Case Law Details
Anand Engineering Products Pvt. Ltd. Vs ACIT (ITAT Chennai)
As regards, disallowance of interest expenses u/s.36(1)(iii) of the Income Tax Act, 1961, it was argument of the assessee before the Assessing Officer that although, interest expenses and other expenditure has been capitalized to work in progress account, but subsequently, project has been abandoned due to various reasons and thus, the assessee did not capitalize interest on borrowed capital to work in progress. We find that the assessee has substantiated its claim with necessary evidences, including Board resolution and argued that project developed by the assessee is abandoned. Once project is abandoned, it seizes to become eligible asset to capitalize borrowing cost to the work in progress account, till such asset is put to use in business of the assessee. In this case, since, project of the assessee was abandoned, expenditure incurred on said project, including interest, if any, on borrowed capital would be in the nature of revenue expenditure, which needs to be allowed as deduction. This legal principle is supported by the decision in the case of CIT Vs. Priya Village Roadshows Ltd vs. (2010) 228 CTR 271, wherein it has been held that when the project is abandoned without creation of new asset, expenditure related thereto is only that of revenue expenditure. It was further noted that the assessee has incurred amount towards creation of new asset for expansion of existing project. It is well settled principles of law by various judicial precedents that when there is only expansion of existing business, incidental expenditure for bringing capital asset will be revenue in nature and this principle is supported by the decision of the Hon’ble Supreme Court in the case of India Cements Ltd Vs.CIT (1975) 60 ITR 52 and also decision of the Hon’ble Allahabad High Court in the case of Prem Spinning & Weaving Mills Co.Ltd. Vs. CIT (1975) 98 ITR 20. Therefore, we are of the considered view that the Assessing Officer has erred in disallowing proportionate interest expenses and added back to capital work in progress. The learned CIT(A), without appreciating facts has simply sustained additions made by the Assessing Officer. Hence, we reverse findings of the learned CIT(A) and direct the Assessing Officer to delete additions made towards disallowance of proportionate interest expenses u/s.36(1)(iii) of the I.T Act, 1961.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against order of the learned Commissioner of Income Tax (Appeals)-1, Trichy, dated 08.05.2019 and pertains to assessment year 2013-14.
2. The assessee has raised following grounds of appeal:-
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