TMI Blog2015 (4) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... INDIA), interest is deductible as the amount is advanced to a subsidiary company/sister concern, as a measure of commercial expediency. Thus we delete the disallowance relatable to balance amount of interest free advances of ₹ 4.37 crores - Decided in favour of assessee for statistical purposes. Disallowance of finance charges/interest expenditure debited to the P&L a/c - Held that:- CIT(A) correctly allowed the claim as relying on assessee's own case for the AY 2005-06 [2011 (10) TMI 573 - ITAT HYDERABAD] - Decided against revenue. Sale of let out shops - long term capital gains v/s business income - Held that:- The shops let out by the company were shown as investment in the books and when the investment were sold the same were offered as capital gains. An amount of ₹ 1,34,83,600 was shown under the head “investment capitalized”. Relying on the decision of Radhaswamy Satsang (1991 (11) TMI 2 - SUPREME Court) wherein it was held that consistency is a virtue to be followed both by the assessee and the Revenue and applying the ratio of the decision supra and taking into consideration that the shops have been reflected in the books of accounts from the very beg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a limited company, engaged in construction and running of hotels. For A.Y 2006-07, assessee filed its return of income on 20.04.2007 admitting total income of ₹ 2,61,18,812/-. Assessment u/s 143(3) was completed determining total income at ₹ 6,10,49,592/- by making certain additions. 3. The assessee preferred appeal before the CIT (A). The CIT (A) allowed the appeal partly. In the said appeal order, the additions of ₹ 2.00 lakhs was decided in favour of the assessee. The additions of ₹ 45,01,777, ₹ 1,22,54,000 and ₹ 1,26,00,000 were decided in favour of Revenue. On the issue of addition of ₹ 2,10,60,000 towards difference in profit on sale of shop in ground floor, the CIT (A) remanded the issue to the file of the AO with the following observations: Keeping in view all the above legal pronouncements and facts of the case, I hold that there is no doubt that based on evidence and human probability the area in question was sold to the brother of the Director Mr. Ashok Kumar Malpani is at the rate at least ₹ 2000/- per sq.foot on the minimum sale rate of adjoining areas. It was not difficult for the appellant to obtain the unac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a reasonable opportunity to the assessee. We make it clear that we are not expressing any opinion on the merit of the appeal. The Assessing Officer has to reconsider the entire issue in accordance with law without being influenced by any of the observations made by this Tribunal in this order or of the CIT(A) in the impugned order . 5. Consequent to the directions of the Tribunal, the AO initiated assessment proceedings and passed an order dated 30.12.2011 by making the following additions: i) Disallowance of 40(a)(ia) of ₹ 2,71,729 ii) Disallowance of interest of ₹ 45,01,777 iii) Expenditure incurred in relation to exempt income of ₹ 2.00 lakhs. iv) Business profit of shops sold of ₹ 1,22,54,000 v) Difference in profit on sale of shop in ground floor of MMP Mall of ₹ 2,10,60,000 vi) Difference in profit on sale of shops in 2nd, 3rd 4th floors in MPM Mall of ₹ 1,26,00,000. 6. Aggrieved by the assessment order dated 30.12.2011 the assessee preferred appeal before the CIT (A). The assessee raised Ground No.3 before the CIT (A) which is as follows: 3. The ld AO grossly erred in disallowing interest paid on borrowed capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissing the appeal, that the expenditure on interest was set off against the income from interest and the investment in the shares and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section1 4A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, was a question of fact. The contention of the Revenue that directly or indirectly some expenditure was always incurred which must be disallowed under section 14A and the impact of expenditure so incurred could not be allowed to be set off against the business income which may nullify the mandate of section 14A, could not be accepted. Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. Consequently, the disallowance was not permissible. The same view has been taken by the Tribunal in the case of ACIT V/s. Sun Investment (8 ITR (Trib) 33). Relying on the ratio laid down in the above cases, this issue is set aside to the file of the assessing officer, to verify whether any ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected to be allowed. Thus, this ground of appeal is allowed . 9. Against the order of the CIT (A), the Department has preferred appeal and Ground No.2 of the Departmental appeal read as follows: 2. The CIT (A) ought to have appreciated the disallowance of the expenditure of ₹ 45,01,777 claimed by the assessee as finance charges/interest debited to the P L a/c . 10. We find no infirmity in the order of the CIT (A) as he has only followed the order of the ITAT in ITA No.1705/Hyd/2008 for the AY 2005-06 in the assessee s own case. Hence this ground raised by the Revenue is dismissed. 11. With respect to Ground Nos. 3 4, relating to long term capital gains of ₹ 1,00,07,133/- treated as business income at ₹ 1,22,54,400/-, it was observed that the assessee had sold its let out shops and offered it under long term capital gains. The AO treated the sale of assets as its business income and brought to tax an amount of ₹ 1,22,54,400/-. On this, during the course of scrutiny proceedings, it was submitted by the assessee, as under: Company has initially capitalized the building as investment in the year 2001-02 with an intention to hold the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar with the only reason that it was sold. Accordingly I direct the AO to delete this addition . 14. On further appeal before us, we heard both the parties and we find that the shops let out by the company were shown as investment in the books and when the investment were sold the same were offered as capital gains. An amount of ₹ 1,34,83,600 was shown under the head investment capitalized . Relying on the decision of Radhaswamy Satsang (193 ITR 321) wherein it was held that consistency is a virtue to be followed both by the assessee and the Revenue and applying the ratio of the decision in 193 ITR 321 and taking into consideration that the shops have been reflected in the books of accounts from the very beginning, we are of the opinion that the income generated on the sale of the same should be treated as capital gain and not as business income. We confirm the order of the CIT (A) in deleting the addition. Ground Nos. 3 4 of appeal of the Revenue are dismissed. 15. Ground No.5 relates to the additions made towards profit on sale of ground floor - ₹ 2,10,06,000/- and profit on sale of shops in 2nd, 3rd and 4th floors - ₹ 1,26,00,000/-. In this regard asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was necessary to control the company effectively by the major shareholders to produce better prospects and active supervision, accordingly held that such family arrangement could not be held to be a transfer which was exigible to capital gain tax. On appeal by the Revenue: Held, dismissing the appeal that the Tribunal had rightly found that the transfer of shares by way of family arrangement would not attract capital gains tax, as the same was a prudent arrangement to avoid possible litigation among the family members and was made voluntarily and not induced by any fraud or coercion and therefore, could not be doubted. The Tribunal was justified in arriving at the conclusion that the family arrangement among the assessees did not amount to any transfer and hence was not exigible to capital gains tax 16. The ld CIT (A) held as under: 10.1 I have gone through the assessment order and submissions of the appellant. Going by the facts involved, I see there is merit in the submissions of the appellant. When an arrangement is made between the family members of the Directors of the company, the rates so adopted for this purpose cannot be compared to prevailing market rates a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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