TMI Blog2014 (2) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... t – Held that:- The contention of the assessee has merits that no borrowed funds were used by assessee for making the said investment - the borrowed money was taken by assessee from IDFC as secured loan which the assessee could utilized only for setting up hotel project – the disallowances of out of interest is not justified - AO has made disallowance of expenses as per Rule 8D(iii) of the Rules, the formula prescribed by Legislature which is applicable from assessment year under consideration - there is no arbitrarily disallowance, made by AO but has followed the statutory formula to make the disallowance towards attributable administrative expenses – there is no need to interfere in the decision of CIT(A) in confirming the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been included in the CWIP of the hotel construction. AO after seeking the explanation from the assessee stated that actual cost has not arisen to the assessed during the year and therefore the advances cannot be a part of CWIP or expenditure of the year. AO has stated that without prejudice to the above , as the assessee is following mercantile method of accounting, it cannot take plea that in whatever form the payments have been made will be part of the expenditure of the year. AO accordingly reduced CWIP of the advances given to the suppliers of Rs.6,02,44,107.75 and advances given or acquiring land of Rs.61,68,825/- as he did not allow the same to be part of CWIP. Being aggrieved, assessee filed appeal before the First Appellate Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant . Ground No.1 is dismissed." Hence, assessee is in further appeal before the Tribunal.. 7. During the course of hearing, ld. AR reiterated the submissions as made before the authorities below. He further filed a copy of notes on accounting standard and submitted that even if the payments made to contractors as advances from time to time or in accordance with specific terms of contract, the assessee can capitalize the expenditure during the construction of pre-production. However, the said advances should not be segregated or classified against any specified fixed asset until the work is completed. The ld. AR relied on the decisions of Hon'ble Apex Court in the case of . Challapalli Sugars Ltd. V/s CIT [1975] 98 ITR 167 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 We observe that the assessee has merely given the advances to the suppliers/contactors/sellers and the expenses have not been actually incurred. Nor any bills have been raised by the persons to whom the advances have been made. Merely making advances for the prospective supplies of material/ contractors to execute the work/sellers of land and without specifying as to which material is to be procured by assessee, what material is to be procured by assessee and also did not indicate as to how the advances, would be adjusted towards capital work to be executed, we are of the considered view that the ld. CIT(A) has rightly held that the said advances given by assessee towards expenditure that may arise or may arise in future cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. Thus, AO disallowed aggregate amount of Rs.6,32,887/- from preoperative expenses. Being aggrieved, the assessee filed appeal before the First Appellate Authority. 12. Ld. CIT(A) after considering the submissions of the assessee has upheld the action of AO. Hence, assessee is in further appeal before the Tribunal. 13. At the time of hearing, ld. AR submitted that the assessee has not used any borrowed money for the purpose of of making investment. He referred pages 28 and 29 of the paper book which is a copy of balance-sheet as on 31.3.2009 and submitted that in the Financial Year relevant to the assessment year under consideration there was a reduction in investment from Rs.11.22 crores to Rs.7.90 crores. He submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as disallowance of Rs.4,78,122/- calculated as per Rule 8D(iii), being 0.5% of value of investment, we observe that the assessee has admittedly not attributed any expenditure towards earning of exempt dividend income of Rs.51,95,166/-. It is a fact that the assessee when makes a decision for making investment has to directly or indirectly incurred an expenditure. The legislature has laid down Rule 8D for calculating administrative expenses vide Rule 8D which is applicable from AY 2008-09. AO has made disallowance of expenses of Rs.4,78,122/- as per Rule 8D(iii) of the Rules, the formula prescribed by Legislature which is admittedly applicable from assessment year under consideration. Considering the facts of the case and the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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