Taj GVK Hotels & Resorts Ltd. Vs ACIT (ITAT Hyderabad)
Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, has allowed the appeal filed by Taj GVK Hotels & Resorts Ltd. for the assessment year 2003-04, overturning significant disallowances made by the Assessing Officer (AO) and confirmed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The Tribunal’s order, dated May 8, 2024, addressed three key grievances of the assessee: disallowance of interest on borrowed capital, disallowance of prior period expenditure, and an addition made due to a change in the method of accounting for crockery and cutlery.
Disallowance of Interest under Section 36(1)(iii)
Background: Taj GVK Hotels & Resorts Ltd., a company operating in the hospitality sector, claimed a deduction of ₹73,36,381/- as interest on borrowed funds. The company had acquired 100% shares in M/s. Punjab Hotels Ltd., which was engaged in the construction of a hotel in Chandigarh. The construction was incomplete by the end of the assessment year. The amalgamation of Taj GVK and Punjab Hotels Ltd. was approved by the Court with effect from November 1, 2007, via an order dated October 31, 2003.
The capital work-in-progress for the Chandigarh hotel was financed through equity share capital subscribed by Taj GVK and a loan of ₹15 crores from ICICI Bank. The interest of ₹73,36,381/- on this ICICI Bank loan was claimed as a deduction under Section 36(1)(iii) of the Income Tax Act, which allows deduction for interest on capital borrowed for the purpose of business or profession.
