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2019 (8) TMI 544

..... s claim has been that interest income on short term surplus funds which was kept for running hotel business, rent receipt etc. had direct nexus with hotel business and these are income derived from hotel business. Similarly the expenses related to Jaipur project were also claimed on the ground that it is not a separate business but a part of the assessee’s own business. The other project was form of expansion of same business already carried on. Thus, the same were claimed as revenue expenses. Similarly on netting of interest assessee has given a bonafide explanation as how the interest income and interest expenditure had a direct nexus. By making such a claim it cannot be held that assessee has furnished any inaccurate particulars of .....

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..... s being decided on the basis of material on record. The brief facts qua the issue of levy of penalty u/s 271(1)(c) are that Assessee Company is engaged in the business of running and operating hotels and resort. The assessee has claimed deduction u/s 80IB (7) amounting to ₹ 1,65,55,147/-, which was 50% of the total business income from running of hotels and resort. Ld. AO noted that assessee has claimed deductions on the following income which are not related to business:- Interest income (FDR interest) ₹ 19,41,723/- Rent ₹ 7,26,000/- Miscellaneous income ₹ 14,56,415/- Total ₹ 41,24,138/- 3. Accordingly, AO has made the disallowance of ₹ 20,62,069/-. He has also made further addition on account of disallo .....

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..... pital expenses vs. Revenue expenses and Capitalization of expenses. Once again there has been no suppression of any material fact. 4.5. The addition of interest income pertains to an issue of netting of interest i.e., set off all interest payments against interest receipts. Though the appellant s explanation has also not been accepted, there was no suppression of material facts in respect of the said issue as well. 5. After considering the relevant findings given in the impugned orders as well as the arguments placed by the Ld. DR, we find that the assessee has given following explanation before the authorities below on the issue of levy of penalty:- The assessee claimed deduction u/s 80IB of the act on income derived from hotel business wh .....

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..... carried on by the appellant because it is having common management, common control and owned by the same company. Thus all the expenses incurred by the appellant company are revenue expenses and deductible u/s 37 of the Act. The assessee has acted reasonably in good faith and has not concealed any income or furnished any inaccurate particulars of income. The appellant company had taken loan from Axix Bank for construction of the Jaipur hotel. In order to mitigate cost of borrowing, it has invested the unutilized loan amount in short term FDR. It has netted interest earned on short term deposit of ₹ 19,39,562/- with interest paid on Term Loan and capitalized the net interest to Jaipur project. This is based on the established principl .....

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