M/S. HELIO ENGINEERING PRIVATE LIMITED,CHENNAI vs. ACIT, CHENNAI

This appeal by assessee is directed against the order of the Commissioner of Income Tax (Appeals)-II, Chennai dated 30.09.2013 for the assessment year 2009-2010.

The only grievance of the assessee is regarding disallowance of interest of �8,31,420/- paid by assessee on the term loan, which was used for purchase of property which is yet to be put into use as on 31.03.2009. The Assessing Officer disallowed interest amount of �8,31,420/- on the reason that the assessee used the loan amount for the purchase of land which has not been put to use. According to the Assessing Officer, the assessee made an advance of �84,96,220/- which was paid on two occasions on 09.07.2008 and 12.07.2008 after obtaining loan from bank. The assessee paid bank interest of �9,78,576/-. On the proportionate interest on �84,96,220/- which works out to �8,31,420/- as asset was not put to use, the Assessing Officer considered the expenditure as capital asset and disallowed the claim. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). On appeal, the Commissioner of Income Tax (Appeals) confirmed the order of Assessing Officer.

We have heard both the sides and perused the material available on record. The ld. Authorised Representative pleaded that the assessee purchased the land and used the same for the purpose of storing its stock in trade. However, the Authorised Representative for I.T.A.No.209/Mds/2014. :- 3 -: assessee not able to show any evidence reflecting date of purchase of above land and also there is no iota of evidence placed regarding storing of assessee’s stock in trade in the impugned land. Further, in view of Finance Act, 2003 which was brought out an amendment w.e.f. 01.04.2004 consequent to which no deduction will be allowed in respect of any amount of the interest paid, on capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized 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. In other words as per section 36(1)(iii) of the Act, any expenditure incurred in relation to acquiring a capital or fixed asset is to be capitalized and the only allowable deduction is by way of depreciation of such capital assets. Hence, in this case, there is a categorical finding by the Commissioner of Income Tax (Appeals) that the land was not put to use upto 31.03.2009 and the cost of the land is to be considered as capital asset only and the interest incurred on the term loan, which was used for the purpose of making advance for purchase of land, is capital expenditure and it cannot be allowed as Revenue expenditure. Accordingly, this ground is dismissed.

In the result, the appeal of the assessee in ITA