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TMI Blog2015 (7) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... addition has been made without appreciating the facts and circumstances of the case and by recording incorrect facts and findings. 2 That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in making adhoc disallowance of Rs. 1,30,152/- (i.e. 10% of 13,01,525/-) on account of vehicle running and maintenance, interest on car loan and car depreciation by treating it as personal in nature. 3 That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in confirming the action of ld. AO in making adhoc disallowance of Rs. 65,909/- on account of telephone and telex charges. 4 That having regard to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts in not deleting the disallowance of Rs. 3,64,409/- fully as made by ld. AO on account of electricity and water charges and has further erred in sustaining the disallowance of Rs. 3,54,303/- under the said head and that too without appreciating the facts and circumstances of the case. 5 That in any case and in any view of the matter action of ld. CIT(A) in not reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d claim of interest of Rs. 27,85,968/- by holding as under: "It is important to note that the asessee is associated with/interest in several companies/firms that are carrying out diverse business. The property at Gurgaon is used by another concern as discussed above. Similarly, the property at Saket cannot be stated to be used for assessee‟s business because till date it has not been used so and the assessee‟s claim cannot rest on uncertain future use. Further without prejudice to the above factual position, the legal position even if we assume the above properties to be the capital assets of the assessee is that such interest would not be allowable. In CIT vs. Sharpedge Ltd. 249 ITR 319, Delhi High Court ruled that interest on borrowing for acquiring capital asset was not a deductible revenue expense but was a capital expense. The Finance Act, 2003 also inserted a provision to section 36(i)(iii) which clarifies that interest paid on capital borrowed for acquisition of capital asset will not be allowable as deduction till the date the assessee is first put to use for business. Thus, it is clear that the assessee has failed to establish any connection between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not personal in nature and have been incurred wholly and exclusively for the purpose of business. 8 The CIT(A) on examination of the above submission has held as under: "4 I have carefully considered the appellant‟s various submissions. The first grievance of the appellant pertains the disallowance of interest expenses on the grounds that the loans were availed for purchase of property. The appellant contends that the commercial loans have been availed by offering collateral security of commercial properties purchased, but the loans have not been obtained for purchase of the property. A loan of Rs. 1,25,00,000/- is seen to be sanctioned on 5.5.2007 by the Centurion Bank against the property at 141, First Floor, DLF South Court Yard, Saket, which amount was credited to the appellant‟s overdraft account on the same date. Copy of the said bank account submitted by the appellant shows that there are no payments from the said account towards the purchase of the property. Total payments in a current year of Rs. 22,61,250/- made towards the purchases are from the appellant‟s current account with ABN AMRO Bank, and there is no utilization of the loan of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of M/s Shikha Birla, spouse of the appellant. Hence, the action of the AO in disallowing the interest expenses pertaining to acquisition of the shop, which is not used for the purposes of business is justified. However, the Assessing Officer is directed to re-compute the disallowance of interest expenses to the extent relatable to the utilization of interest bearing funds for the purchase i.e. Rs. 68,00,000/- out of the total loan of Rs. 1,25,00,000/-. Hence the appellant gets partial relief on this Ground of Appeal." 9 Before us the learned counsel for the assessee contended that the CIT(A) has deleted the interest of Rs. 12,95,595/- yet he was incorrect in upholding disallowance of Rs. 14,90,373/- on the ground that interest has been paid for purchase of commercial property which have not been used for the purpose of business. It was submitted that the property was purchased as ready to move alternative space and therefore in view of the judgment of the Hon'ble Delhi High Court in the case of Capital Bus Service P. Ltd. vs CIT 123 ITR 404 disallowance made is untenable. On the other hand the learned DR supported the finding of the CIT(A) viz-a-viz the disallowance of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ister concern and an internet search showed that the property is presently listed as the branch office of 'Queens Furniture' and 'Affaire' with the contact number of M/s Shikha Birla, spouse of the appellant. In such circumstances we are unable to accept the claim of assessee that property was an alternative premise. However, since the amount utilized for the purchase of property was Rs. 68,00,000/- therefore the CIT(A) was justified to direct the AO to re-compute the disallowance of interest expenses to the extent relatable to the utilization of interest bearing funds for the purchases of property i.e. Rs. 68,00,000/- out of total loan of Rs. 1,25,00,000/- . In light of the above, we uphold the conclusion of the CIT(A) as to deletion of disallowance of Rs. 12,95,595/- and direction to re-compute the disallowance of Rs. 14,90,373/- to the extent relatable to amount invested in the property. Thus Grounds raised by assessee and revenue are rejected. 11 Ground No. 3 and 4 of departmental appeal relate to deletion of disallowance of Rs. 12,97,636/- being interest on service tax and contended to be penal in nature and therefore not allowable. 12 The CIT(A) noted that AO had dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it is well settled law that the interest is compensatory and not penalty. The Hon'ble Apex Court in the case of Mahalakshmi Sugar Mills Co. v CIT 123 ITR 429 has held as under: "We have been referred by the revenue to Mahabir Sugar Mills (P.) Ltd. vs Commissioner of Income-tax (1969) 71 Itr 87 (All) and Commissioner of Income-tax vs A.K. Das (1970) 77 Itr 31 (Cal), but in those two cases the Allahabad High Court and the Calcutta High Court respectively were concerned with a claim to deduction on account of penalty paid under s. 3(5) of the Cess Act. Reliance was also placed on Commissioner of Income-tax vs Oriental Carpet Manufacturers (India) P. Ltd. (1973) 90 ITR 373. In that case, the High Court of Punjab and Haryana laid down that interest paid by an assessee on account of delay in payment of the provisional demand of tax is not a permissible deduction under s. 36(1)(iii) and s. 37 of the I. T. Act. The learned judges observed that the liability to tax, although arising out of a business activity, could not be said to be a liability related to the assessees' business. It is not necessary for us to express any opinion on the decision. The case is distinguishable because w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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