TMI Blog2014 (12) TMI 889X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and the resultant income therefrom amounting to ₹ 1,75,28,315 was in respect of the entire loan and the same was linked to the loan borrowed for the purpose of reduction of interest cost. The interest debited to the profit and loss account amounting to ₹ 5,32,82,402 was incurred for earning income from the inter-corporate deposit and the currency swap arrangement and in the regular course of business carried on by the assessee and the interest so debited to the profit and loss account is admissible as a deduction u/s 57(iii) of the Act or alternatively u/s 37(1) - an amount of ₹ 3,16,47,870 was capitalised as part of the funds were used for the ongoing construction of ‘Forum Value Mall’ and the balance sum of ₹ 3,57,54,087 (Rs.6,74,01,957 less ₹ 3,61,47,870) only could have been charged to the profit and loss account - while the AO has computed the interest cost pertaining to the intercorporate loan at ₹ 3,85,49,961 @ 12.25% on the day to day balance, the net interest paid charged to the profit and loss account as per the working at ₹ 3,57,54,087 is lower than the interest cost computed at ₹ 3,85,49,961 by the AO - the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 4. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above. 4. The grounds raised at S.Nos.1, 3 and 4 of Revenue s appeal being general in nature, no adjudication is called for thereon. 5. Disallowance of Interest : ₹ 1,47,32,441. 5.1 The ground at S.No.2 is the only issue for consideration before us; i.e. whether the learned CIT (Appeals) was correct in deleting the disallowance of interest made by the Assessing Officer amounting to ₹ 1,47,32,441. 5.2.1 The assessee, engaged in the business of real estate and construction, borrowed a loan of ₹ 81.30 Crores from J.P. Morgan Chase Bank on 18.12.2006 for the purpose of construction and development of Forum Value Mall at Whitefield, Bangalore @ 12.25% per annum which was payable monthly. The assessee also entered into a currency swap arrangement with the Bank to reduce the burden of the interest cost. When this loan was taken, the construction and development of Forum Value Mall was in the initial stage, and the assessee not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Income / Gain offered Rs. Interest debited to P/L Account Rs. Net income offered. Rs. 4,09,10,613 3,85,49,961 23,60,652 1,75,28,315 1,47,32,441 27,95,874 5,84,38,928 5,32,82,402 51,56,526 The conclusions of the Assessing Officer in the order of assessment were that :- (i) The amount earned from the currency swap arrangement is from unutilised funds in the loan account; (ii) There can be no specific expenditure attributable to the amount earned from currency swap arrangement; and (iii) The assessee is not justified in debiting the interest on account of currency swap. 5.3 The learned Departmental Representative relied on and supported the finding of the Assessing Officer in the order of assessment. It was submitted that the income from currency swap arrangement was in respect of unutilised loan funds and therefore there cannot be deduction of any expenditure or outgo against this income. The learned Departmental Representative also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted by the learned Authorised Representative, that the above currency swap arrangement resulted in interest savings of 2.25%. The learned Authorised Representative relied on the Notes to Accounts, forming part of the statutory audit report, wherein it was stated that the currency swap arrangement was entered into in order to reduce the interest cost and with an intention of hedging the interest rate risk and not for speculation or trading purposes. The learned Authorised Representative therefore contended that the currency swap arrangement was in respect of the entire loan of ₹ 81.30 Crores and consequently the finding of the Assessing Officer that the currency swap arrangement and the income therefrom is in respect of unutilised portion of the loan placed as inter corporate deposit with Prestige Estate Projects Ltd., is erroneous. 5.4.3 The learned Authorised Representative submitted that the interest expenditure relatable to the construction of Forum Value Mall, amounting to ₹ 3,16,47,870 was rightly capitalised as per Accounting Standards ( A S ) 16 and no deduction was claimed in respect of the same and the Assessing Officer did not dispute this fact. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention of hedging the interest rate risk and not for speculation or trading purposes. The arrangement was settled during the current year and gain on settlement of the contract amounting to ₹ 17,528,315 has been credited to the profit and loss account. There are no other outstanding derivative contracts as at the balance sheet date. 5.5.2 The construction and development of Forum Value Mall was in the initial stage of development where the loan of ₹ 81.30 Crores was borrowed from JP Morgan Chase Bank on 18.12.2006. The assessee therefore placed an amount of ₹ 63 Crores out of the loan of ₹ 81.30 Crores with M/s. Prestige Estate Projects Ltd., as inter corporate deposit on 20.12.2006 on which interest thereon was receivable @ 13% per annum on the day to day balance. The inter corporate deposit was repaid by Prestige Estate Projects Ltd., as and when funds were required by the assessee after the construction and development of Forum Value Mall commenced in January, 2007. The balance of the inter corporate deposit as on 1.4.2007 was ₹ 45.75 Crores which was squared off by26.1.2008 and the entire loan of ₹ 81.30 Crores taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he unutilised funds as concluded by the Assessing Officer. In this view of the matter, we hold that the finding of the Assessing Officer that the currency swap arrangement was only in respect of unutilised funds is factually erroneous. We, therefore, hold that the currency swap arrangement and the resultant income therefrom amounting to ₹ 1,75,28,315 was in respect of the entire loan and the same was linked to the loan borrowed for the purpose of reduction of interest cost. 5.5.5 As per section 57(iii) of the Act, any expenditure laid out or expended wholly and exclusively for the purpose of making or earning the income is allowable as deduction. Under section 37 of the Act, revenue expenditure laid out wholly and exclusively for the purpose of carrying on business is allowed as a deduction. In the case on hand, the interest amounting to ₹ 5,32,82,402 debited to the profit and loss account was the interest cost of the loan finds temporarily placed as a inter-corporate deposit. The currency swap arrangement and the income there from amounting to ₹ 1,75,28,315 was also in respect of the entire loan and was linked to the loan borrowed for the purpose of reduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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