TMI Blog2018 (6) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the authorities below. Therefore, considering the totality of the facts and circumstances of the case and that similar issue have been considered in A.Y. 2012-2013 above, the facts in this assessment year are on better footing, therefore, authorities below were not justified in disallowing the interest incurred by assessee wholly and exclusively for the purpose of business. The A.O. also has not brought any evidence on record if borrowed funds have been used for non-business purposes ? No nexus have been pointed-out between borrowed funds and non-business activities of the assessee or if borrowed funds have been used for the projects pending completion. In this view of the matter, we set aside the orders of the authorities below and delete the entire addition. - Decided in favour of assessee - ITA.No.4540 And 6663/Del./2017 - - - Dated:- 7-6-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Assessee : Shri S.K. Tulsiyan, Advocate Ms. Nisha Rachh, C.A. And Shri Karan Kumra, C.A. For The Revenue : Shri Ravi Kant Gupta, Sr. D.R. ORDER PER BHAVNESH SAINI, J.M. Both the appeals by the same assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of financial statement) only. Further, assessee did not furnish the details how he has calculated the interest at this amount. Perusal of details of interest and unsecured loans revealed that assessee is paying interest @ 12% on unsecured loans. Hence, interest @ 12% on ₹ 2,3,46,285/- which comes to ₹ 28,13,554/- had to be capitalized against interest capitalized at ₹ 16,20,102/-. Hence, difference of ₹ 11,93,452/- was added to the income of the assessee. Besides this, perusal of balance sheet revealed that assessee has given advance of ₹ 40 lakhs to the land owner of Model Town Project. Since, the advance given was for Model Town Project, interest @ 12% on this amount which comes to ₹ 4,80,000/- was also added to the income of assessee. Thus, total disallowance on account of interest was worked out to ₹ 16,73,452/-. 5. The assessee challenged the addition before the Ld. CIT(A). However, it is noted by the Ld. CIT(A) that assessee has not advanced any arguments in the summarized arguments on the impugned addition. Therefore, this issue was decided on the basis of the financial statements available on record. The Ld. CIT(A) dismissed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Interest Capitalised for Model Town Project capitalised - in Computation of Income (out of Unsecured loans) (in computation at page 29 of P/K) Rs.l 1,65,729/ Total Interest claimed as Revenue expense in Income tax Retum including Rs.l0,23,182 Interest on unsecured loan) Rs.l 1.40,333/- Thus from the above it is conclusively seen that capitalisation of Interest was under the following heads: Interest on the Secured Loans from Religare Finvest Ltd. used in purchase of Common Wealth Games flats capitalized in the Computation of Income (in computation at page 29 of P/K) Rs.32,19,030/- Interest Capitalised for Sukhdev Vihar Project (out of Interest on Unsecured loan) ₹ 9,93,029/- - Interest Capitalised for Model Town Project capitalised in Computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Town Project and ₹ 9,93,029/- towards Sukhdev Vihar Project) which is more than the figure of maximum interest allocable as calculated in chart filed, it is clear that no further amount of interest may be allocated towards the ongoing project of the assessee as alleged by the A.O. It is agreed by the authorities below that term loan taken from Religare was utilised for Common Wealth Games flats, interest on which to the tune of ₹ 32,19,030/- has already been capitalized and was not claimed as revenue expenditure. Therefore, no further addition is justified. It was further stated that the authorities below have applied adhoc interest @ 12% on advance of ₹ 40 lakhs given for Model Town Project merely by observing that assessee has given above advance to the land owner as reflected in the balance sheet. It was submitted that an amount of ₹ 95 lakhs was given by the assessee to the land owner of Model Town during F.Y. 2009-2010. Reference was made to page-27 of the paper book. However, due to re10 negotiation of the collaboration agreement, sum of ₹ 80 lakhs became refundable in view of lower share in constructed area to be taken by the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % for the purpose of making addition against the assessee. The assessee s Auditor has filed letter of verification to the effect that the interest cost of ₹ 4,54,373/- is wrongly mentioned, whereas the correct figure is ₹ 9,93,029/-. Therefore, such a figure should not have been disbelieved without verification of the fact. The assessee has explained this figure through the evidence and material on record as well as by filing Letter of Declaration from the C.A. The authorities below have not disputed the interest capitalized on loan taken from Religare Finvest Ltd., used in the projects of Common Wealth Games flats. The assessee already explained the basis of claim of interest capitalized for various projects, details of which, were filed in the paper book. It is also established on record that assessee has interest free loans of ₹ 88,65,316/- which is available to assessee for making investment. The assessee also explained that assessee correctly capitalized the interest for Model Town Project and Sukhdev Vihar Project. Therefore, further enhancement was wholly unjustified. For Model Town Project, it is stated that assessee has given advance of ₹ 40 lakhs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aboration namely Model Town Project and Sukhdev Vihar Project. Whereas Model Town Project was ready for sale and in fact, one flat out of it was sold by the assessee and another project being Sukhdev Vihar Project was still under development. Apart from the above, the assessee-company has also invested in flats at Common Wealth Games, pending possession of which, the advance/instalments given has been shown under Long Term Loans and Advances under sub-head Advance/Expenditure for purchase of flat . Such flat was purchased out of loan taken from M/s. Religare Finvest Limited and the entire interest paid on loan from Religare Finvest Limited during the year has been added to such advance account and not claimed as revenue expenditure. The assessee filed details of interest on loan, unsecured loans and loans from Religare Finvest Limited and it was explained that interest on loan from Religare Finvest Limited was not claimed as revenue expenditure. Similarly, interest on unsecured loans added to the cost of inventory of Sukhdev Vihar Project and interest on unsecured loans added to the cost of inventory of Model Town Project at NIL. Interest of unsecured loans claimed as revenue ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee maintained mixed bank accounts wherein all funds including own funds being share capital, sales and loan funds comprising of secured loans, interest bearing unsecured loans, non-interest bearing unsecured loans etc., are credited. Therefore, it is, difficult to bring-out the exact nexus of utilisation of the unsecured loans, especially when the said loans were received long back. In view of the contention of the assessee that mixed bank accounts are maintained wherein both interest bearing unsecured loans and non-interest bearing unsecured loans have been credited, it may be safely presumed that alleged utilisation of unsecured loans for Common Wealth Games flat is out of assessee s noninterest bearing unsecured loans, which stands at a figure of ₹ 3.6 crore out of the total figure of unsecured loans of ₹ 5.45 crores as on 31.03.2014. He has referred to PB-22 giving working of capitalization/period, cost of interest paid during the relevant year. He has also referred to PB-23 giving details of utilisation of unsecured loans for various projects as well as for Common Wealth Games flat, which, even though is not admitted but presume even otherwise. Perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2012-2013 as deduction. In the assessment year under appeal, the assessee further explained that Model Town Project was ready for sale and in fact, one flat out of it has been sold. Therefore, the interest to that extent shall have to be allowed as deduction in favour of the assessee. The assessee further explained similarly that wherever interest is to be capitalized for pending projects, it has been capitalized. The assessee also explained that assessee has sufficient capital and reserves, therefore, it should be presumed that funds available with the assessee have been used for the purpose of making investments. Therefore, such explanation should be taken into consideration while deciding the issue in favour of the assessee. AS-16 supports the claim of assessee that no capitalization of interest is required for Model Town Project. The assessee explained issue in written submissions with documents filed in paper book that interest is claimed as deduction on unsecured loans. The closing balance of such loans would be at ₹ 1,82,20,253/- whereas, assessee s noninterest bearing unsecured loans stands at figure of ₹ 3.61 Crores (PB-22). The explanation of assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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