Manual - ICDS III : Construction Contracts

Since the capital borrowed by a contractor for the purpose of executing a construction contract is not in the nature of capital borrowed for acquisition of an asset. A contractor does not acquire an asset under a construction contract. As a result, interest paid on capital borrowed
by a contractor attributable to a construction contract would not be hit by the embargo created under proviso to section 36(1)(iii) of the Act. As a result, interest paid on capital borrowed by a contractor attributable to a construction contract would be allowed as a deduction.