Sekarreporter: *GLIMPSE OF A LATEST TAX VERDICT* CIT v. Ceebros Hotels Pvt. Ltd. Reported: [2022 440 ITR 200 (Mad)] Dated: 05.10.2021 * Hon’ble Justice T.S. Sivagnanam and Hon’ble Justice Sathi Kumar Sukumara Kurup* in the matters relating to *“Capital Asset – – Put

[2/1, 07:07] Sekarreporter: *GLIMPSE OF A LATEST TAX VERDICT*
CIT v. Ceebros Hotels Pvt. Ltd.
Reported: [2022 440 ITR 200 (Mad)]
Dated: 05.10.2021

* Hon’ble Justice T.S. Sivagnanam and Hon’ble Justice Sathi Kumar Sukumara Kurup* in the matters relating to *“Capital Asset – – Put to Use – Section 36 – Income Tax Act, 1961”* dismissed the Tax Appeal and further observed and held as follows:

*Facts:*
i) Return of Income admitting Nil income – case was scrutinized and Notice u/S.143(2) was issued. Assessee running a Hotel and Real Estate Business. Assessee had taken out a loan for which interest paid was claimed as a deduction under S. 36(1)(iii). Loan was taken for the specific purpose of purchasing land for a project (“M”). The assessee had one other project (“A”) from where the contract receipts for revenue from real estate business was shown as “trade payables”. The Assessing Officer (AO) held that the amount shown in trade payables related only to “A” and “M” project was not started. Whether the claim of interest expenditure on loan is allowable?

ii) Assessee followed Mercantile System of Accounting, whereas, according to Accounting Standards 16 – borrowing cost that are directly attributable to an acquisition, production or construction should be capitalised as part of the cost of that asset otherwise, borrowing costs should be recognized as an expense in the period in which they are incurred. AO held that Assessee is bound to capitalise interest cost on “M” project, but instead claimed entire expenditure as revenue expenditure.

*Findings:*
i) The term “put to use” in the proviso in Section 36(1)(iii) would be applied to capital asset facilitating the business activity and therefore, the Statute envisages the importance of such capital asset should be put to use in the business in contra distinction to the inventory of the assessee.

ii) The inventory in the business by itself is a business activity in the normal course and in continuation of business of construction pursued by the assessee.

iii) The Tribunal observed that the purchase of inventory in the course of carrying on business should be reckoned as continuation of same business activity in the normal course and cannot be equated or termed as extension of business activity.
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