrase, as held by many legal pronouncements, is the most important yardstick for the allowabiity of deduction under section 36(1)(iii) of Income Tax Act, 1961. 8. The Hon ble Supreme Court in the case of S.A. Builders Ltd. Vs. CIT(A), Chandigarh reported in 288 ITR 1 has used the phrase commercial expediency . By using this phrase, the Hon ble Supreme Court has given a new dimension and clarified the concept of for purpose of business further. In the said judgment, the Hon ble Supreme Court has defined commercial expediency as an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure, if it was incurred on grounds of commercial expediency . 9. The High Court of Delhi, in the case of Punjab Stainless Steel Inds. vs. CIT 324 ITR 396, has further elaborated commercial expediency would include such purpose as is expected by the ass to advance its business interest and may include meas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors or partners, as the case may be . 4) In view of the above, it cannot be said that the investment in land from out of borrowed funds is for non-business purposes or that the funds have been diverted from the business. Such a view is too narrow and does not consider the intention of the partners with regard to future expansion. The land could be exploited for business of the firm. (The firm is a operating fuel sales outlets with a turnover that is nearing ₹ 100 crores and an expansion by opening a new outlet is on the cards. The new land could well serve this purpose. 5) It is prayed that the disallowance of ₹ 12,00,000 may be deleted. 6.1 The Ld. DR on the other hand submitted that by virtue of amendment by Finance Act, 2003 with effect from 01/04/2004, proviso to section 36(1)(iii) of the I.T. was introduced, whereby the interest on borrowed funds till the asset was to be used cannot be allowed as deduction. In support of his contention, the Ld. DR relied on the order of the Chennai Bench of the Tribunal in the case of M/s. Narasu s Spinning Mills vs. ACIT in ITA No.957/Mds/2015 dated 09/12/2015. 6.2 In a rejoinder, the Ld. AR has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 298 ITR 194 the Hon'ble Supreme Court has clearly remarked The provisions under Section 36(1) (iii) make no distinction between money borrowed to acquire a capital asset and a revenue asset. 8) Therefore, it is incorrect to stipulate that the interest paid has to be capitalized. The interest paid, if capitalized will not enable the benefit of write off as expenditure in any way as no depreciation can be claimed, the asset being land. 9) When the Appellant commences operations on the land, the interest capitalized would merely be in the balance sheet as an addition to the value of the land. 10) The Honourable Supreme Court of India has held in Vardhaman Polytex v. Commissioner of Income-tax(Appeals) Nos.6438 and 443 of 2012) that Interest in respect of borrowings for acquisition of capital assets not put to use in the concerned financial year can_be_permitted as allowable deduction under section 36(i) (iii) of the Income tax Act 1961. 11) Considering the above, it is prayed that the disallowance of ₹ 12,00,000 may be deleted. 7. I have heard the rival submissions and perused the material on record. As rightly pointed out by the Ld. DR, am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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