JBM AUTO SYSTEM PRIVATE LIMITED,KANCHEEPURAM vs. DCIT COMPANY CIRCLE 2(2), CHENNAI

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:

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.