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TMI Blog2023 (9) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... ve said assessment year was an existing building in respect of which interest was already capitalized and no further interest was required to be capitalized. 1.3. Without prejudice to the above contentions, on the facts and circumstances of the case, the learned National Faceless Appeal Center (NFAC), erred in not considering depreciation allowance u/s 32 of the Income Tax Act, 1961 for interest capitalization u/s 36(1)(iii). 2.1. On the facts and circumstances of the case, the learned National Faceless Appeal Center (NFAC), erred in disallowing a sum of Rs. 3,15,06,556 under section 14A of the Income Tax Act, 1961. 2.2. On the facts and circumstances of the case, the National Faceless Appeal Center (NFAC), erred in not appreciating the fact that the assessee company has not earned any dividend during the year. 2.3. On the facts and circumstances of the case, the learned, National Faceless Appeal Center (NFAC), erred in not appreciating the fact that the assessee company has not incurred any expenditure towards exempt income and the investment made were out of surplus funds in prior years. 2.4. On the facts and circumstances of the case, the learned National Faceless Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares and assessee has not reported any expenditure attributable to investment made to earn exempt income and assessee has incurred significant interest expenditure of Rs. 36.12 cores and additional loan has been taken @ 9.65% amounting to Rs. 115,42,09,894 during the year. The investment in subsidiaries/sister concerns increased from Rs. 22.15 crores to Rs. 71.20 crores, resultantly there was increase of Rs. 49.05 crores. Accordingly, the AO noted that part of loan has been utilized by assessee for investment to earn exempt income and assessee was asked why section 14A of the Act should not be made applicable. The assessee submitted that during the year assessee has not received any exempt income, therefore no disallowance can be made and relied on some judgments. The AO proceeded to calculate disallowance u/R 8D(2)(i) of Rs. 2,68,39,060 and u/R 8D(2)(ii) of Rs. 46,67,496 resulting in total disallowance of Rs. 3,15,06,556 and completed the assessment. Aggrieved, the assessee filed appeal before the CIT(Appeals). 7. The CIT(Appeals) after considering the detailed submissions and relying on certain judgments, dismissed the appeal of the assessee. Aggrieved, the assessee is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period before the date on which an asset is put to use should be capitalized or allowed as revenue expenditure in P&L account. Section 36(1)(iii) provides: "(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 (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. (emphasis supplied). Explanation.--Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause; 1.2. The above Proviso is clear and unambiguous. It means that the interest for the period upto date of putting an asset to use will be capitalized. The admitted fact is that some part of the building was not let out at all during the year or let out for the first time for part of the year. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. It is clearer from the fact that such intent has been made clearer by insertion of the Explanation by Finance Act, 2022, w.e.f. 1.4.2022. 2.4. To illustrate, if during a previous year, an assessee incurs an expense of Rs. 1 lakh to earn non-exempt income of Rs. 1.5 lakh and also incurs an expense of Rs. 20,000/- to earn exempt income which may or may not have accrued/received during the year. By holding that provisions of section 14A of the Act does not apply in this year as the exempt income was not accrued/received during the year, it amounts to holding that Rs. 20,000/- would be allowed as deduction against non-exempt income of Rs. 1.5 Lakh even though this expense was not incurred wholly and exclusively for the purpose of earning non-exempt income. Such an interpretation defeats the legislative intent of both section 14A as well as section 37 of the Act. 2.5. In the present case, appellant invested Rs. 71.20 crore in equity shares of different companies which did not yield any dividend true, but it very much could yield dividend which is not includible as part of total income under the Act. 2.6. Appellant has submitted copy of Supreme Court's judgment in Oil Indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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. However, the 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. 13. In ground No.1.3, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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