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2016 (6) TMI 484 - ITAT DELHI

2016 (6) TMI 484 - ITAT DELHI - TMI - Disallowance of claim for deduction being interest expenses - interest bearing funds were utilised for making investment in capital assets - Held that:- Undisputedly the fact is that the assessee is the business of “Mall cum Multiplex Activities, running of departmental stores, Food Court, retail chain, Cinemas, Club etc.” under the name and style of M/s SRS Ltd. The advance given was for the acquisition of a commercial complex to be constructed. The transac .....

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dy, Accountant Member For the Appellant : Dr. Rakesh Gupta and Shri Somil Aggarwal, Advs For the Respondent : Sh. P. Dam Kanunjna, Sr. D.R. ORDER Per J. Sudhakar Reddy, Accountant Member This is an appeal filed by the assessee against the order of the Ld.Commissioner of Income Tax (Appeals)-II, Faridabad dated 12.11.2013 pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2009- 10. 2.1. The sole issue in this appeal is disallowance of a claim for deduction of ₹ 46,19,15 .....

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rojects of ₹ 84,46,70,506/- to M/s SRS Real Estate Ltd. The opening balance of the same as on 01.04.2008 was for ₹ 78,20,73,079/- while the closing balance as on 31.3.2009 was ₹ 81,16,42,385/-. The assessee has entered into an agreement with M/s SRS Real Estate Ltd. for the purchase of the proposed commercial complex to be constructed by M/s SRS Real Estate Ltd. at village Basalva, Sector 88, Faridabad. The super built up area was to be 2,70,000 sq.ft. The assesse has entered i .....

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same issue and disallowed this claim of the assessee. He held that the advance given to M/s SRS Real Estate Ltd. on various dates was for the purpose of purchase of capital asset in the form of proposed commercial complex. The A.O. was of the view that the assessee has utilized borrowed funds, from its mixed funds available, for the purpose of making these advance payments. He gave a factual finding that the net liquidity position of the assessee on the date of payment, excluding FDR s, is nega .....

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e earlier A.Y. The Ld.CIT(A) relied on the following judgements : (i) Nahar Polyfilm Ltd. vs. CIT (P&H) 201 taxman 304; (ii) CIT vs. Vardhman Polytex Ltd. (P&H) 299 ITR 152 wherein it was held that even in the case of same business, interest on capital borrowed for extension of the same business is not allowed as a revenue expenditure. He dismissed this ground of the assessee by upholding the findings of the A.O. 3.1. Further aggrieved the assessee is before us. 4. We have heard Dr.Rakes .....

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e funds should have been utilized for giving interest free advances. 5.1. The Ld.D.R. on the other hand submitted that the assessee had accepted similar disallowance in the earlier A.Y. He submitted that the advance was given for purchase of a capital asset and hence the expenditure is not allowable as revenue expenditure. He relied on the order of the A.O. as well as the Ld.CIT(Appeals) and submitted that the assessee has failed to prove that the borrowed funds were not utilised for these advan .....

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complex to be constructed. The transaction ultimately did not take place and the assessee got back the advances. On these facts and circumstances, we are of the considered view that the advances were given for the purpose of business of the assessee. 7.1. S.36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) reads as follows. S.36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income .....

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se, shall not be allowed as deduction). Explanation: Recurring subscriptions paid periodically by shareholders, or subscribers in mutual benefit societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause. S.36(1)(iii) grants specific deduction for the amount of interest paid in respect of borrowed capital utilized for the purposes of the business. The proviso to S.36(1)(iii) as applicable to the impugned assessment year m .....

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