TaxTMI 
TaxTMI 
2018 (1) TMI 81
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.... Income Tax, Circle 2(1), Mumbai [AO] u/s 143(3) read with Section 147 of the Income Tax Act,1961 on 31/01/2013. The only effective ground pressed before us is Ground No. 2 and the same reads as follows:- "On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the disallowance of interest expenses in relation to capital workin- progress made by the learned AO under section 36(i)(iii) of the Act. 2.1 Facts leading to the same are that the assesse being resident corporate assessee engaged in manufacturing of various electrical appliances, was assessed u/s 143(3) read with Section 147 on 31/01/2013 at Rs. 72.38 Crores under normal provisions after certain additions / disallowances. The sole sub....
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.... any loans specifically towards acquiring such capital work in progress. Secondly, the net cash flow from operations was recorded at Rs. 29.29 crores in the F.Y. 2006-07 relevant to A.Y.2007-08 as against capital work in progress of Rs. 56.62 lakhs. It is a claim of the LAR that the appellant had sufficient old funds and hence there is no question of any bifurcation of interest into the capital work in progress. However, it is not disputed that interest on loans taken for acquiring capital work in progress should be capitalized with the cost of the assets. As a matter of fact, the appellant has been following this method of accounting in earlier years. Therefore, there is no reason as to why the earlier years method of accounting should not....
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....st free funds to undertake the capital work in progress and borrowed funds were never used for the same. Our attention is also drawn to the accounting policies being followed by the company in this regard and it was further submitted that there was no extension of existing business so as to warrant the impugned disallowance u/s 36(1)(iii). Per Contra, Ld. DR placed reliance on the stand of lower authorities. 5. We have heard the rival contentions and perused relevant material on record. Upon perusal, we find that Ld. AO has, in fact, erred in computing disallowance u/s 36(1)(iii) since average cost of funds @1.43% as computed by Ld. AO on average capital work in progress of Rs. 30.145 Lacs comes to Rs. 43,107/- as against Rs. 43.20 Lacs co....