2023 (10) TMI 917 - AT - Income Tax

Revenue's Appeal Dismissed; Interest Deduction Upheld Under Section 36(1)(iii) of the Income Tax Act

DCIT, Central Circle-32, New Delhi Versus M/s BPTP Ltd.

The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the interest deduction claimed by the assessee. The Tribunal agreed that ... Disallowance of interest paid on borrowed capital - interest paid on money borrowed which was capitalized under 'inventory' in books and claimed through Computation - Interest paid on money borrowed was claimed through computation of income as period cost, being revenue in nature and as per provisions of Section 36(1)(iii) read with Section 43-B - HELD THAT:- As Interest on money borrowed was paid to Banks and Financial Institutions, interest paid is allowable as deduction as per provisions of Section 36(1)(iii) read with provisions of Section 43-B of Income Tax Act, 1961 in the year in which payment is made irrespective of its treatment in books of accounts. The assessee has filed working to show that it has not claimed double benefit in any of earlier years or during the year under consideration in AY 2016-17 and in any of later years as in none of the years, total deduction claimed in respect of interest paid under various heads exceeds total interest paid in those relevant years. To disallow the interest paid under proviso to Section 36(1)(iii) it is necessary to show that the borrowed capital was utilized for the purposes acquiring new assets or for the extension of existing business or profession. The assessing officer has not made any case here that the borrowed capital was utilized for the purposes of new unit, land or capital asset and proviso to Section 36(1)(iii) is applicable. Similar claim of the assessee was allowed in respect of AY 2011-12, AY 2012-13, AY 2013-14, AY 2014-15, AY 201718 and in AY 2020-21. No evidences has been brought on record to justify the change in stand in this particular year. There is no finding given in the assessment order for upholding different view taken by the AO in the Assessment Order for AY 2016-17 as compared to view taken by him in AY 2014-15. Assessee appeal allowed. Issues Involved:1. Deletion of additions made by the Assessing Officer (AO).2. Consideration of facts by the Commissioner of Income Tax (Appeals) [CIT(A)].3. Tenability of the CIT(A)'s order on facts and in law.Summary:Issue 1: Deletion of Additions Made by the AOThe AO disallowed the interest paid on borrowed capital amounting to Rs. 28,98,09,649/- by treating it as capital expense. The assessee had capitalized part of the interest under 'inventory' and claimed it as revenue expenditure through computation. The CIT(A) deleted this addition, which led to the Revenue's appeal.Issue 2: Consideration of Facts by CIT(A)The assessee, engaged in real estate, followed the percentage of completion method for revenue recognition as per Accounting Standard-7 (AS-7). The AO questioned the interest deduction claimed under Section 36(1)(iii) read with Section 43B of the Income Tax Act, 1961. The CIT(A) considered the assessee's compliance with the conditions under Section 36(1)(iii) and found no adverse comments from the AO regarding the non-compliance of these conditions. The CIT(A) also noted that the proviso to Section 36(1)(iii), which disallows interest for capital borrowed for asset acquisition until it is put to use, did not apply to the assessee's case.Issue 3: Tenability of the CIT(A)'s OrderThe CIT(A) observed that similar claims by the assessee had been allowed in previous and subsequent assessment years, including AY 2011-12, 2012-13, 2013-14, 2014-15, 2017-18, and 2020-21, without any adverse inference. The AO had accepted the assessee's claims in those years, indicating consistency in the assessee's treatment of interest expenses. The CIT(A) found no evidence of double benefit claimed by the assessee and concluded that the AO had not justified the change in stand for AY 2016-17.Conclusion:The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal. The Tribunal found that the assessee met the conditions under Section 36(1)(iii) and that the proviso to this section did not apply. The consistent treatment of interest expenses in previous and subsequent years supported the CIT(A)'s order. The appeal of the Revenue was dismissed, affirming the allowability of the interest deduction claimed by the assessee.Order Pronounced in the Open Court on 17/10/2023.