TMI Blog2018 (9) TMI 1618X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee’s claim for acquiring the property much prior to the end of the relevant previous year. Though the Assessee preferred appeal before the Hon’ble Supreme Court against the order of the Division Bench of the Karnataka High Court, the same was ultimately dismissed on 25.9.2008 and the Assessee was to get back only the EMD paid by it to the Official Liquidator together with interest. The interest income was offered to tax by the Assessee in AY 2008-09 and the interest expenditure in connection with borrowing funds for paying the EMD was also claimed as deduction and revenue expenditure for the relevant previous year. The interest expenditure was therefore rightly held by the CIT(A) to be for the purpose of business of the Assessee and an allowable deduction u/s.36(1)(iii). As far as the EMD paid to HUDA is concerned, Assessee as early as 27.11.2006 has rescinded the agreement to acquire property from HUDA. The expenditure incurred in the form of interest on borrowings to pay the EMD to HUDA has to be considered as borrowing for the purpose of business of the Assessee allowable u/s.36(1)(iii) of the Act. - Decided against revenue. - ITA No.2135/Bang/2017 - - - Dated:- 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income other than dividend income from mutual funds have been offered to tax during year under consideration. 6. In response, the assessee submitted that the interest payout was compensation to the parties who had advanced monies for financing the EMD's made with NGEF and HUDA. The assessee submitted that interest paid on share application money/ICD was claimed as expenditure in accordance with generally accepted accounting principle as well as on prudence. The assessee also submitted that by paying EMD the Assessee became qualified to bid at the auction and did not acquire any interest in any immovable property and therefore the Assessee could not capitalize the interest paid as part of the cost of any asset. The assessee also submitted that any interest it might receive on the EMD would be offered to tax. 7. The AO however rejected the plea of the assessee and he held that interest expense has to be capitalized and cannot be allowed as deduction. According to the AO, the EMD was made with the purpose of acquiring an asset and therefore interest payout should have been capitalized or in the alternative shown as work-in-progress. The AO accordingly denied the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka vide its order dated 22nd December 2005 terminated the sale proceedings and ordered refund of EMD along with interest upto 31st December 2005 to the bidders. The assessee being aggrieved by the said order refused to accept refund of the EMD and preferred an appeal before the division bench of the Hon ble High Court on 30th December 2005. Based on the order of the division bench dated 28th February 2006, the assessee filed before the Single Judge impleading application and also a petition to recall the order terminating of sale of NGEF assets. Subsequently, on 13th September 2006, the learned single judge dismissed the assessee s petition and the assessee preferred further appeals with the division bench of the Hon ble High Court for relief on the matter. The division bench vide its order dated 30th March 2007 allowed the assessee s appeal recalling the earlier order dated 22nd December 2005 and temporarily kept the sale proceedings in abeyance. 10. Subsequently, divisional bench dismissed the Assessee's appeal. The assessee preferred further appeal before the Hon ble Supreme Court which was also dismissed vide its order dated 25th September 2008 directing the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Hon ble High Court of Andhra Pradesh in which the petitioner in the writ petition claimed title to the said lands as against HUDA and also made the assessee a party to the litigation pending between the HUDA and the petitioner. While the matter was pending with High Court, the assessee vide its letter dated November 27, 2006 to HUDA, informed its decision to terminate the land purchase agreements and sought for refund of the amounts paid so far aggregating to ₹ 107.60 crores together with interest @ 24% per annum and has also reserved its right to claim damages for breach of contract. 14. Subsequently, the Hon ble High Court of Andhra Pradesh vide its order dated April 22, 2010, directed HUDA to refund the amount deposited by the Company within three months and in case of delay of refunding the amount beyond three months together with interest at 9% p.a from the date of deposit. HUDA filed a writ appeal against the above order and obtained stay order from Hon ble High Court of Andhra Pradesh vide order dated June 28, 2010. The writ appeals were disposed by the High Court of AP by common order dated 27.12.2012 setting aside the orders of the Ld. Single Judge in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not applicable and that the interest expenses in the present case is admittedly incurred for the purpose of business of the assessee and irrespective of the fact whether the borrowing is for capital or revenue purposes, deduction has to be allowed. The ld. counsel for the assessee in this regard relies on the decision of the Hon ble Supreme Court in the case of DCIT v. Core Health Care Ltd., 298 ITR 194 (SC) . 18. We have given a careful consideration to the rival submissions. Section 36(1)(iii) and proviso thereto is as follows: Sec.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 referred to in section 28- (i) (ii) ..... (ii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession : Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be for extension of existing business. In the present case both the conditions are not satisfied. There was no acquisition of any asset by the Assessee from NGEF or HUDA and both the transactions did not ultimately fructify. The Assessee had to abandon its idea of carrying out development on these properties. The Assessee was already in the business of acquiring properties and constructing flats. In the ordinary course of its business, the Assessee sought to acquire properties from NGEF and HUDA. Therefore it cannot be said that the Assessee indulged in any extension of existing business or profession. 20. From the facts of the case it is clear that at no point of time the Assessee was certain of acquiring the properties either from NGEF or HUDA. As far as the transaction with NGEF is concerned, the Division Bench dismissed the Assessee s claim for acquiring the property much prior to the end of the relevant previous year. Though the Assessee preferred appeal before the Hon ble Supreme Court against the order of the Division Bench of the Karnataka High Court, the same was ultimately dismissed on 25.9.2008 and the Assessee was to get back only the EMD paid by it to the Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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