TMI Blog2015 (10) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) of rule 8D(2) at ₹ 9,45,855/- - Decided against revenue. Disallowance of interest expenditure while computing the long-term capital gain on account of cost of improvement - CIT(A) deleted the addition - Held that:- Admittedly, the compensation was paid to M/s. Tropicana for release of its rights over the said land in question. The interest component was part of the settlement. The principal amount of compensation had already been allowed by the AO as revenue expenditure. The interest 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 exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed the same as exempt under section 14A. The Assessing Officer (hereinafter referred to as the AO) found that the assessee had not disallowed any corresponding expenditure attributable to the said tax exempt income. The AO, thereafter, computed the disallowance under section 14A of the Act as per rule 8D of the I.T. rules 1962 and added an amount of ₹ 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 investment the assessee company had not made any investment in the shares of listed companies in the market. He also observed that the assessee company, as per the development agreement with Piramal Holdings Ltd. (now known as Peninsula Land Ltd.), had borrowed funds for the construction activities on which the assessee company had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 were attributable to investment activity and could not be related to earning of exempt dividend income. He therefore 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) of rule 8D(2) at ₹ 9,45,855/-. Aggrieved by the order of the Ld. CIT(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes the terms cost of improvement this amount did not qualify as cost of improvement. The AO held that the interest expenditure incurred to settle the legal dispute with Tropicana 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. Marg, Kurla. In consideration of Swan authorising and permitting Tropicana to develop a portion of the said property and to appropriate to itself the entire profits arising from the sale and completion of the project, Tropicana had agreed to pay to Swan consideration ₹ 2,300/- per sq. ft. of FSI (1,29,000 x 2,300 = ₹ 29,67,00,000/-). An amount of ₹ 2,50,00,000/- was paid on the execution of the said Agreement and the balance amount was to be paid on the happening of certain events as listed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on the said damages of ₹ 469.52 lacs was debited by the assessee company to Capital WIP in the year ended 31-3-2000. Further, in the year ended 31-3- 2001, the said amount was debited to the Fixed Assets under the head 'Land' by transferring the same from the Capital WIP Account. The said land was revalued and while computing the long term capital gain i.e. the difference between the cost of the land and value at which it was converted, the proportionate amount of ₹ 1,23,02,586/-, which was 25% of the total amount of ₹ 4,69,52,055/-, 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 any case, this should be allowed as deduction while computing the business income. This amount included damages payable for canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss/ 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/deduction of interest of ₹ 469.52 lacs was considered in assessment/ appeal orders of A.Y. 2001-02, but the claim was rejected by the authorities on different grounds i.e. the transfer of land did not took place in that year and moreover the claim was not made in P L A/c. However, in the year under consideration, the assessee had offered capital gains on sale of land (which was converted from investments to stock in trade in A.Y. 2002-03). The Ld. CIT(A) observed that as per section 45(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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