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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
Per Prashant Maharishi, Accountant Member
This appeal is filed by assessee against order of Ld. CIT (A), Gurgaon dated 01.01.2015 for A. Y. 2011-12 raising following grounds of appeal :
1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in affirming the action of the assessing officer in treating expenditure of Rs. 14,48,143 incurred towards obtaining vehicle insurance as ‘capital’ in nature as against revenue expenditure claimed by the appellant.
That the Commissioner of Income-tax (Appeals)erred on facts and in law in upholding the disallowance of interest expenditure amounting to Rs.3,43,418, incurred against acquisition of capital asset, under section 36(l)(iii) of the Income Tax Act, 1961 (the ‘Act’). 2.1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the proviso contained in section 36(1)(iii) of the Act was not at all applicable in the case of the appellant. The appellant craves leave to add, amend, alter or vary the above grounds of appeal at or before the time of hearing.
3. The brief fact of the case is that assessee is a Private Limited Company engaged in the business of transportation and booking of the goods. It filed its return of income on 28.09.2011 at total income of Rs. 136203940/-. The assessment u/s 143 (3) was made on 14.02.2014 at Rs. 140818131/-. The assessment was challenged before the Ld. CIT (A) against the disallowance of first insurance paid of vehicles of Rs. 1448143/- holding it to be capital expenditure and the interest disallowed on account of interest on loans for assets not put to use during the year amounting to Rs. 343418/- . The Ld. CIT (A) dismissed these two grounds and therefore, assessee is in appeal before us.
The first ground of appeal
is against the disallowance of vehicle insurance of Rs. 1448143/-. The Ld. Assessing Officer noted that first insurance premium paid by the assessee on purchase of new vehicles is a capital expenditure. The Ld. CIT (A) also agreed with the above view. According to them insurance premium on new vehicle has to be paid before a vehicle can be made operational and therefore, such expenses is similar to expenses incurred for installing a capital asset and therefore, same should be part of the actual cost of the asset on which only depreciation is allowable. Therefore, in nutshell according to them the first insurance premium paid is a capital expenditure.
5. The Ld. AR Sh. Rohit Jain, Advocate submitted that according to section 31 of the IT Act there is no such distinction between insurance premiums paid on assets. He submitted that there is no such restriction in the IT Act with respect to the insurance premium paid for the first time or on renewal. He stated that amount of any premium paid in respect of insurance against risk of damage or destruction is allowable u/s 31 (ii) of the Act. He relied upon the decision of Hon’ble Karnataka High Court in 153 Taxman 80 and Hon’ble Kerala High Court in 93 Taxman 695.
6. The Ld. DR relied upon the order of the lower authorities.
7. We have carefully considered the rival contentions. Accordingly to the provisions in section 31 (ii) of the Act any insurance premium paid by the assessee on machinery plant or furniture is allowable as deduction u/s 31 (ii) of the Act. According to that section, there is no restriction against the first premium paid or subsequently renewal premium paid.
It is not in dispute that insurance premium paid by the assessee on business assets, which are used for the purpose of the business. In view of this we direct the Ld. Assessing Officer to allow the deduction of the expenditure of Rs. 1448143/- on account of insurance premium paid on vehicles. Accordingly ground no 1 of the appeal is allowed.
Ground No.2 of the appeal is against disallowance of interest expenditure of Rs.343418/-. According to the lower authorities, assessee has paid interest of Rs. 343418/-out of which Rs. 113103/- was on loan for trucks, which are not put into use before the close of the previous year and Rs. 230315/- was for advance for land. The Ld. Assessing Officer therefore, disallowed the above sum and CIT (A) confirmed the above disallowance. According to the lower authorities, the proviso inserted w.e.f. 01.04.2004 with respect of interest paid from the date of borrowing till the date of those assets first put to use cannot be allowed as deduction.
The Ld. AR submitted that such interest could not be disallowed. He relied on the decision of the Hon’ble Supreme Court in 53ITR 140, 26 ITR 471, 298 ITR 194 and the decision of the Hyderabad bench in 110 TTJ 170. It was submitted that the proviso to section 36 (1) (iii) does not apply to the facts of the case.
The Ld. DR vehemently supported the order of the Ld. Assessing Officer and CIT (A).
We have carefully considered the rival contentions. Admittedly, in this case, the interest paid is on the assets purchased but same have not been put to use during the year. The lower authorities applied the proviso to section 36 (1) (iii) which was inserted with effect from 1/4/2004 and capitalized that interest to the actual cost of the asset. All the decisions relied up on by the dl AR are prior to the insertion of the proviso to section 36(1) (iii) of the act. This view is also supported by the decision of Honorable P & H High court in [2016] 72 taxmann.com 192 (Punjab & Haryana) Thukral Regal Shoes v. Commissioner of Income tax, Chandigarh. Hence Prior to insertion of proviso to section 36(1)(iii) by Finance Act, 2003, with effect from 1-4- 2004, there was no prohibition to claiming interest paid in respect of borrowings for acquisition of capital assets till such time it is first put to use in subject assessment year. The case before us is pertaining to AY 2011-12. Hence, we do not find any infirmity in the order of lower authorities; hence, Ground 2 of the appeal is dismissed.