TaxTMI 
TaxTMI 
2015 (8) TMI 718
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....which have been answered by the judgment dated 24th July 2015. Questions 1 and 2 stand answered accordingly. 3. The further question which arises in this year is whether the ITAT was correct in law in allowing deduction of Rs. 38,59,046/- being interest expenditure incurred by the Assessee in relation to construction of various hotel projects by treating the same as revenue expenditure? 4. There were three projects being undertaken by the Respondent Assessee in Srinagar, Goa and Mumbai. The Assessee had borrowed loans for the said projects. It had shown them as works in progress. In para 7.1 of the Assessment order dated 28th March 2003, the Assessing Officer (AO) noted that 75% of the total interest of Rs. 1.54 crores paid on the ter....
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....oa and Mumbai. According to him, the Assessee should have provided the details as to how much of the amount of interest paid was relatable to the period after the asset was first put to use. In the absence of such details, the AO was justified in adding the entire amount of interest claimed as revenue expenditure. 8. In reply, it is pointed by Mr Ajay Vohra, learned Senior Counsel appearing for the Assessee, that the applicable provision is Section 36 (1) (iii) of the Act which at the relevant time, i.e. prior to the insertion of the proviso thereto with effect from 1st April 2004, allowed as deduction the amount of interest paid on loans borrowed for the purposes of business operation. Mr. Vohra referred to the decisions in Commissioner....
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....hereon as deduction under Section 36(1)(iii) of the Act; (iii) interest may have to be capitalized after the borrowed capital or loan taken is utilized in bringing into existence an asset at the stage of commencement of business. In other words, after the assessee's business had already commenced then the interest paid on capital borrowed or loan taken can be claimed as deduction under Section 36(1)(iii) of the Act. (iv) in coming to the conclusion whether the interest paid on capital borrowed or loan taken in setting up a new line of business ought to be capitalized or treated as revenue expenditure, the test as laid down by the Supreme Court in the cases of Produce Exchange Corporation (supra) and Prithvi Insurance Company (supr....
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.... the Supreme Court interpreted the aforementioned provision in light of Explanation 8 to Section 43(1) of the Act. In that case too, the question that arose was whether the Assessee which had installed a new machinery on which production had not yet started could claim the interest paid on borrowings for acquiring the said machinery as revenue expenditure. In that case too, the Department relied on Explanation 8 under Section 43(1) of the Act to argue that the Assessee was not entitled to claim deduction and that Section 36 (i) (iii) of the Act being general in nature had to give way to the special provision contained in Explanation 8 to Section 43(1) of the Act. 13. After analysing both the provisions, the Supreme Court came to the conc....