TaxTMI 
TaxTMI 
2026 (8) TMI 1723
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....e, probabilities, facts and circumstances of the case. 2. The learned CIT(A) is not justified in upholding the disallowance a sum of Rs. 7,41,50,562/- claimed by the appellant towards interest holding that the claim for deduction was not allowable under section 36[1][iii] of the Act as the interest paid was relating to capital expenditure for purchase of assets and for the reason that the assets so purchased by the appellant were not put to use during the year under appeal under the facts and circumstances of the appellant's case. 3. The learned CIT(A) is not justified in upholding the disallowance of a sum of Rs. 56,06,000/- claimed u/s. 37[1] of the Act being expenses incurred in course of business dealing in old plant and machinery and scrap carried on by the appellant during the year under appeal by erroneously treating the said expenditure as capital expenditure under the facts and in the circumstances of the appellant's case. 4. Without prejudice to the above, the disallowances made are excessive and liable to be reduced substantially. 5. Without prejudice to the right to seek waiver with the Hon'ble CGIT/DG, the appellant denies himself li....
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....deed. The assessee also explained that to acquire the above company has obtained HDFC bank term loans of Rs. 30 crores and private finance of Rs. 27 crores aggregating in all to Rs. 57 crores on which assessee has paid interest of 5.05 crores which was claimed by assessee as deduction as revenue expenditure. 5. The learned assessing officer perused the profit and loss account of the assessee and found that sales of Rs. 126,330,527 and purchase of Rs. 460,372,000 and closing stock of Rs. 334,041,473 has also the indirect expenses for interest and others of Rs. 79,756,562 which are claimed as a deduction and resulting into a net loss of Rs. 79,756,562 set off against other heads of income in the computation of total income. 6. Assessing Officer thereafter issued a show cause notice on 15 March 2025 stating that that assessee has incurred expenditure of interest of Rs. 74,150,562 is of capital nature as the same are related to the acquisition of assets and plant and machinery of falcon Tyers Limited during the year through the auction. Therefore, the above interest expenditure incurred by the assessee is of capital nature assessee has claimed it as a revenue expenditure on profi....
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.... expenditure is incurred for acquisition of assets and plant and machinery of Falcon Tyers Limited during the year through E auction and accordingly such expenditure is capital in nature. For the same reasoning he also disallowed Rs. 5,606,000 of expenditure. 9. Accordingly, the assessment order was passed on 19 March 2025 determining the total income of the assessee at Rs. 157,664,322 against the returned income of Rs. 77,907,760. 10. The assessee aggrieved with the same preferred an appeal before the learned CIT - A. The argument of the assessee remains the same with respect to both the disallowances. As were before the AO. The learned CIT - A by paragraph No. 6 of his order confirmed the above disallowance holding that the learned assessing officer' treatment is in alliance with the provisions of section 36 (1) (iii) of the income tax act which allows interest expenditure only when it is wholly and exclusively for the purpose of the business or profession. Since the expenditure relates to acquisition of capital asset, not yet operational, it cannot be treated as revenue expenditure. Therefore, the interest disallowance of Rs. 74,150,562 was confirmed. For similar reasons t....
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.... but assessee is not concerned with that treatment. It was further his argument that the learned lower authorities considered it as a capital asset without looking into the facts of the case. He submits that these assets may be stock in trade or other assets are not put to use but are held for sale. Therefore, the first proviso to section 36 (1) (iii) does not apply to the assessee. He referred to the balance sheet of the assessee, computation of the total income and various documents in the paper book. 12. The learned Senior Departmental Representative, Shri N. Balusamy, Joint Commissioner of Income-tax, strongly supported the orders of the lower authorities. He submitted that the interest expenditure was not allowable because the assessee had acquired capital assets, and the interest was required to be capitalized until those assets were put to use. The assessee, according to him, had failed to establish that the assets were put to use during the year. He contended that the lower authorities had correctly applied the law. Referring to section 36(1)(iii), he argued that the proviso refers not merely to "capital assets" but to "assets" in general. Therefore, once the assessee ha....
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....een shown in the trading account of the assessee and accepted by revenue. 15. Looking at the law for deciding this issue, Section 36 of the Income-tax Act provides for deductions while computing income chargeable to tax under section 28. Under clause (iii), interest paid on capital borrowed for the purposes of business or profession is allowable as a deduction. However, the proviso inserted with effect from 1 April 2004 provides that where such interest is paid on capital borrowed for acquiring an asset, it shall be treated separately, irrespective of whether such interest is capitalized in the books of account. The disallowance is linked to the period for which the interest is paid interest from the date of borrowing until the date on which the asset acquired with such borrowing is first put to use shall not be allowed as a deduction. The interest may relate to the acquisition of any asset, whether a current asset, fixed asset, or asset of any other nature. 16. Applying the facts to the above legal provision, the facts clearly show that the assessee borrowed capital and paid interest thereon. It is also undisputed that the borrowing was for the purposes of the assessee's bus....