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2016 (5) TMI 411 - ITAT JAIPUR

2016 (5) TMI 411 - ITAT JAIPUR - TMI - Interest incurred on acquisition of land for expansion of business - allowability of expenses - It has not been disputed that the assessee had her own capital to the extent of ₹ 3.04 crores. The assessee’s claim that the land was acquired for business purposes and shown as business asset in the Balance Sheet has not been disputed and only on assumption it has been held that it is not business purposes. In our considered view, such type of assumption c .....

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i) besides, the assessee having own interest free funds more than ₹ 3.04 crores which is more than the investment in question. Even alternatively the assessee’s claim for interest and finance charges cannot be disallowed. - Decided in favour of assessee - ITA No. 47/JP/2014 - Dated:- 30-3-2016 - SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri Manish Agarwal, (C.A.) For The Revenue : Shri Raj Mehra, (Jddl.CIT) ORDER PER SHRI R.P. TOLANI, J.M. This is an appeal .....

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e by the ld. AO by alleging that investment made in purchase of land is not yielding income to the assessee without appreciating the fact that the land was purchased for business purpose for construction of factory and godown and further without establishing the nexus between borrowed funds and investment by the assessee, therefore disallowance so sustained deserves to be deleted. 3. On the facts and in the circumstances of the case the ld. CIT (A) has grossly erred in sustaining the disallowanc .....

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7; 54,286/- is deleted. 3. Apropos ground nos. 2 & 3 are inter-connected. Assessee purchased a piece of land claiming to be for the purpose of construction of a factory building and godown thereon for the purpose of her business. The said land was purchased for ₹ 1,15,00,000/- and after including cost towards registration charges etc. the total value debited in the books of account was of ₹ 1,25,29,580/-. During the year under appeal, the assessee has paid interest of ₹ 75, .....

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e paid on the funds borrowed from market by grossly ignoring the fact that the same was paid on the gross value of borrowed funds and not on the interest paid. The ld. CIT (A) though uphold the disallowance, however, restricted the same to the period from the date of purchases of land to the end of the financial year and interest rate is reduced from 18% to average rate of interest paid on borrowed funds. 4. Aggrieved, the assessee is before us. 4.1. The ld. A/R for the assessee contends that th .....

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03,271/- and also, profit earned during the year at ₹ 1,93,28,641/- which is apparent from the copy of Balance Sheet, copy placed on record. As per settled law, the AO was obliged to establish the nexus between the borrowed funds and the payment of consideration for purchase of land. However, the ld. AO had miserably failed to prove any sort of nexus between borrowed funds and the purchase of said land, especially when the assessee was having at her disposal sufficient amount of interest f .....

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ted the comparison of source and application of funds as under :- Source Balance as on 31.3.2009 Balance as at 31.3.2010 Application Balance as at 31.3.2009 Balance as at 31.3.2010. Capital 3,04,03,271 4,42,43,829 Fixed Assets 56,37,108 1,84,71,335 Capital 5,22,16,355 8,70,48,664 Deposits 10,79,923 10,71,604 Unsecured Loans 3,68,59,721 5,68,84,875 Current Assets 11,07,76,580 17,64,17,110 Current Liabilities 45,75,266 3,30,67,613 VAT, statutory and other business advances 65,64,104 2,52,85,033 Be .....

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d in the current assets, therefore, it is clearly established that the borrowed funds are not applied in the acquisition of the land in question. The ld. A/R contended that the AO as well as ld. CIT (A) have failed to consider this aspect before arriving at the conclusion that borrowed funds were used for purchase of new commercial land. In support of his contention, the ld. A/R relied on the following judgments :- Munjal Sales Corporation vs. CIT & Others 298 ITR 298 (SC) CIT vs. Hotel Save .....

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and was already put to use for the business purposes. The term business purpose employed in section 36(1)(iii) has a wide ranging meaning and is not restricted to the means of yielding immediate and direct income and user of the godown is always for the business purposes. Therefore, he prayed that the addition of ₹ 22,55,324/- may please be deleted. 4.2. On the other hand, the ld. D/R supported the orders of the lower authorities. 4.3. We have heard the rival contentions and perused the ma .....

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ortionate interest and brokerage on finance should be disallowed. The ld. Counsel for the assessee on the other hand contends that the investment in question has been shown in the assessee s balance sheet pertaining to its business towards acquisition of a business asset. There was no other use for the assessee to purchase such land. The assessee is in the business of iron and steel and to have future plan for expansion of business cannot be assumed to be a non business activity. Therefore, ther .....

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