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2018 (9) TMI 1618 - AT - Income TaxDisallowance of interest expenses - capitalization of interest paid as part of the cost of any asset - Held that:- The first condition for applicability of the proviso is that there should be acquisition of an asset. The second condition is that such acquisition should be for extension of existing business. In the present case both the conditions are not satisfied. There was no acquisition of any asset by the Assessee from NGEF or HUDA and both the transactions did not ultimately fructify. Assessee had to abandon its idea of carrying out development on these properties. Assessee was already in the business of acquiring properties and constructing flats. In the ordinary course of its business, the Assessee sought to acquire properties from NGEF and HUDA. Therefore it cannot be said that the Assessee indulged in any extension of existing business or profession. It is clear that at no point of time the Assessee was certain of acquiring the properties either from NGEF or HUDA. As far as the transaction with NGEF is concerned, the Division Bench dismissed the Assessee’s claim for acquiring the property much prior to the end of the relevant previous year. Though the Assessee preferred appeal before the Hon’ble Supreme Court against the order of the Division Bench of the Karnataka High Court, the same was ultimately dismissed on 25.9.2008 and the Assessee was to get back only the EMD paid by it to the Official Liquidator together with interest. The interest income was offered to tax by the Assessee in AY 2008-09 and the interest expenditure in connection with borrowing funds for paying the EMD was also claimed as deduction and revenue expenditure for the relevant previous year. The interest expenditure was therefore rightly held by the CIT(A) to be for the purpose of business of the Assessee and an allowable deduction u/s.36(1)(iii). As far as the EMD paid to HUDA is concerned, Assessee as early as 27.11.2006 has rescinded the agreement to acquire property from HUDA. The expenditure incurred in the form of interest on borrowings to pay the EMD to HUDA has to be considered as borrowing for the purpose of business of the Assessee allowable u/s.36(1)(iii) of the Act. - Decided against revenue.
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