interest of term loan for new building of existing business

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This query is : Resolved

CA SUREANDER NAHTA (Querist)
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19 October 2007 Sir,

A company take a loan of Rs. 100 Lacs for Construction of New Building for Existing Business. Interst of Rs. 15.00 Lacs can Claim as revenue exp.
and what Accouting Standard say for treatment of borrowing cost.
If company capitalise this interst as per Accounting Standard same can be allow as revenue exp under income tax act

S.RAVICHANDRAN

S.RAVICHANDRAN (Expert)
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19 October 2007 If the building has been completed and business has been commenced , then the interest is revenue expenditure. If the business has not yet been commenced, it is pre-commencement period interest and it can be capitalised.

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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19 October 2007 Borrowals can be for incurring capital expenditure - There is no bar in section 36(1)(iii) to allowance of interest paid in respect of capital borrowed which has been utilised for purchase of a capital asset - CIT v. Rajeeva Lochan Kanoria [1994] 208 ITR 616 (Cal.).

Interest on borrowals connected with setting up of business is not deductible - In order to be allowed as expenses, interest should be in respect of business which was carried on by the assessee and the profits of which are computed and assessed, and should be incurred after the business is set up. Accordingly, interest paid on borrowing in connection with the setting up or a new hotel which had not commenced business at the end of the relevant previous year, was not deductible - Ritz Continental Hotels Ltd. v. CIT [1978] 114 ITR 554 (Cal.).