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2022 (12) TMI 679 - AT - Income TaxDisallowance of interest u/s. 36(i)(iii) - amount of interest on investment made in the assets not used for the business purpose is not allowable - AO estimated interest @12% p.a. attributable to such investment in land - AO held that the aforesaid amount of interest has been incurred towards purchase of capital asset being advance towards land and therefore the assessee is not entitled to deduction of such interest expenditure u/s 36(1)(iii) - HELD THAT:- It is the case of the Revenue that interest expenditure has been incurred on investment made in assets and is in the nature of capital expenditure wrongly claimed as Revenue expenditure by the assessee. The assessee is, on the other hand, claims that (a) the interest free funds to the extent of Rs.5,52,50,000/- was available to meet the advance towards land, (b) the ITAT in Assessment Year 2007-08 has observed that Assessee is engaged in real estate activity as one of its business activity. We notice that the CIT(A) took note of the decision of the Tribunal rendered in Assessment Year 2007-08 and observed that the assessee is indeed engaged in the business of real estate and not merely in coal trading. As a consequence, it was observed that the interest expenses incurred on acquisition of real estate has to be treated as ordinary business activity and therefore the interest incurred on acquisition of real estate partakes the character of Revenue expenses and thus cannot be disallowed. We find that the CIT(A) has taken note of the object clause in the MOA as well as past and present state of affairs to come to a conclusion that acquisition of land is ordinary business activity in the business of real estate and therefore attendant interest expenses cannot be disallowed by treating it for non business purposes with reference to Section 36(1)(iii) - We do not see any error committed by the CIT(A) for returning such finding. Hence, we decline to interfere. Addition u/s 2(22)(e) - deemed dividend of income - CIT-A restricted the addition to the extent of ‘General Reserve’ after excluding the ‘Security Premium Reserve’ which has been regarded to be outside the ambit of expression ‘accumulated profits’ under Section 2(22)(e) - HELD THAT:- CIT(A) in essence, held that the security premium reserve cannot be regarded as part of accumulated profits u/s 2(22)(e) and when such security premium is excluded, the General Reserve available for the purposes of addition under Section 2(22)(e) only and thus sustained the addition to the extent accumulated profit excluding share premium reserve. We find the approach of the CIT(A) is in consonance with judicial precedent available in this regard as cited by the CIT(A). We thus see no infirmity in the action of the CIT(A). Hence, we decline to interfere.
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