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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
ORDER
Per N.V.Vasudevan, JM
This is an appeal by the Revenue against the order dated 07.08.2013 of C.I.T.(A)-XII, Kolkata relating to A.Y.2006-07.
Grounds of appeal
raised by the revenue read as follows :- “1. Whether Ld CIT(A)-XII, Kolkata, was justified in allowing proportionately the disallowance made on the interest taken on loan to the extent the borrowed loan was used for non-business purposes?
2. Whether Ld CIT(A)-XII, Kolkata, was justified in conferring liberty to the assessee by merely treating the expenditure incurred before the setting up of a business cannot be regarded as a disallowance made u/s 36(1)(iii) and the same should be considered as a capital expenditure?”
The Assessee is a company engaged in the business of manufacturing and selling of yarn made out of cotton/synthetic fibre. The undisputed facts are that the assessee for the purpose of extension of its manufacturing business borrowed money from the bank as well as its holding company and paid interest on such borrowings. Under section 36(1)(iii) of the Income Tax Act, 1961 (Act), interest paid on capital borrowed for the purpose of business is allowable as deduction. It is also not in dispute that the plant and machinery had not been installed or put to use during the previous year.
2 M/s. G.I.S. Cotton Mill Ltd. A.Yr.2006-07 Under the proviso to section 36(1)(iii) of the Act, inserted by Finance Act, 2003 w.e.f. 01.04.2004, interest paid in respect of capital borrowed for acquisition of an asset of an existing business or profession after the period prior to the date on which such asset was first put to use shall not be allowed as deduction. The assessee had while computing its income from business claimed interest paid on borrowings for acquisition of machinery and expansion of its existing business as a deduction and as a revenue expenditure while computing the income. The AO disallowed the claim of the assessee for deduction by placing reliance on the proviso to section 36(1)(iii) of the Act referred to earlier as admittedly the machinery was not put to use during the previous year. The order of the AO was confirmed by the CIT(A).
Before CIT(A) the assessee made a submission that if the interest expenditure is disallowed then the said amount should be capitalized for the purpose of claiming depreciation in future. This alternative claim was allowed by CIT(A). The revenue is aggrieved by the action of CIT(A) in allowing the alternative claim made by the assessee and has therefore preferred the present appeal before the Tribunal.
We have heard the rival submissions. We are of the view that there is no merit in this appeal filed by the revenue. The plea of the assessee for capitalization of the interest disallowed as above finds support from the ratio laid down in the following two decisions cited by the ld. Counsel for the assessee before us: (i) Sheetal Drape (India)Ltd. Vs ACIT (2012) 21 taxmann.com 288 (Mum) (ii) Breeze Constructions (P)Ltd vs ITO (2012) 21 taxmann.com 114 (Delhi)
Following the view expressed in the aforesaid decisions that where interest is disallowed because of the non user of the asset then the disallowed part of the interest should be allowed to be capitalized, we uphold the order of CIT(A) and dismiss the appeal by the revenue. 2 Order pronounced in the Court on 03.05.2017.