2015 (1) TMI 400

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....deration:     TAX APPEAL NO. 222 OF 2007     Whether the ITAT was right in law and on facts in deleting the disallowance of RS. 65,81,918/- being interest on borrowings payable by the assessee holding that the amount was revenue expenditure allowable u/s. 36(1)(iii) of the IT Act 1961?     TAX APPEAL NO. 142 OF 2007     (A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of Rs. 31,61,423/- holding that the interest expenses are allowable u/s 36(1)(iii) of the Act?     (B) Whether the Appellate Tribunal is right in law and on facts in confirming the above disallowance despite clear provisions of Explanation 8 to Section 43(1) of the Act?     TAX APPEAL NO. 505 OF 2007     (A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the disallowance of Rs. 39,55,584/- being capitalised interest claimed as revenue expenditure by the assessee u/s 36(1)(iii) of the Act?     (B) Whether the Appellate Tribunal is right in law....

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....ction 36(1)(viia) by the same Finance Act which is also made with effect from 1.4.2004. Same is the position with regard to insertion of a sub-section after Section 90(2) and before the Explanation. This insertion also operates w.e.f. 1.4.04. In short, the above amendments have been made by Finance Act, 2003 and all the said amendments have been made operational w.e.f. 1.4.04. Therefore, the proviso inserted in Section 36(1)(iii) has to be read as prospectively and w.e.f. 1.4.04. In this case, we are concerned with the law as it existed prior to 1.4.2004. As stated above, we are not concerned with the interpretation or applicability of the said proviso to Section 36(1)(iii) w.e.f. 1.4.04 in the present case. In the case of Challapalli Sugars Ltd. (supra) this Court observed that interest paid on the borrowing utilized to bring into existence a fixed asset which has not gone into production, goes to add to the cost of installation of that asset. It was further observed that if the said borrowing was not "for the purpose of business" inasmuch as no business had come into existence, it must follow that it was made for the purpose of acquiring an asset which could be put to use for doi....

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....the Honble Supreme Court has held that an assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed and that 'actual cost' of an asset has no relevancy in relation to section 36(1)(ii). 5.2 It shall be relevant to peruse Sections 36(1)(iii) as well as 43(1) of the Act which read as under:     "... (iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession. Explanation.- Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;""Section 43(1) in The Income- Tax Act, 1995 (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:         Provided that where the actual cost of an asset, being a motor car which is acqui....

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....et is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, which is the less." Explanation 4.- Where any asset which had once belonged to the assessee and had been used by him for the purposes of his business or profession and thereafter ceased to be his property by reason of transfer or otherwise, is re- acquired by him, the actual cost to the assessee shall be-         (i) the actual cost to him when he first acquired the asset as reduced by-           (a) the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income- tax Act, 1922 (11 of 1922), in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988; and         (b) the amount of depreciation that would have been allowable to the assessee for any assessment yea....