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2018 (2) TMI 1699 - AT - Income TaxDisallowance u/s 36 (l) (iii) - Penalty proceedings u/s.271(l)(c) - Held that:- Interest expenditure of ₹ 19,92,128/- is disallowed in view of the provisions of Sec.36(l)(iii) of the Act and added back to the total income of the assessee company. Penalty proceedings u/s.271(l)(c) of the Act are initiated for furnishing inaccurate particulars of income and thereby concealment of income. It is pertinent to clarify that, the assessee company has paid interest of ₹ 4,80,110/- to Lily Enclave Pvt. Ltd. In this regard on verification of the record of the assessee company for the A.Y.2009-10, it is noticed that, the unsecured loan received from Lily Enclave Pvt. Ltd. has been treated as unexplained cash credit u/s.68 of the Act vide order u/s.153C / 153A r.w.s. 143(3) of the Act dated 30/12/2011. The said unexplained cash credit has been confirmed by the Ld.CIT(A)-III, Ahmedabad. Therefore, interest expenditure to the extent of ₹ 4,80,110/- is not allowed. However, no separate addition is made since the entire interest expenditure has been disallowed, as discussed above. Disallowance u/s 35D - Held that:- As we can see from the memorandum and articles of association of Taxworld Fashions Private Limited company main business is not a rental business. Appellant shows that as per balance sheet of the appellant company, it is shown that it is plea of CEPT plant to be under consideration. Further, the nature of business of the appellant is manufacturing and trading of cloth, but appellant had made statement before the lower authorities that rental income of ₹ 72,00,000/- earned during the year was its business income. After going through the record, we can see that appellant yet to start its business. So in our considered opinion, we are not convinced with the argument of the ld. AO but direct the AO to capitalize ₹ 72,00,000/- and allow depreciation. So far as disallowance u/s.35D of the Act is concerned appellant had not started its business activity and even the plant and building are still under construction. The appellant has merely stated in its submission that it had not business activity of plant and machinery under construction. But this fact is not correct because no business activity has been shown by the appellant and no supportive documents have been filed by the appellant during the year under consideration. In audit to get deduction u/s.35D of the Act must against the manufacturing our business activities. So in our considered opinion, this ground cannot be allowed.
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