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2016 (11) TMI 1713 - AT - Income TaxInterest income from the sister Concern - assessee had borrowed an amount from the Andhra Bank in the financial year 2010-11 on interest @18.25 p.a., out of which partial amount was advanced by the assessee to sister concern MDC @12% p.a - as per DR amount of interest paid to Andhra bank ought to have been capitalised to WIP as the amount was borrowed for working capital - HELD THAT:- Assessee has borrowed the said amount from Andhra Bank for the purpose of working capital facilities which is used for making advance of ₹ 8 crores to MDC and also for other purposes for meeting administrative expenses. It is stated that assessee has advanced the said amount to MDC for commercial expediency and placed reliance on the decision of the Hon’ble Supreme court in the case of SA Builders Limited [2006 (12) TMI 82 - SUPREME COURT] The assessee is partner in MDC entitled for 50% share in profits and the said concern is also engaged in real estate and construction. The Revenue could not controvert the said contention of the assessee that the said amount was advanced keeping in view commercial expediency as stated above, thus keeping in view our above detailed reasoning, we are of the considered view that the addition made by the Assessing Officer by disallowing the interest expenses and adding the same to WIP is not sustainable keeping in view peculiar facts and circumstances of the case. The revenue is also not able to show that inventories are acquired out of borrowings and interest is to be capitalised keeping in view AS-16 issued by ICAI. The AS-2 issued by ICAI clearly stipulates that generally the interest shall not be added to the inventories as the same does not usually bring the inventories to the present location and condition The assessee has earned interest income from MDC f ₹ 3,37,40,072/- which is offered for taxation, while interest paid for Andhra Bank on OD is ₹ 1,59,27,795/- and hence there is net interest income which had been earned by the assessee. We have also noted a peculiar fact that advances received from customer by the assessee as at 31-03-2012 is ₹ 68.57 crores, while closing WIP is ₹ 45.04 crores, thus advances from customer received by the assessee are higher than closing WIP as at 31-03-2012. Thus, keeping in view our detailed discussions and reasoning as set out above, we donot find any infirmity in the appellate order of the learned CIT(A), which we confirm and refuse to interfere - Appeal of revenue dismissed.
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