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TMI Blog2023 (3) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... n law and in the facts and circumstances of the case of appellant, the Ld. CIT(A) has erred in confirming disallowance of Rs. 16,29,800/- on account of mismatch in Form 26AS when the appellant had duly explained that no income has arisen to it and such amount has been reimbursed by HDFC bank to the appellant on payment being made to Indian Electric Corporation by appellant on behalf of HDFC Bank. The disallowance confirmed by CIT(A) is liable to be deleted. 3. In law and in the facts and in the circumstances of the appellant's case, the Ld. CIT(A) has erred in confirming disallowance of insurance expense of Rs. 68,425/- without appreciating that such expenses are incurred for maintenance of business and shall be allowed. The same is liable to be deleted. 4 The appellant craves leave to add, alter, amend and/or withdraw any of the grounds either before or at the time of appeal hearing. 3. The first issue raised by the assessee is that the learned CIT(A) erred in confirming the disallowances of interest expense of Rs. 76,00,227/- by holding the same is neither allowable under section 24(a) nor under section 36(1)(iii) of the Act. 4. The facts in brief are that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses against the business income. 5.2 In addition to the above, the AO also found that there were investments in the shares amounting to Rs.12.15 crores and therefore the possibility of using the borrowed fund against the investments cannot be ruled out. 5.3 In view of the above the AO disallowed the amount of interest expenses incurred by the assessee which was claimed against the income under the head house property. Thus, the addition was made on account of interest of Rs.76,00,227/- to the total income of the assessee. 6. Aggrieved assessee preferred an appeal to the learned CIT(A) who confirmed the addition made by the AO by observing as under: 4.2.1 On going through the observations of the AO and submissions made by the appellant, find that it is a fact that no business activity has been carried out by the appellant during the year under consideration. It is also a fact that the property that was purchased during the year by taking a loan from Bajaj Finance Ltd, was also not used for the purpose of business. Further, the appellant has borrowed funds from Capital First Ltd. to repay the loan taken from Bajaj Finance Ltd. This loan has ostensibly been taken for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest expenses despite the fact that the cost qua the interest expense was incurred. Furthermore, there was always addition in the value of the WIP shown by the assessee in the earlier years. All these facts strongly suggest that the interest expenses incurred by the assessee in the earlier years were capitalized by enhancing the value of property. For this purpose, we have referred the financial statements of the earlier years available on record and based on such financial statements reached to the conclusion that there was no enhancement in the value of any fixed assets except the capital work in progress. Thus, it can be presumed that such interest cost has been incurred towards the loan from Bajaj Auto Finance Ltd which was effectively utilized for acquiring the property. Thus, we hold that the Bajaj loan was used the purpose of acquiring the property in dispute. Proceedings further, there is no dispute to the fact that the assessee has obtained fresh loans from Capital First Ltd dated 27 February 2013. It was submitted that such loan has been utilized for repayment of the loan of the Bajaj Auto Finance Ltd. In this regard, we note that the money borrowed from the Capital First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee from Capital First Ltd over and above the amount used for the settlement of outstanding loan from Bajaj Auto Finance Ltd. However, on perusal of the financial statements of the assessee pertaining to the different years, we note that the assessee is not carrying out any business activity. Admittedly, the assessee is a corporate and legal entity. Indeed, the assessee to maintain legal entity has to incur certain expenses such as audit expenses, ROC filing charges etc. However, to maintain the legal status of the assessee, it is not required to incur the expenses beyond the certain points until and unless some cogent material is brought on record by the assessee. Considering the fact that there was no business carried on by the assessee during the year under consideration and in immediate previous year, we therefore hold that the amount of loan borrowed by the assessee from the Capital First Ltd over and above the amount utilized for settlement of outstanding loan of Bajaj Auto Finance Ltd was not for the purpose of business. Hence the interest cost incurred thereon cannot be considered for the purpose of the business. Hence, the ground of appeal of the assessee is partly all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the HDFC Bank represents the income in the hands of the assessee as the bank has made the payment to the assessee after deducting the TDS under section 194C of the Act which is reflecting in the Form-26AS generated by the Department. Generally, the payer is liable to deduct the TDS on the payments made to the party which is an expense in the hands of the payer and income in the hands of the recipient. In the present case, it is certainly an expense in the hands of the HDFC bank but the question arises whether the amount received by the assessee from the bank represents the income in its hands. Generally, any payment received by the payee after the deduction of tax is considered as income of the payee. But this rule cannot be made applicable to each and every receipt in the hands of the assessee that it represents the income. In the given case, the assessee has categorically submitted that it has incurred certain expenses on behalf of the bank which was reimbursed to the assessee by the bank and therefore the same does not represent any income in its hands. To this effect, we note that the assessee before the authorities below has filed the copy of the ledger and receipt issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has not carried out any business activity, therefore insurance premium was not for any business purpose. Further, the assessee has not furnished the documentary evidence for payment of such insurance premium. Hence, the AO disallowed the same and added to the total income. 20. On appeal by the assessee, the learned CIT(A) also confirmed the same by holding that no evidence or justification was furnished in respect of impugned payment. 21. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. 22. The learned AR before us contended that the prepaid expenses were incurred in the earlier year which were shown in the audited balance sheet and no defect of whatsoever was pointed out therein. As per the learned AR, the expenses were incurred for the purpose of the business and therefore the same should be allowed as deduction. 23. On the contrary, the learned DR before us vehemently supported the order of the authorities below. 24. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee has claimed insurance expense amounting to 68,425/- which was claimed as prepaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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