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Dy. Commissioner of Income Tax-7 (2) , Mumbai Versus M/s. Swan Energy Ltd.

2015 (10) TMI 1511 - ITAT MUMBAI

Disallowance under section 14A - CIT(A) restricted the addition - Held that:- Ld. DR of the department could not point out any new fact or law arising out in the case under consideration which may justify our interference in the above well reasoned order of the CIT(A) that the interest expenditure was attributable to the business activities and not to the investment activity. Had there been no such investment, the interest expenditure would have remained the same. He therefore rightly held that .....

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tances of the case observed that no indirect interest expenses were attributable to investment activity and could not be related to earning of exempt dividend income. He therefore correctly deleted the disallowance of indirect interest expenditure of ₹ 98,50,220/- . The Ld. CIT(A) however upheld the disallowance of administrative and managerial expenses pertaining to management of investments which had yielded exempt dividend income made by the AO as per formula provided in sub clause (iii .....

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erest expenditure paid for the said land for relinquishment of development rights by M/ s. Tropicana Properties Ltd, ultimately resulted in enhancement of value of the property and the development rights of the said land became available to the assessee on incurring of such interest expenditure. We therefore do not find any infirmity in the order of the CIT(A) in holding that the interest expenditure was nothing but cost of improvement allowable while computing the capital gains. Decided in favo .....

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following grounds of appeal: i) The Lea rned CIT(A) has erred on facts and in restricting the disallowance under section 14A of the Income-tax Act to ₹ 98,50,220/-, without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. ii) The Lea rned CIT(A) has e r red on facts and in restricting the disallowance under section 14A of the Income-tax to ₹ 98,50,220/-, ignoring the facts that the Assessing Officer is bound to work out the disallow .....

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ich defines cost of improvement, the amount paid as interest on compensation paid does not qualify as cost of improvement. iv) The Ld.CIT (A)'s order is contrary in law and on facts and deserves to be set-aside. v) The appellant prays that the order of CIT (A) on the above grounds be set aside and that of the AO restored. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary. 2. Brief facts of the case are that the assessee has been engaged in a bu .....

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; 1,07,96,075/- to the total income of the assessee. Aggrieved by the order of the AO, the assessee filed appeal before the Ld. CIT(A). 3. The Ld. CIT(A) observed that the assessee company had received dividend income of ₹ 5,41,828/- on investments made in the liquid funds. He further observed that the assessee company had invested an amount of ₹ 260 lakhs in the equity shares of M/s. Shaan Leisure Ltd. in which assessee company had been one of the promoters and that other than this .....

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year. He further observed that the assessee company had deposited the total sale proceeds from the construction activities in the escrow account and disbursement of the same was monitored by the Monitoring Committee constituted by Maharashtra Government. Hence, pending the sanction granted by the Monitoring Committee to withdraw the amount from the escrow account, the said amount had been invested in the liquid funds on which the dividend was received and no extra interest expenditure had been .....

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s were at ₹ 10.14 crore whereas closing balance was ₹ 27.69 crores. As per schedule 5 of balance sheet there was no change in investment in shares of company M/s Shaan Leisure at ₹ 2.64 crores. The other investment was in liquid mutual fund and the opening balance of 7.50 crores increased to closing balance of 25.05 crores. Thus there was increase in investment during the year at ₹ 17.55 crores in mutual fund. The assesse had explained that for the reasons explained above .....

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ty. He further observed from the balance sheet that there was a decrease in borrowed funds on which interest expenditure was incurred. Therefore, the increase in investment during the year could not be related to the borrowed funds. He further observed that as per cash flow statement in the balance sheet, the company was having cash balance which was increased during the year. He therefore considering the overall facts and circumstances of the case observed that no indirect interest expenses wer .....

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A), the Revenue has come in appeal before us. 4. Before us, the Ld. DR of the department could not point out any new fact or law arising out in the case under consideration which may justify our interference in the above well reasoned order of the CIT(A). We therefore do not find any infirmity in the order of the Ld. CIT(A) on the above issue and the same is accordingly upheld. 5. The next issue is relating to the deletion of the disallowance of interest expenditure made by the AO amounting to & .....

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a properties Ltd. The assessee company had paid this amount as interest over and above the principal payment due to them as per the consent terms entered upon between them, to release the properties from their lien. Since this amount was paid for 93,78.48 sq. mtrs. The assessee company considered 25% of ₹ 4,16,00,000/- i.e. ₹ 1,17,25,000/- as cost of improvement. It was also explained that this amount was claimed as revenue expenditure by the assessee in AY 2001-02 but the same was d .....

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ties. However, thereafter, the assessee company faced various legal/labour and other problems. This had led to a situation of dispute and there was non-fulfillment of commitment on the part of the assessee to Tropicana properties Ltd. The said party filed a legal suit against the assessee company. Both parties have amicably solved the issue by entering into the consent terms. As per the said terms, the rights of Tropicana properties Ltd. on the assessee company's property were released on pa .....

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picana properties Ltd was not 'cost of improvement' to the asset, and the deduction claimed at ₹ 1,23,02,586/- on this account was therefore, disallowed by him. 7. In appeal before the CIT(A), the assessee explained that by an Agreement dated 6th May 1994, Swan Mills Ltd. authorised and permitted Tropicana Properties Ltd. to consume/utilise 60% FSI i.e. 1,29,000 sq. ft. out of the total aggregate FSI of 2,15,000 sq. ft. available in respect of Swan's property situated at L.B.S. .....

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ents as listed in the said Agreement. Swan had availed of a bridge loan from Peerless General Finance and investment Co. Ltd. in September 1994. To repay the bridge loan, Swan had executed a Deed of Assignment on 28th September 1994 in favour of Peerless assigning the balance consideration receivable by it from the Tropicana. Since the bridge loan was not repaid by Swan to Peerless, Peerless filed a Suit (Suit No. 787 of 1997) in the Bombay High Court against Swan and Tropicana. By Consent Terms .....

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operty of Swan at Kurla wherein ₹ 50,00,000/- was paid as advance) were cancelled. In consideration of the cancellation of the said Agreements, Swan had to pay Tropicana ₹ 11,14,00,000/- which was inclusive of the refund of ₹ 3,00,00,000/- paid by Tropicana to Swan under the said Agreements. Since Swan did not pay the said amount as per the Consent Decree dated 7th July 1997, Tropicana took out Execution Proceedings and attached all the properties of Swan. To settle the matter, .....

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made the payment of ₹ 814 lakhs towards relinquishment of their (Tropicana Properties Ltd.) development rights and interest for late payment of ₹ 469.52 lacs. In the assessment year 2000- 01, the assessee company had debited the damages paid for cancellation of the agreement amounting to ₹ 814 lakhs to its Profit & Loss Account and the deduction of the same was allowed while computing the income. The interest on the said damages of ₹ 469.52 lacs was debited by the as .....

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, was claimed as deduction. Since while computing the capital gain, only the difference between cost and converted price of land was considered, the amount of ₹ 469.52 lacs debited to the Land Account was not considered therefore, the same was deducted from the long term capital gains. Since the amount was related to both the plots at Kurla on which four buildings were to be constructed, therefore, 25% of total amount was claimed as deduction. Without prejudice, it was submitted that in an .....

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agreement with Piramal Holdings Ltd. on 31-3-2004 and under which the assessee was going to receive much higher amount as income. This was because of the fact that the damages for cancellation of agreement of ₹ 814 lakhs, which was debited to the Profit & Loss A/c in the year 2000-01, was already allowed as deduction while computing the business income. 8. The Ld. CIT(A), after considering the facts of the case, observed that vide development agreement dated 6th May, 1994 entered into .....

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ch was inclusive of ₹ 8.14 crores compensation and refund of ₹ 3 crores paid by Tropicana to the assessee. The assessee had to pay ₹ 8.14 crores to Tropicana towards relinquishment of their (Tropicana's) development rights and also interest for late payment of ₹ 469.52 lacs. He further observed that in A.Y. 2000-01 the assesse had debited the amount of ₹ 8.14 crores to profit & loss account on account of damages paid for cancellation of agreement. The assess .....

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expenditure but was capital loss/ expenditure and was not related to A.Y. 2001-02. In appeal order of A.Y. 2001-02, the Ld. CIT(A) held that the transfer of land had not taken place and therefore, the claim was pre-mature and was rejected. On further appeal, the ITAT held that since the claim was not made in the P&L A/c., there was no question of making any disallowance. The ITAT directed the AO to verify the facts. The Ld. CIT(A), therefore, concluded that, though the issue of allowability .....

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5(2), the capital gain on sale of such land was required to be assessed in the year under consideration since the land, so converted into stock in trade, was sold in the year under consideration. The compensation of ₹ 8.14 crore and interest thereon at ₹ 469.52 lacs was pertaining to such land. The Ld. CIT(A) further observed that the deduction of compensation of ₹ 8.14 crore had already been allowed by A.O. in A.Y. 2000-01. On the same logic/ reasoning, the deduction of intere .....

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The Ld. CIT(A) observed that it was an admitted fact that this interest component was relatable to the land (which was converted into stock-in-trade on which towers had been constructed). M/s. Tropicana were having some development rights on the said land. It was also an admitted fact that this interest component was pertaining to the compensation paid at ₹ 8. 14 lacs to M/s. Tropicana and which compensation had already been allowed to the assessee as revenue expenditure. It was also an ad .....

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