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Income Tax Officer-32 (1) (5) , Mumbai Versus M/s Empire Developers

Addition u/s 36(1)(iii) - investment in AOP - whether interest bearing funds were diverted as advances to the sister concern, friends and family members without any business expediency and that too without charging any interest? - Held that:- The impugned amounts were invested in earlier years and not in the current year. It is also noted that no evidence has been produced by the Revenue evidencing that the funds were diverted without commercial exigencies. So far as, making investment is concer .....

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m capital gain - Held that:- CIT(A) has observed that, AO has developed a misplaced understanding of the nature of the transaction by treating it as capital receipt. It is clear that the assessee has carried out the expenditure towards the performance of the development agreement. - Therefore CIT(A) directed the AO to treat ₹ 50,00,000/- as contractual receipt. - order of CIT(A) is not erroneous. - Decided against the revenue. - ITA No.2321/Mum/2015 - Dated:- 29-8-2016 - Shri Joginder .....

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estment in AOP was filed and thus no income or loss was shown from AOP. It was also pleaded that interest bearing funds were diverted as advances to the sister concern, friends and family members without any business expediency and that too without charging any interest. 2.1. On the other hand, none was present for the assessee in spite of issuance of registered AD notice issued on 29/06/2016 & 13/07/2016. The assessee neither presented itself nor moved adjournment petition. It seems that th .....

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hat 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 ₹ 23,68,000/- and also invested ₹ 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 .....

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une of ₹ 23,68,000/- and also invested ₹ 1,52,00,427/- in Kings Empire Developers and no interest has been charged on these loans. The assessee was issued a show-cause notice as to why the interest should not be disallowed u/s 36(1)(iii) as interest bearing funds are diver ted as interest free loans and advances . To this , the asses see has submitted as under:- We have to inform you that, we are a member of AOP M/s Kings Empire Developers and we have introduced capital in the said A .....

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opening capital of ₹ 2,46,80,000/-. The further crystalises that , since there is no new investment , there is no source for the same in the current year and hence the details called for are not applicable to us ". The AO has, however , not accepted the explanation accorded by the assessee since the assessee has apparently not filed any documentary evidence and also it is not explained as to why interest bearing funds have been diverted to interest free loans and advances to other co .....

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d the Assessee firm M/s. Empire Developers had introduced a capital in M/s. Kings Empire Developers. (Pg. 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 th .....

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as on 31/03/2008 it Was ₹ 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 Proceedings, the assessee had disclosed all the details before the Assessing Officer related to its business activity. 5. The Assessee further states that there is no question of earning in .....

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had made disallowance of ₹ 3,61,356/ - on the basis of opening and closing balances of the loans and advances and interest expenditure debited to prof it and loss account . The Assessee had submitted the fund flow statement vide letter dtd. 27/08/2013. 7. Without prejudice to the above the main content ion that the capital introduce in the AOP was out of own funds and it was in normal course of business activity, the assessee alternatively further submits that for the purpose of calculatio .....

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est paid on borrowed fund on ground that assessee had diverted interest bearing funds for purpose of investment in shares and loans to sister concern, since sufficient interest free funds were available with assessee, disallowance of interest expenditure was not permissible. CIT v. Raghuvir Synthetics Ltd. (2013) 354 ITR 222 (Guj)(HC) The transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanc .....

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(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 th .....

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analyzed, there is uncontroverted finding in the impugned order that the impugned amounts were invested in earlier years and not in the current year. It is also noted that no evidence has been produced by the Revenue evidencing that the funds were diverted without commercial exigencies. So far as, making investment is concerned, it is the businessman who is to make the investment protecting his business interest. The Assessing Officer cannot be expected to sit in the chare of the assessee and d .....

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nsation received by the assessee for cancellation of development agreement, as contractual receipt instead of chargeable as short term capital gain, held by the Assessing Officer. 3.1. The crux of argument advanced Ms. Sarkar, is identical to the ground raised. I have considered the submissions of the ld. DR and perused Before adverting further, I am reproducing hereunder the relevant finding of the Ld. Commissioner of Income Tax (Appeal) for ready reference and analysis:- During the course of a .....

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deposit to be repaid to the assessee on completion of the entire development project . In the books of the assessee, the said amount was reflected as investment . However, the agreement has been cancelled subsequently and during the year, the assessee received ₹ 50,00,000/- as compensation for the cancellation of the said agreement. The AO issued a show-cause to the assessee as to why the said ₹ 50,00,000/- should not be treated as capital gains in the hands of the assessee. The ass .....

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ed 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 ₹ 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 developm .....

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pital gain. The assessee is in appeal against this on the grounds that the assessee was neither owner nor had he purchased the said property and therefore, was not liable to capital gains. Appellant's submissions During the course of appeal, the appellant has reiterated the argument advanced before the AO and has also referred to the decision in the case of " 3 i Infotech Ltd . v . Addl. CIT (2014 ) 146 lTD 4 0 5 where the compensation had been received by the asscssee on losing its rig .....

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x." 3.2. Considering the factual matrix and the judicial pronouncements, the First Appellate Authority conclude as under:- I have gone through the facts of the case. It is an undisputed fact that there was an agreement between the assessee and M/s Chandralok Fabrics . It is also undisputed fact that the said agreement has been cancelled. It is also a fact which has been accepted by the AU that the expenses, as submitted by the appellant before the AO, have not been found to be wrongly claim .....

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00/- 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 ₹ 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 .....

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