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2021 (1) TMI 282 - AT - Income TaxCapitalizing interest expenses and treated the entire interest income as income from other source - HELD THAT:- The facts are identical in the present assessment year to that of AY 2014-15. The funds raised by the assessee are inextricably linked with setting up of its mall at Bangalore and, therefore, the interest earned by the assessee by parking the said funds temporarily with bank cannot be treated as 'Income from other sources'. Since the income was earned in a period prior to commencement of business, it was in the nature of capital receipt and, therefore, it would result in reduction in the capital work-in-progress. It is pertinent to note that in the present year, the assessee received the amount on account of interest on fixed deposits in bank. Under expenses incurred on interest cannot be considered as income of the assessee as business income as it is the income from other sources as per the provisions of Income Tax Act. Therefore, in the present assessment year as well, we accept the contention of the Ld. AR that if the expenditure is capital, the interest fund earn on fixed deposits being capital in nature amounts to income from other sources. Transfer pricing adjustment - AR made the contention before us that the adjustment made in the transfer pricing proceedings was made on a protective basis and as per Tribunal's decision in AY 2013-14 in the present assessment year the transfer pricing adjustment would become academic as the expenses would remain to be capitalized and the adjustment will not affect the profit and loss account - HELD THAT:- Contention of the Ld. AR appears to be not correct as the adjustment made by the Transfer Pricing Officer is more of alternative assessment in the nature rather than a protective as claimed by the Ld. AR. There is a substantive assessment in the Assessment Year 2013-14 [2019 (8) TMI 835 - ITAT DELHI]. Merely not having any impact/effect to the profit and loss account will not make the present assessment void. Hence, the contention of the Ld. AR that there is no substantive assessment does not sustain. Thus, the protective assessment is valid in this year. Payment of interest on FCCDs - contentions of the Ld. AR that the TPO has inappropriately considered Bright Buildtech as a comparable agreement appears to be correct. The NCDs issued by Bright Buildtech at 1% rate of interest and these have been issued to an overseas entity namely Clear Horizon Investments Pvt. Ltd. in two tranches. The total amount of the NCDs issued to Clear Horizon is ₹ 365 crores. From the balance sheet of Bright Buildtech in the year of issue reveals that the book value of the total assets of Bright Buildtech is ₹ 6,54,33,84,492/- as compared to 365 crores which is the total amount of NCD issued. Thus, percentage of NCDs issued to Clear Horizon to the total assets of Bright Buildtech is 55.78%. As per Section 92(A)(2)(c) of the Act, Clear Horizon shall be treated as an Associated Enterprise of Bright Buildtech since the loan was Clear Horizon exceeds 51% of the book value of the total assets of the Bright Buildtech. Thus, the NCD issued by Bright Buildtech to Clear Horizon cannot be taken as the comparable since Clear Horizon is an AE of Bright Buildtech. Average of the comparables taken by the TPO/AO (after excluding Bright Buildtech) comes at 15.58%. Hence, we direct the TPO to consider the transaction of the assessee in relation to the payment of interest on FCCDs in light of these four comparables - Kapstone Constructions Pvt. Ltd, Flicker Project Pvt. Ltd.,Ashiana Landcraft Realty Pvt. Ltd. AND Ashiana Landcraft Realty Pvt. Ltd.at arm's length.
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