The Income Tax Appellate Tribunal (ITAT), Kolkata Bench upheld the order passed by CIT(A) wherein the disallowance of Rs.4,02,837 on account of interest on office loan was confirmed.
Facts of the case:-
The assessee United Teleservices Ltd. appealed against the action of CIT(A) in confirming the disallowance of Rs.4,02,837/- on account of interest on the office loan. The AO noticed that expenditure claimed on account of interest on borrowed funds utilized for purchase of office was to the tune of Rs.4,02,837. According to the AO, no depreciation was claimed in respect of this office since it does not appear as an item in the fixed asset. According to him, the office was not utilized/put to use this year for the purpose of business.
Interpretation of law:-
The AO applied section 43(1) and section 36(1)(iii) of the Act and held that since the office was not utilized or put to use in the year for the purpose of business interest paid on the capital borrowed for acquisition of the office cannot be allowed and therefore, the sum of Rs.4,02,837/- was disallowed under section 36(1)(iii) of the Act.
The assessee preferred an appeal before the CIT(A) who noted that the office was taken on the fixed asset of the company for the Financial year 2016-17 and office got registered in FY 2016- 17 and according to CIT(A) expenses of Rs.4,02,837 cannot be allowed this year. However, according to CIT(A), the same can be capitalized in the year of acquisition. The assessee while assailing the action of the CIT(A) submitted that the assessee has borrowed an amount of Rs.1,36,65,535 from the Axis Bank which is discernible from a perusal of page 5 of the paper book. According to the assessee, no disallowance could have been made when the assessee possessed a mixed fund which includes its own fund in sufficient quantity.
The coram consists of J.S. Reddy and A. T. Varkey while confirming the action of CIT(A) noted that the loan amount was allocated for its office/capital which is a factual finding, which could not be disproved by the assessee, so the presumption based on mixed funds cannot be applied.