TMI Blog2016 (7) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... Act contemplates that if an assessee incurs any expenditure, which is not of the nature described in section 30 to 36, not being in the nature of capital expenditure or personal expenditure, and it was laid out wholly and exclusively for the purpose of business then, it is to be allowed. The expression “wholly” refers to the quantum and “exclusively” refers to object/motive. Now in the present case, assessee is in the real estate development business. It has incurred this expenditure to fulfill its requirement in this line. Therefore, the expenses could not be disallowed. We allow this ground and delete the disallowance. Enhancement to the income of the assessee - Held that:- The ld.CIT(A) failed to take cognizance of the amendment made to the partnership deed. Non-consideration of this amendment had led the ld.CIT(A) to observe that the assessee had made capital contribution to other firm also, where the assessee is a partner. It is pertinent to mention here that the case of the assessee is that it has taken from loan from two concerns, whenever it has an idle fund, these were being used by other concerns also. But specifically, ultimately the loans travelled to M/s.Pratham Do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- under section 40(a)(ia) of the Income Tax Act. However, when these issues were taken to the ld.CIT(A), different colour has come on these additions. 5. As far as first addition confirmed by the ld.CIT(A) is concerned, it emerges from the record that the assessee has incurred an expenditure of ₹ 2,60,057/- in respect of solar power project of NTPC. The ld.First Appellate Authority has confirmed this addition on the ground that it is a new line of business which ultimately could not be materialized, and therefore, the expenditure incurred are to be treated as capital in nature and not allowable as deduction. In order to buttress his finding, the ld.First Appellate Authority has relied upon the decision of the Hon ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd., 196 ITR 0237 (Guj). The discussion made by the ld.CIT(A) on this issue reads as under: 4.3.3 The appellant has also claimed that certain expenditures have been incurred for specific business purposes. It has been claimed that an amount of ₹ 2,60,075/- has been incurred for Solar Power Project of NTPC. From the documents filed by the appellant, it is seen that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lines in its decisions in the case of Shri. Digvijay Ltd 159 ITR 0253 and Ambika Mills Ltd 2136 ITR 91 (Guj). Hence, this expenditure is held not to be allowable in computing the income of the appellant. 4.3.4 The other contention of the appellant is that It had incurred expenditure of ₹ 14,72,347/- for Ahmedabad Township project office. The appellant has submitted that it had setup the Ahmedabad office in order to cater to the needs of the Ahmedabad Township Project which was in no way related to . the investment activity carried out it. But again as can be seen from the submissions, this was a project undertaken by the appellant which did not materialize and no income was earned by the appellant from it. Any expenditure towards this new project was needed to be capitalized to be ultimately allowed against the income earned from the project. Thus, such expenditures are also capital expenditure in nature and hence cannot be allowed as deduction in the computation of income of the current year. For this purpose, reliance is placed upon the judicial pronouncements already mentioned above in relation to solar project expenses. 4.3.5 The other expenditures incurred by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Project. Brief facts of the case are that the assessee has incurred expenditure of ₹ 14,72,347/-. According to the assessee, it has set up Ahmedabad office in order to cater the needs of the Ahmedabad Township project. The ld.CIT(A) has confirmed the disallowance on the ground that this expenditure was incurred for a new project, which needed to be capitalized. 10. With the assistance of the ld.representatives, we have gone through the record. A perusal of the MOA and other activities of the assessee will discern that the assessee is in a business of development and construction. It has made investment in four firms, which are realty firms. It has explored a business venture under the Ahmedabad Township Project. To our mind, it is in the line of the assessee s existing business, which cannot be treated as a separate individual and new business for which expenditure has been incurred, which deserves to be capitalized. The ld.CIT(A) has not appreciated the facts in right perspective. Section 37 of the income Tax Act contemplates that if an assessee incurs any expenditure, which is not of the nature described in section 30 to 36, not being in the nature of capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care of by the interest income earned by the assessee from M/s.Pratham Dosti Reality. The ld.CIT(A) on appreciation of the facts and circumstances, however, did not concur with the assessee. According to the ld.CIT(A), the loans taken by the assessee were not exclusively given to M/s.Pratham Dosti Realty, rather a capital contribution was made by the assessee in all the firms, where it is a partner. Thus, according to the ld.CIT(A) share of profit ought to be received by the assessee from the rest of three firms will be exempt from tax, and disallowance of interest expenditure attributable to earning of tax free income was required to be made. The ld.CIT(A) in this way disallowed interest expenditure claimed by the assessee, and simultaneously taxed the alleged interest income on the ground that this interest income was for making an investment in the partnership firm, which deserves to be assessed as business income. A small amount of interest income, according to the assessee, amounting to ₹ 18,630/- for making an investment of ₹ 2 crores in M/s.Pratham Dosti Realty has been allowed to the assessee by the ld.CIT(A). The ld.CIT(A) has assessed interest income of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked in the books of M/s.Pratham Dosti Realty. 16. On the other hand, the ld.DR relied upon the order of the ld.CIT(A). He specially took us through para-5.5 wherein the ld.CIT(A) has discussed the issue under 9 heads. According to him, the ld.CIT(A) highlighted the facts that the assessee failed to demonstrate exclusive user of this amount for the purpose of financing the affairs of M/s.Pratham Dosti Realty. 17. We have duly considered rival contentions and gone through the record carefully. In order to appreciate the contention of the assessee, we deem it pertinent to take note of the relevant amendment made to the partnership deed of M/s.Pratham Dosti Realty, which authorized the partners to receive interest on loans provided to the firm. The relevant part of this amendment reads as under: WHEREAS the parties of the First Part to Fifth Part have been carrying on the business in partnership under the name and style of M/S. PRATHAM DOSTI REALTY vide deed of partnership entered into w.e.f. 1s' April, 2010 duly amended by deed of admission of a partner vide partnership deed dated 2.3rd December 2010. As per clause no.16 of the original partnership deed dated 1s1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld.CIT(A) in subpara II and III of para-5.5 has observed that while availing the loan from M/s.J.M. Financial Products and Infina Finance P. Ltd., the assessee nowhere provided in the agreement that these loans will be used by M/s.Pratham Dosti Realty. To our mind that cannot be relevant factors to decide the issue whether the interest expenditure allowable in the hands of the assessee or not. The loaners, M/s.J.M. Financial Products and Infina Finance P. Ltd. are not concerned whether the funds are being used by the assessee or they are being further forwarded to someone else for user. It has not been brought to our notice that they have put any condition about particular user of the loan given to the assessee. The ld.CIT(A) failed to take cognizance of the amendment made to the partnership deed. Non-consideration of this amendment had led the ld.CIT(A) to observe that the assessee had made capital contribution to other firm also, where the assessee is a partner. It is pertinent to mention here that the case of the assessee is that it has taken from loan from two concerns, whenever it has an idle fund, these were being used by other concerns also. But specifically, ultimately t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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