| Question And Answer | |
|---|---|
| Subject: | Deduction of Interest paid on borrowed capital |
| Category: | Income-Tax |
| Querist: | Prakash |
| Answered by: | Advocate Shashi Ashok Bekal |
| Tags: | Borrowed capital, Business expenditure, Interest |
| Date: | September 9, 2023 |
Assesseee is promoter and developers. Has taken the loan from Bank. Bank has stiputed condition that amount will be used for the project only. However, considering the status of the project, assessee has advanced the loan to its associate firm and earn the interest. Assessee has claimed the interest as part of cost of construction after reducing the interest received from associate concern.
AO has not appreciated the concept Netting of Interest and made the addition on the decision of Tuticorin Alkali 227 ITR 172. Whether assessee can take a stand in appellate proceedings that since there is direct nexus between the borrowed funds and amount advance to Group concern, even if Interest received is taxable as other sources , interest paid on borrowed funds is allowed as deduction U/sec. 57(iii) of the Act.
Pl guide and any judicial support for this action.
Whether the assessee had already commenced business or was pre-operational, as we understand in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT ( 1997) 227 ITR 172 (SC) was an issue of capitalization of borrowing cost during the pre-operational period. Refer , CIT v. Bakaro Steel (1999) 236 ITR 315 ( SC), CIT v. Karnataka Power Corporation (2001 ) 247 ITR 268 ( SC). Also refer Circular of CBDT dt.29 -9 -2016 , Circular No 10 of 2017 dt . 23 -3 – 2017