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2015 (4) TMI 796 - AT - Income TaxDis-allowance of interest paid on borrowed capital - No expenditure incurred for earning exempted income, dis-allowance under section 14A not stand - Interest free advances given on the principles of business prudence and commercial expediency - Treatment of sale of investments - Capital gain vs Business income - Additions on account of sale of ground floor below market rates - Family arrangement does not liable for capital gain - Held that:- Dis-allowance of interest paid on borrowed capital - Following assessee's own case [2011 (10) TMI 573 - ITAT HYDERABAD] for the Ay 2005-06, we find no infirmity in the order of CIT(A). The ground raised by the Revenue is dismissed. Treatment of sale of investments - We find 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 this decision & 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. We confirm the order of the CIT (A) in deleting the addition. Ground Nos. 3 & 4 of appeal of the Revenue are dismissed. Additions on account of sale of ground floor below market rates - 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 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 the Hon’ble Madras High Court in the case of KAY ARRT Enterprises [2007 (7) TMI 171 - MADRAS HIGH COURT], the wherein the High Court held that "the Tribunal had rightly found 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 against the revenue.
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