TMI Blog2013 (11) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... rned relevant assessment years – Decided against the Assessee. Disallowance of interest on account of use of interest bearing funds for non-business purposes - Assessee paid a sum of Rs.7,18,35,000/- to Saraldisha Investments in the Financial Year 1999-2000 as an advance to acquire shares of one of its subsidiary company Atco Healthcare Ltd. It is observed that the assessee could not get shares, the said amount was treated as loan – Held that: - Assessment were completed u/s 143(1) of the Act. Further, the assessee could not establish the link that the advance was given by assessee out of its own funds and no borrowed monies were used. Ld. AR also fairly conceded that the assessee could not furnish the requisite details to establish that borrowed monies were used by assessee for its business purposes and only own money was used to give advance to purchase shares of its subsidiary company – Decided against the Assessee. - I.T.A. No. 2063/Mum/2008 - - - Dated:- 6-11-2013 - Shri B. R. Mittal,(JM) And Rajendra (AM),JJ. For the Appellant : Shri K. Gopal For the Respondent : Shri Javed Akhtar ORDER Per B. R. Mittal,JM:- The assessee has filed this appeal for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unilateral decision of the assessee to write off interest or any other expenditure which has been capitalized but it in earlier years and debiting it to P L account does not charged the character of the expenses and neither it makes that expenditure, an expenditure of year in which it is debited to P L Account. Therefore, even though capital WIP written off consist only of interest, the same cannot be allowed under section 36(1)(iii). 2. There is no provision in Income Tax Act under which write-off of capital work in progress is allowed as a deduction. Section 28 and 37(1) provide for deduction of revenue expenses incidental to business. The referred expenses of Rs.3,51,55,074/- were incurred by the assessee company in earlier years as interest on capital borrowed for development of a new project essentially on capital account. It has never been legislative intent to allow such expenses as revenue expenditure under any provision of the Act under the head income from business and profession. The only exception allowed in the Act where the expenditure by way of infructuous or abortive exploration expenses in respect of any area allowed subject to certain conditions. Had it been th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the current Financial Year i.e. relevant to assessment year 2003-04 acquisition of property was not materialized due to delay in the project by the Developer, the assessee written off the said interest in the books of account which was capitalized in the earlier year. It was submitted that the same is to be treated as expenditure of the Financial Year relevant to the assessment year under consideration. 6. Ld. CIT(A) did not agree with the contention of the assessee. Ld. CIT(A) has stated that the assessee is following mercantile system of accounting and the provision for interest now being claimed in the books of account in the assessment year under consideration i.e. assessment year 2003-04 related to earlier years. Since the assessee had already capitalized the expenditure, the assessee was also to get capital asset, the expenditure was attributable to capital as the expenditure on account of interest was incurred for bringing the asset into existence which is a capital in nature. He stated the if the project could not be implemented then it is to be treated as capital loss and not revenue in nature. Hence, assessee is in further appeal before the Tribunal. 7. On behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem of accounting and therefore the expenditure on account of interest should have been claimed by assessee in the concerned relevant assessment years. Hence, we, for the reasons given by ld. CIT(A) confirm the order of ld. CIT(A) and reject the Ground No.1 of the appeal taken by assessee. 10. Ground No.2 of the appeal taken by assessee relates to disallowance of interest of Rs.3,37,58,560/- on account of use of interest bearing funds for non-business purposes. 11. Relevant facts are that the assessee paid a sum of Rs.7,18,35,000/- to Saraldisha Investments in the Financial Year 1999-2000 as an advance to acquire shares of one of its subsidiary company Atco Healthcare Ltd. It is observed that the assessee could not get shares, the said amount was treated as loan. The AO stated that the assessee has used borrowed capital and the said borrowed capital was not utilized for the purpose of assessee-company but has been utilized for the business of subsidiary company. AO has stated that the assessee has paid interest on its borrowed capital at the rate of 16% per annum, as is evident from the balance sheet of assessee-company. He further stated that the assessee has invested the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee had given advance to acquire shares in the subsidiary company in the financial year 1999-2000 but no disallowance of interest was made in the earlier years. He further submitted that AO has not established the nexus of the advance given and the borrowed funds used by assessee. He submitted that disallowance of interest made in the assessment year is not justified as the assessee also had its own funds. In reply to a query on the above submissions of ld. AR as to whether in the earlier years, the assessment was completed u/s 143(1) of the Act, the ld. AR submitted that the assessment were completed u/s 143(1) of the Act. Further, the assessee could not establish the link that the advance was given by assessee out of its own funds and no borrowed monies were used. Ld. AR also fairly conceded that the assessee could not furnish the requisite details to establish that borrowed monies were used by assessee for its business purposes and only own money was used to give advance to purchase shares of its subsidiary company. 14. Considering the above facts and the reasons as given by ld.CIT(A) we do not find any reason to interfere with the order of ld. CIT(A). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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