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2015 (4) TMI 98 - AT - Income TaxDisallowance of interest paid on borrowed capital u/s 14A r.w.s. Rule 8D - Held that:- This issue is set aside to the file of the assessing officer, to verify whether any exempted income has been earned by the assessee during the previous year relevant to assessment year under consideration on the investment towards share application money and decide the issue in accordance with law, after giving an opportunity to the assessee to present its case. As for the balance amount of interest free advance of ₹ 4.37 crores advanced by the assessee, we find that the assessee company, which is having experience and expertise in running a star hotel is interested in the new venture in as much as it was felt that the assessee would be benefitted maximum by being a part of a hotel chain. The running of a chain of hotels belonging to a group is quite in vogue and the advance has been prompted on the principles of business prudence and commercial expediency. Hence, in the light of the decision of the Apex Court in the case of SA Builders (2006 (12) TMI 76 - SUPREME COURT OF INDIA), interest is deductible as the amount is advanced to a subsidiary company/sister concern, as a measure of commercial expediency. Thus we delete the disallowance relatable to balance amount of interest free advances of ₹ 4.37 crores - Decided in favour of assessee for statistical purposes. Disallowance of finance charges/interest expenditure debited to the P&L a/c - Held that:- CIT(A) correctly allowed the claim as relying on assessee's own case for the AY 2005-06 [2011 (10) TMI 573 - ITAT HYDERABAD] - Decided against revenue. Sale of let out shops - long term capital gains v/s business income - Held that:- The shops let out by the company were shown as investment in the books and when the investment were sold the same were offered as capital gains. An amount of ₹ 1,34,83,600 was shown under the head “investment capitalized”. Relying on the decision of Radhaswamy Satsang (1991 (11) TMI 2 - SUPREME Court) wherein it was held that consistency is a virtue to be followed both by the assessee and the Revenue and applying the ratio of the decision supra and taking into consideration that the shops have been reflected in the books of accounts from the very beginning, we are of the opinion that the income generated on the sale of the same should be treated as capital gain and not as business income. - Decided in favour of assessee. Additions made towards profit on sale of ground floor and shops in 2nd, 3rd and 4th floors - According to the assessee, members of Malpani family had come to an understanding of settling their properties and it is in pursuance of this settlement they had some transactions/exchange of properties and those arrangements should be viewed from this angle and not as a general transaction - Held that:- We have perused the copy of the deed of family arrangement filed by the assessee evidencing the arrangement entered into by the family members of Malpani family. According to this agreement, Directors of the assessee company exchanged some properties and in the process the ground floor is to be given to Shri Ahok Kumar Malpani and 2nd, 3rd and 4th floors were to be handed over to Shri Girish Malpani, Shri Manish Malpani and Shri Ashish Malpani respectively. The CIT (A) has correctly held that when an arrangement is made between the family members, being Directors of the company, the rate so adopted for this purpose cannot be compared to prevailing market rate and the difference in rate cannot be adopted for the purpose of capital gains. In fact, the CIT (A) relied on the decision of CIT vs. KAY ARRT Enterprises ( 2007 (7) TMI 171 - MADRAS HIGH COURT), wherein held that the transfer of shares by way of family arrangement would not attract capital gains tax, as the same was a prudent arrangement to avoid possible litigation among the family members and was made voluntarily and not induced by any fraud or coercion and therefore, could not be doubted. The Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees did not amount to any transfer and hence was not exigible to capital gains tax. - Decided in favour of assessee.
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