Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER:
The appeal filed by the Assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-13, Chennai in dated 08.01.2018 pertaining to assessment year 2012 - 2013.
In the Assessment Order, the Assessing Officer has noted as under: “3. Disallowance u/s.36(1)(iii): 3.1. On perusal of clause 17(m) of the Form 3 CD, it is seen that the Assessee had shown a sum of Rs.1,02,31,387/- as amount inadmissible under the proviso to section 36(1)(iii). It has been paid as interest on the ECB loan availed for the purchase of fixed assets. But the Assessee has failed to add back the same in the Statement of Total Income for the year ended 31.03.2012. During the course of assessment proceedings, the Assessee was asked to furnish a note for the interest on borrowing. In reply the Assessee submitted as follows: “The external commercial borrowing was taken to acquire new Plant and Machinery which was capitalized in the F.Y 2012-13 and the interest on the same of Rs.1,02,31,387/- is not allowed as deduction as per the proviso to Section 36(1)(iii) of the Act which has been correctly mentioned in Form 3 CD annexed to the return of income. Since the plant and machinery was capitalized in the F.Y.2012-13, the interest incurred in the F.Y.2011-12 should be allowed to be capitalized and depreciation claimed there on”. Hence, an amount of Rs.1,02,31,387/- is added back to the total income of the Assessee under the head income from Business for the Financial Year 2011-12 relevant to the Assessment Year 2012-13. Addition: Rs.1,02.31,387/-“ 3. On appeal, the learned Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer.
On appeal before us, the learned Counsel for the Assessee has submitted that for the Assessment Year 2013-2014, i.e. subsequent assessment year, the learned Commissioner of Income Tax (Appeals) has directed the Assessing Officer to allow the capitalized asset of the interest till the time the asset is put to use and submitted that for the year under consideration also the same order may be passed.
The learned Departmental Representative relied upon the order of authority below.
We have heard both the sides, perused the materials available on record and gone through the orders of the authorities below.
The Assessing Officer denied the interest claimed by the Assessee and which is not allowed as deduction as per the proviso to Section 36(1)(iii) for the reason that the Assessee has not put to use the asset.
The same is confirmed by the learned Commissioner of Income Tax (Appeals).
The Assessee neither before the Assessing Officer nor before the learned Commissioner of Income Tax (Appeals) has raised an alternative plea that it may be permitted to capitalize the interest until the asset is put to use. However for the subsequent year, the Assessee has made a submission before the learned Commissioner of Income Tax (Appeals) and the learned Commissioner of Income Tax (Appeals) has considered the submission made by the Assessee and directed the Assessing Officer to allow the Assessee to capitalize the interest till the time the asset is put to use.
Thus, keeping in view the directions given by the learned Commissioner of Income Tax (Appeals), we are of the opinion that the same direction can be given for the year under consideration. For the sake of convenience, the relevant portion of the order of the learned Commissioner of Income Tax (Appeals) extracted as under:
6.2.9. As per the above explanation, actual cost of an asset would not include the interest paid for acquisition of an asset after it is put to use. Hence, till the time the asset is put to use, the interest paid for acquiring that asset has to be included in the actual cost of the asset and accordingly capitalized. 6.2.10. Further, vide Finance Act, 2015 of the Act the proviso to Section 36(1)(iii) of the Act was revised to exclude the words „for extension of existing business or profession‟, the said proviso was accordingly amended and it stands till date as follows: (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 capitalized in the books of account or now); 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. 6.2.11. In view of the above amendment, the differentiation between existing business and new business has been removed. Hence, it can be presumed that it has been the intention of the Revenue to capitalize the part of the interest till the time the said asset is put to use.
6.2.12. Since it is unclear when the asset was put to use, the AO is hereby directed to verify from the records the date of put to use and allow interest expenditure accordingly. Any interest incurred before the date of put to use ought to be capitalized and the balance should be allowed as revenue expenditure u/s.36(1)(iii) of the Act. On the part that is to be capitalized, the AO is directed to also allow depreciation on it as per the Income Tax Act, 1961.”
Keeping in view the above, we set aside the order passed by the learned Commissioner of Income Tax (Appeals) and we remit the matter back to the Assessing Officer to adjudicate the issue as indicated above. Ordered accordingly.
In the result, the appeal filed by the Assessee in I.T.A.No.1382/Chny/2018 is allowed for statistical purpose. Order pronounced on 18th December, 2020 in Chennai.