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2013 (6) TMI 426 - AT - Income TaxExpenditure on interior work - revenue v/s capital - Held that:- It is not in dispute that the assessee took the premises on lease for 15 years with an option to extend the same for further period with an intention to set up a new show room in the lease premises & thereby incurred the expenditure in interior decoration like false ceiling, racks, change of flooring, etc. Though the entire title on the property is not transferred during the course of lease assessee would be in physical possession of the property on payment of the agreed amount as lease rent. Therefore, the expenditure incurred by the assessee resulted in expansion of the capital base of the assessee as it resulted in expansion of the profit making apparatus. Therefore, the expenditure incurred by the assessee for interior decoration and other works on the leased premises for the first time for the purpose of setting up of business is not in the course of profit earning process, but in the course of establishing a new capital asset / profit earning apparatus. Therefore be treated as capital in nature. See Veeraraghavan vs CIT [1965 (7) TMI 55 - KERELA HIGH COURT]. Against assessee. Expenditure towards advertisement including payment made to temples, churches, clubs, educational institutions and trade unions, etc. - revenue v/s capital - Held that:- In the written submission, the assessee claims that the prime motive for contribution is charity. If it is a charity, it has to be claimed u/s 80G if the same is approved by the respective CIT. Here, the assessee is claiming business expenditure. It is not the case of the assessee that the expenditure was incurred in connection with the welfare of the employees. Moreover, the assessee has incurred Rs.7,20,99,724 but the AO has disallowed only Rs.1 lakh. In the absence of claim of the assessee that the expenditure was incurred for business purpose or for welfare of the employees, this Tribunal is of the considered opinion that the contribution made by way of charity cannot be allowed u/s 37 as business expenditure. Against assessee. Interest on loan - revenue v/s capital - Held that:- The assessee claims that the entire borrowed funds to the extent of Rs.76.06 crores was invested in the stock in trade. Even if the deposits of Rs.21.38 crores taken as assessee's investment, the balance amount claimed by the assessee to the extent of Rs.20.74 crores as interest free funds may not be available. Therefore, it is not known how the CIT(A) came to the conclusion that the loan of Rs.12.14 crores was given to the relatives out of the available interest free fund of Rs.20.74 crores. If the assessee demonstrates that sufficient capital funds are available, then there may not be any diversion of funds. However, it is for the assessee to demonstrate that sufficient capital funds were available in the books of account. Therefore, AO has to examine the same with regard to the available funds in capital / current account of the proprietor and the nature of deposit to the extent of Rs.21.38 crores, thus the issue of disallowance of interest on the borrowed fund is remitted back to the file of AO. In favour of revenue for statistical purpose.
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