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TMI Blog2016 (10) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... on. It seems that the assessee is not interested to pursue the appeal filed by the Revenue, therefore, I have no option but to proceed ex-parte, qua the assessee, and tend to dispose of this appeal on the basis of material available on record. 2.2. I have considered the submissions of Ld. DR and perused the material available on record. The facts, in brief, are that the ld. Assessing Officer disallowed interest payment of Rs. 3,61,356/- being capital introduced in M/s King Empire Developers (AOP), on the plea that the interest bearing funds were diverted, without charging any interest, out of own funds. On appeal, before the Ld. Commissioner of Income Tax (Appeal) granted relief to the assessee, which is under challenge before this Tribunal. It is noted that the assessee gave loan and advances to the tune of Rs. 23,68,000/- and also invested Rs. 1,52,00,427/- in Kings Empire Developers and no interest was charged on these amounts. A show-cause notice was issued to the assessee by the Assessing Officer as to why the interest should not be disallowed u/s 36(1)(iii) of the Act as interest bearing funds were diverted as interest free loan and advances. The submissions of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.8) The business activity of the AOP is also a construction of building and development or property / land. 2. As a member of AOP the assessee firm had made introduction of capital from borrowed funds for the same business activity of construction and development of property / land. The firm had paid an interest on such borrowed fund and claimed the deduction under section 36(1)(iii) of the Act . Sect ion 36(1) (iii ) of the Act provides that amount of interest in respect of capital borrowed for the purpose of business or profession shall be allowed as business expenditure. During the A.Y. 2008 - 2009, the same amount of capital introduction was reflected in the balance sheet as Investment. 3. The Assessing Officer failed to observe that said amount was invested in the earlier year and not for the current year. On 31/03/2007 the amount was Rs. 2,46,80,000/- (Pg. No. 25T) and as on 31/03/2008 it Was Rs. 1,52,00,427/- (PG. No. 8) i.e. The assessee firm had utilised the said borrowed funds for the purpose of business activity. And the Assessee had repaid a loan on such borrowings from the capital introduced in a AOP and claimed deduction u/s. 36(1)(iii). 4. During the Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Records & Tapes (P. ) Ltd. v. Addl CIT (2013) 58 SOT 47(Mum)(Trib) Where the assessee had sufficient funds in shape of share capital and share application money out of which advance loan to its sister concern, interest paid on borrowed capital would be al lowed under section 36(1)(iii) − CIT vs HDFC Bank Ltd. (Bombay High Court) − CIT vs Sridevi 192 ITR 165 Kar. − ITO vs JMP Enterprises (2006) 101 ITD 324 (Asr)" 2.3. After considering the aforementioned submissions and the case laws, relied upon by the assessee, the Ld. First Appellate Authority concluded as under: "I have gone through the facts of the case and I find merit in the argument advanced by the appellant that the said amount was invested in the earlier year s and not for the current year and therefore, during the year, it cannot be held that interest bearing funds had been used to advance the interest free loans and advances. In light of this, the proportionate disallowance made by the AO cannot be upheld. The appeal on this ground is allowed." 2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the said agreement. The AO issued a show-cause to the assessee as to why the said Rs. 50,00,000/- should not be treated as capital gains in the hands of the assessee. The assessee, on the other hand, has shown the said amount of Rs. 50,00,000/- as contract receipts against which the assessee has shown cost of goods sold at Rs. 37,60,077/-, resulting in a gross profit of Rs. 12,39,922/-. Further, Administrative Expenses etc. have been booked against the said gross prof it . The assessee was asked to just ify the claim of expenses with documentary evidences. The assessee has submit ted the details before the AO regarding various expenses incurred and claimed and has also made a submission as to why the said amount should not be treated as capital gains. The assessee has submit ted before the AO that the said development agreement was cancelled due to the differences created between two parties and since the work had already been started and expenditure of Rs. 37,60,077/- had already been incurred, therefore, Chandalok Fabrics agreed to compensate the firm for the monetary value of the expenditure incurred and the time devoted for the development work. The said amount is not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le definitely the said Rs. 10,00,000/- constituted the security deposit which was to be repaid to the assessee on completion of the entire development work, however, it is certainly not a deposit in the nature of capital deposit and more importantly, in the manner that the agreement has been drafted and the project work started and then truncated, the amount of Rs. 50,00,000/- comes through as a compensation/ reimbursement payment of the actual expenses incurred by the assessee as a developer in the said agreement. Once the AU is not doubting or debating the actuality of the expenses incurred by the assessee towards part of the development of the said project, then how can the payment made by. M/s Chandralok Fabrics to the assessee on this account , not be taken as reimbursement of expenses incurred by the assessee on this account in light of the fact that it was M/s Chandralok Fabrics that was the owner of the said property and after the completion of the development work, the entire property would have remained in the ownership and control of M/s Chandralok Fabrics. In my considered view, the AO has developed a misplaced understanding of the nature of the transaction by treating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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