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2015 (5) TMI 844 - ITAT KOLKATA

2015 (5) TMI 844 - ITAT KOLKATA - TMI - Interest received from Bank deposits to the extent as income from other sources.- CIT(A) deleted the addition - Held that:- The income from interest by the assessee since is assessable separately under the head “income from other sources”, therefore, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) - Decided in favour of revenue.

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l of section 40A(2)(a), it is apparent that this section is applicable only for restricting the claim of any expenditure, which is otherwise allowable while computing the income under the head “profit and gains of the business or profession”. Since the expenditure has not been claimed by the assessee while computing the income under the head “income from business”, therefore, no disallowance under section 40A(2)(a) can be made. The provisions of sect ion 40A(2)(a) are applicable only if the asse .....

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The said interest has not been claimed by the assessee as deduction while computing the income under the head “income from business”. The said interest, in fact, has been capitalized by the assessee under the head “work-in-progress”, i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee has claimed deduction under section 36(1)(iii) of the Income Tax Act while computing the income from business. Once the assessee itself has not claimed as revenue expendit .....

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y an agreement or sale deed. We accordingly confirm the order of the ld. CIT(Appeals) in deleting the addition of ₹ 12,60,000/- and dismiss this ground of appeal taken by the Revenue. - Decided against revenue. - I.T.A. No. 2291/KOL./2010 - Dated:- 14-5-2015 - Shri P.K. Bansal and Shri Mahavir Singh, JJ. Shri Dilip Kr. Mitra, JCIT, Sr. D.R., for the Appellant Shri S.S. Gupta, FCA, for the Respondent ORDER Per P.K. Bansal: This appeal has been filed by the Revenue against the order of the .....

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of capital expenditure claimed under the head loan syndication charges of ₹ 1,26,27,000/-. (3) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the disallowance interest expenses of ₹ 86,90,220/- on account of Term loan from Central Bank of India which was not utilized for business purpose and was placed in fixed deposit to earn interest. (4) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the disallowance of comp .....

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Rs. NIL. The assessee-Company was incorporated on 25.01.2006 and the nature of business of the Company is developing and promoting of land and property. The Company has produced Balance-sheet and state of affairs of the Company as on 31.03.2007 which was duly audited and has also debited a sum of ₹ 1,27,231/- under the head deferred revenue expenditure , which includes a sum of ₹ 2,044/- from the earlier year. Similarly the Company has incurred expenses during the impugned assessmen .....

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o the extent of ₹ 17,52,373/-. The Assessing Officer asked the assessee to explain the nature of the interest received amounting to ₹ 71,47,436/- why this interest should not be considered as income from other sources. The assessee did not submit any explanation. The Assessing Officer, therefore, treated the said sum as income from other sources but allowed 10% deduction towards the expenses on estimate basis amounting to ₹ 8,90,000/- out of the sum of ₹ 88,99,809/- relyi .....

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₹ 4.32 crores, accordingly he treated the sum of ₹ 71,47,436/- as interest earned not to be assessed under the head income from other sources . 5. We have heard the rival submissions and carefully considered the same. We noted that the assessee has got its accounts audited, the copy of which is available at pages 27 to 40 of the paper book. The audited account does not contain the Directors report so as to ascertain whether the business was set up during the impugned assessment year .....

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h credit facility is being secured by the Equitable mortgage of the Company s land and building situated at the premises no. 2, Dakshindari Road, Kolkata by the deposit of Title Deeds and Hypothecation of construction materials. Further, the Directors of the Company Shri Amar Nath Shroff and Shri Navin Kumar Bhartia have also given their personal guarantee to the bank with respect to this term loan. Till Balance sheet date, the company has taken disbursement of ₹ 35 crore from such Tem Loa .....

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d building would have been purchased by the assessee for the purpose of sale during the course of carrying out its business. The land and building would have not been shown at fixed asset s but would have been shown as stock-in trade. Since the essential activity of the business is not started, there is a distinction between the setting up of business and commencement of the business where the business consists of continuing course of activities for commencement of the business. All the activiti .....

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s not bought or given any advance for the purchase of any property for development or for the purpose of sale. Even the assessee has not entered into any joint venture. Income has been earned by the assessee on FDRs made with ICICI Bank. These FDRs are not intrinsically connected with the business activities of the assessee. In the case of the assessee, we noted that the assessee has made its investment in the FDRs out of the borrowed funds prior to the commencement of the business. Therefore, t .....

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n borrows money for business purposes but utilises that money to earn interest, however temporarily, the interest so generated will be his income. This income can be utilised by the assessee whichever way he likes, He may or may not discharge his liability to interest with this income. Merely because it was utilized to repay the interest on the loan taken by the assessee, it did not cease to be his income. When the question is whether a receipt of money is taxable or not or whether certain deduc .....

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ion, income of an assessee has to be classified under six heads. It is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business of profession is only one of the heads under which a company s income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company comme .....

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y difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property, something received in place of the property will be a capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital. It is true that the company will have .....

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on June 30, 1982. For the purpose of setting up of the factories, the company had taken terms loan from various banks and financial institutions. That part of the bor rowed funds which was not immediately required by the company was kept invested in short term deposits with banks. Such investments were specifically permitted by the memorandum and articles of association of the company. The company had also deposited certain sums with the Tamil Nadu Electricity Board. It had also given interest .....

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from other sources. It also disclosed business loss of ₹ 3,21,802/-. After setting off the interest income against the business loss, the company claimed the benefit of carry forward of net loss of ₹ 29,360/-. The company later on realised its mistake and on December 26,1984, it filed a revised return showing business loss of ₹ 3,21,802/-. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses had to .....

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terest and financial charges which would ultimately be capitalised. The Income Tax Officer rejected the assessee s claim that the interest income was not exigible to tax. The view of the Income Tax Officer was upheld by the Commissioner of Income Tax (Appals). The company s further appeal to the Income Tax Appellate Tribunal was dismissed. In view of the conflict of decisions between the Madras and Andhra Pradesh High Courts, the Tribunal referred the question regarding taxability of income, dir .....

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deal with the interest amount as it liked. The application of the income for payment of interest would not affect its taxability in any way. The company could not claim any relief under section 70 or section 71 since its business had not started and there could not be any computation of business income or loss incurred by the assessee in the relevant accounting years. In such a situation, the expenditure incurred by the assessee for the purpose of setting up its business could not be allowed as .....

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Taxman.com 18 (Delhi). In that case we noted that the assessee has set up the business. The Tribunal had given a finding of fact that the assessee has participated in tender and has also participated in an auction to acquire a piece of land, which he has to develop. This is not the case. In the case of the assessee, the assessee has not carried out any activity which may prove that the assessee has set up the business. In this case, the assessee has only carried out the activities prior to set u .....

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y activities for carrying on business. This decision also, in our opinion, will not assist the assessee as in the case of the assessee, the assessee has not done any act to generate that the assessee has set up its business for developing and promoting the land and building. The assessee no doubt bought the land and building but that has been bought by the assessee as fixed asset not for the purpose of purchase and sale. We have also gone through the decision of the Hon ble Delhi Bench of this T .....

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re, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) and allow the Ground No. 1 taken by the Revenue. 8. Ground No. 2 relates to the deletion of the addition of capital expenditure claimed under the head loan syndication charges amounting to ₹ 1,26,27,000/-. 9. Brief facts relating to this ground are that the Assessing Officer noted that the assessee has incurred loan syndication charg .....

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red the same along with the order of the tax authorities below. We noted that this expenditure under section 40A(2) (a) has been incurred by the assessee during the year but this expenditure has not been claimed as revenue expenditure as contended by the ld. A.R. This expenditure has been debited by the assessee under the head work-in-progress . The disallowance has been made by the Assessing Officer by applying the provisions of section 40A(2)(a). On perusal of section 40A(2)(a), it is apparent .....

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iture while computing the income under the head income from business . We noted that no such expenditure has been claimed, therefore, the disallowance under section 40A(2)(a) cannot be made. We, therefore, dismiss this ground. 11. Ground No. 3 relates to the deletion of the disallowance of the interest expenses of ₹ 86,90,220/- on account of term loan. 12. Brief fact s relating to this ground are that the assessee has incurred interest expenses of ₹ 86,90,220/- on term loan from Cent .....

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order of the tax authorities below. We noted that in this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head income from business . The said interest, in fact, has been capitalized by the assessee under the head work-in-progress , i.e. the expenditure has been capitalized by the assessee. It is not a case where the asses .....

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rred for acquisition of land. The Assessing Officer noted that the assessee has shown the land in the Balance- sheet as on 31.03.2007 at ₹ 47,41,91,482/-. He, therefore, called for the details and noted that the assessee has paid compensation of ₹ 12,00,000/-to M/s. Seeyok Niwas and Nivash Pvt. Ltd. and ₹ 60,00,000/- to Shri Sushil Poddar by virtue of sale deed agreement of land dated 28.06.2006. The assessee has not deducted tax, in the opinion of the Assessing Officer the pro .....

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