ITAT Allows Joy Alukkas’s Income Tax Deduction of ₹1.39 Cr Interest on Loans for Renovation of Leasehold Premises u/s 36(1)(iii) [Read Order]

M/s. Joyalukkas (India) Pvt. Ltd., an entity engaged in jewellery and textile business, had claimed deduction of interest on working capital loans availed from banks. The Assessing Officer had disallowed interest expenditure of ₹1,39, 04,056 under the proviso to Section 36(1)(iii) of the Income Tax Act, 1961 on the ground that borrowed funds were used for acquisition of assets and should therefore be capitalized.

The Dispute Resolution Panel (DRP) upheld this view, holding that the interest was linked to improvements on leasehold premises.

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The appellant represented by Parvathy Ammal, argued that the issue was already covered in its favour by earlier Tribunal decisions and by the Kerala High Court, which had held that renovation expenses of leasehold properties were revenue in nature. It was submitted that, since the underlying expenses were allowed as revenue, interest on borrowings for such purposes should also be allowed.

The Revenue represented by Sanjit Kumar Das, supported the disallowance, maintaining that the borrowed funds were linked to asset acquisition, thereby attracting the proviso to Section 36(1)(iii).

The Bench consisting of Rahul Chaudhary, Judicial Member and Inturi Rama Rao, Accountant Member, following its earlier orders in the appellant’s own case and the judgment of the Kerala High Court, held that since renovation of leasehold premises was revenue expenditure, the interest on related borrowings was also deductible as revenue expenditure.

The disallowance of ₹1,39,04,056 was therefore deleted.

Thus, allowed this ground of assessee’s appeal.

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