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2015 (7) TMI 242 - ITAT DELHI

2015 (7) TMI 242 - ITAT DELHI - TMI - Disallowance u/s 36(i)(iii) on account of interest payment - Held that:- Once admittedly borrowings have been used for the purpose of business and interest has been paid on such borrowing then such interest is eligible for deduction u/s 36(1)(iii) of the Act. The contention of the ld. DR that asset were not put to use i.e. namely the property at 141, First Floor, DLF South Court Yard, Saket was not put to use is an irrelevant consideration. The issue is conf .....

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out of the borrowed of ₹ 1,25,00,000/- sum of ₹ 68,00,000/- was utilized for purchase of shop No. GS 0122, First Floor, DLF Grand Mall, Gurgaon. It is also not denied that the property has not been actually used for the purpose of the assessee. All what has been contended is that it is kept as an alternative premise in view of the ceiling drive of residential premises by MCD at Delhi. No evidence has been led to support the aforesaid claim of the appellant. Mere assertion unsupporte .....

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zed for the purchase of property was ₹ 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. ₹ 68,00,000/- out of total loan of ₹ 1,25,00,000/- . - Decided partly in favour of assessee for statistical purposes.

Disallowance of interest on service tax penalty - CIT(A) deleted the addition - Held that:- W .....

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ed by assessee and revenue arising from the order of CIT(Appeals) XXIII, New Delhi dated 31.1.2012 and relate to Assessment year 2008-09. 2 The grounds raised by assessee are as under: 1 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 ₹ 27,85,968/- fully as made by ld. AO u/s 36(i)(iii) on account of interest payment and has further erred in directing the assessing officer to re-compute the disallowa .....

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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 ₹ 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 .....

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sustainable on various legal and factual grounds and more so as the same has been passed by recording incorrect facts and finding and without giving adequate opportunity of hearing to the assessee. 3 The grounds raised by revenue are as under: 1 On the facts and on the circumstances of the case the ld. CIT(A) has erred in allowing the interest ignoring these facts that both the assets were not put to use as required as per provisions of section 36(1)(iii) of the Act. 2 On the facts and on the c .....

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nature and allowing the interest penalty amounting to ₹ 12,97,627/- paid on service tax. 4 Ground No. 2 to 5 raised by the assessee were not pressed during the course of hearing and are therefore dismissed. 5 Ground No. 1 of assessee s appeal and Ground No(s) 1 to 2 of departmental appeal relate to disallowance of ₹ 27,85,968/- u/s 36(1)(iii) of the Act. The facts in brief are that assessee had debited to the profit and loss account interest expenses of ₹ 40,64,973/- which inc .....

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the assessee for his business and in response thereto it was submitted that the same has not yet been occupied and till date the business is operating from C-37, Hauz Khas Enclave, New Delhi only. Having regard to the above the AO disallowed claim of interest of ₹ 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 discu .....

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ing 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 business of the assessee and the above interest payments. Accor .....

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ssessee for its business purposes and assessee paid a sum of ₹ 22,61,250/- from its own sources from ABN AMRO Bank A/c No. 817903 to DLF Services Limited during the year for acquiring the aforesaid property.It was thus contended that borrowed funds have not been utilized for acquiring the property and entire interest payment is revenue expenditure. It was further submitted that as regards disallowance of a sum of ₹ 14,90,373/- that assessee purchased commercial shop No. GS 0122 First .....

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submitted that in the instant case the interest payment were made post acquisition of the asset and, since the property was purchased in December 2006 therefore the interest payment amounting to ₹ 14,90,373/- deserves to be allowed as revenue expenditure .It was further submitted that the assessee was carrying out its business activities from C-37 basement Hauz Khas New Delhi and the commercial space at DLF Grand Mall was purchased as a ready to move alternate office space in view of the s .....

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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 ₹ 1,25,00,000/- is .....

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BN AMRO Bank, and there is no utilization of the loan of ₹ 1,25,00,000/- towards these payments. Hence, the payment of interest of ₹ 12,95,595/- on the loan account no. HCPL60110000416628 cannot be held to pertain to the purchase of office space at South Courtyard Saket. Thus while the said office space has not been proved to have been put to use for the business of the appellant either in the year under consideration, or in any later year, the disallowance of interest of ₹ 12, .....

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only where interest payment on borrowed capital pertains to the period prior to acquisition of asset. However on verification of the details of payment for this property, it was seen that purchase of the shop and sanction of loan has taken place at the same time. In the written submission dated 24.1.2012, it is conceded that ₹ 68,00,000/- out of the loan amount of ₹ 1,25,00,000/- has been utilized for purchase of the said asset for ₹ 1,41,25,000-. Hence, the issue at hand is no .....

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used for the business from which income is disclosed by him. It is also relevant that the balance sheet of the appellant shows as WDV as on 31.3.2008 of only ₹ 28,70,825/- for shop at Gurgaon‟ but no claim of depreciation. Moreover, the shop is admitted to be used by M/s Origin Overseas, a sister concern. 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, spous .....

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eal. 9 Before us the learned counsel for the assessee contended that the CIT(A) has deleted the interest of ₹ 12,95,595/- yet he was incorrect in upholding disallowance of ₹ 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 C .....

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owance of interest comprises of ₹ 12,95,595/- and ₹ 14,90,373/- paid to HDFC Bank. As regards interest paid of ₹ 12,95,595/- to HDFC Bank, the conclusion of the CIT(A) is that borrowings raised on which interest has been paid of ₹ 12,95,595/- from Centurion Bank of Punjab has not been utilized for purchase of property. On the contrary the conclusion is that such borrowings have been utilized for the purpose of business. This factual finding has not been shown to be contra .....

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wed funds which have been held to have been used for business then such interest undeniably has to be allowed as deduction. We therefore decline to interfere in the conclusion of the CIT(A) that the disallowance of interest of ₹ 12,95,595/- on the loan availed on mortgage of this property cannot be upheld as the appellant has not utilized the interest bearing funds for purchase of property. As regards interest of ₹ 14,90,373/- it is undisputed that out of the borrowed of ₹ 1,25 .....

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. On the contrary it has been found as a matter of fact that the said premises is used by M/s Origin Overseas, a sister 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  .....

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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 ₹ 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 disallowed sum of ₹ 55,14,034/- as being service tax penalty. However the assessee pointed out that it had made service tax payments on 30.4.2008 amounting to ₹ 55,14 .....

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sh evidence that the service tax interest of ₹ 12,97,627/- was not penal in nature and in response thereof on 17.6.2011 it was submitted that there are separate sections under the service tax for levying of interest and for imposing penalties. It was submitted that section 75 of the Service Tax Act governs the provisions regarding interest on delayed payments and whereas section 76 to section 80 of the Act deals with imposition of penalties. It was further submitted that section 75 states .....

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deleted the disallowance by holding as under: At ground no. 7 the appellant has contested that the disallowance of service tax penalty of ₹ 55,14,034/-. The appellant has furnished the copies of challans to show that the payment of ₹ 55,14,034/- pertained to service tax, and only an amount of ₹ 12,97,627/- was paid towards interest, which was not penal in nature. The challans show that no amount of penalty has been affirming that no penalty under the Service Tax Act has been i .....

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ssioner 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 pa .....

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