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2015 (6) TMI 513 - AT - Income TaxDeduction of interest on borrowed capital invested in shares - assessee has claimed the interest cost as a part of the cost of acquisition and/or improvement - Held that:- To bring an expense within the cost of its improvement, the expenditure has to be by way of a (physical) addition or alteration, adding value to the capital asset. Admittedly, no such improvement has taken place to the shares, which continue to be held as such, i.e., as acquired. This is again part of the settled law, for which we may refer to the decision in the case of Industrial Credits & Development Syndicate Ltd. vs. CIT [2000 (11) TMI 39 - KARNATAKA High Court]. We may not dwell on this aspect of the matter further, being a matter of trite law and, in any case, the interest cost under reference being for post acquisition period, and which has admittedly been considered by the assessee itself as a revenue cost, claimed and allowed as a revenue expenditure for the period 1980-81 onwards up to f.y. 1996-97. How could it then transform in character from f.y. 1997-98 onwards, to become a capital cost. This is incomprehensible, i.e., without any change in the underlying facts and circumstances of the case, so that shares continued to be a capital asset or an investment of the assessee. Merely for the reason that from a particular year the dividend income on shares, which is the holding income arising thereon, and against which the interest, as a period expense, would stand to be allowed, is rendered tax-exempt, would not alter its character from revenue to capital. It is in fact preposterous to state so. The same has thus rightly been considered as by the Revenue as an attempt to obviate or circumvent section 14A, by claiming the interest expenses as by the backdoor as it were - Decided against assessee. Deeming of income qua unproved credits by way of business liabilities u/s. 41(1) - Held that:- The accounting entries or the treatment that the assessee accords to an asset or liability in its books is not determinative of the matter. Again, the presumption would only be of the same representing the true state of affairs, but the inordinate delay in discharging the same raises considerable and valid doubt as to the existence of those liabilities as at the relevant year-end, i.e., as a fact. The onus on the Revenue, thus, gets discharged and shifts to the assessee, who is in effect only being called upon to show that the position as stated in its accounts reflects the true and correct position. A trading liability would normally get settled within a period of one or two months of it’s arising, while in the instant case years and years have passed. The same leads to the question: Why were the same not paid in the normal course and, rather, not paid at all? Is the matter disputed – if so, to what extent, and which shall again have to be demonstrated. In fact, after the lapse of considerable time, it becomes doubtful if the creditor exists, who may have moved to a different place; discontinued business, et. al. No material or evidence or even explanation is forthcoming from the assessee. The only inference under the circumstances is that the liability no longer exists. Per contra, the assessee has obtained a benefit by way of remission or as the case may be cessation of liability. An inference of fact is again only a finding of fact, drawn in consistence and in harmony with in the conspectus of the facts and circumstances of the case. - Decided against assessee. Which is the year of remission or cessation of liability - Held that:- The assessee having claimed it as a liability for the immediately preceding year as well, and which stood accepted by the Revenue, would preclude the assessee from contending that the liability was not existing, or was in fact not a liability even as at the end of the immediately preceding year. That is, it is not open for the assessee to turn back and say that you accepted my lie for the preceding year/s and, therefore, you are bound by it. The only consequence in law is that the cessation or remission has occurred during the relevant previous year. - Decided against assessee.
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