SC confirms Income Tax Deduction of Interest on Loans taken for Setting up the Industry [Read Order]

Revised Return - Share Application Money - Supreme Court of India - Taxscan

In CIT v. Shri Multi Tech Ltd, the two-judge bench of the Supreme Court held that interest on loans taken for setting up the industry is allowable as expenditure under the Income Tax Act.

The Assessee, a public limited Company had incurred an expenditure of Rs.3,37,84,348/- towards payment of interest on loans taken and other items for setting up the industry. Initially the appellant treated the same as capital expenditure and claimed depreciation on the said amount. Later, during the appellate proceedings, the assessee claimed deduction of the aforesaid amount on interest paid with some other connected expenditure by treating the same as revenue in nature.

The first appellate authority allowed the claim of the assessee to the extent of interest amount of Rs.2,92,45,670/- paid on loans taken by it for establishing the industry. On departmental appeal, the ITAT upheld the order of the first appellate authority and allowed the claim of other expenditure also.

The High Court also concluded the matter in favour of the assessee by relying on the Gujarat High Court decision in CIG v. Core Health Care wherein it was held that interest paid in respect of borrowings on capital assets not put to use in the concerned financial year are deductible under Section 36(1)(iii) of the Act.

Aggrieved by the above orders, the Revenue approached the Top Court.

The two-judge bench comprising of Justice R.K Agrawal and Justice A.M Sapre observed that the decision of the Gujarat High Court was later upheld by the Apex Court. Based on the above order, the bench observed that the ITAT was justified in allowing the expenditure of Rs.3,37,84,348/- towards the interest paid on the loans taken and expenditure on other items connected connected herewith for establishment of the unit.

Read the full text of the Order below.

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