1989 (3) TMI 165

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....consideration, the assessee has developed plot. No. S-561, Greater Kailash,New Delhiand dwelling units thereon were completed and handed over to the prospective buyers. The assessee made a further investment in property and booked space with M/s D. S. Reliance Builders & Engineers Pvt. Limited, S-569, Greater Kailash-II,New Delhi. The advance given to this party was Rs. 13,18,000 out of loan arranged from the bank on which interest of Rs. 2,26,227 was paid and debited to the profit & loss account. The ITO has observed that in the previous year the assessee had capitalised pre project expenses. the assessee was, therefore, asked to state as to why the said amount of interest be not disallowed. According to the ITO the assessee filed a letter....

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....ities. 3. Aggrieved by the order of the ITO, the assessee preferred an appeal before the CIT(A). Before him, it was stated on behalf of the assessee that the computation of profits on the sale of dwelling space on plot No. S-561, Greater Kailash-II,New Delhiwas complete with the distribution and handing over of the space to the customers. The appellant did not undertake any other project for development of real estate of construction or any residential, commercial houses or flats. During the year under consideration, the appellant approached the bank for loan against equitable mortgage of the said plot i.e. S-561, Greater Kailash-II which was owned by the assessee-company on which the project of construction of dwelling houses was undertak....

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....any and the D. S. Reliance Builders & Engineering Pvt. Ltd. through exchange of correspondence that the assessee company will advance an amount of Rs. 14 lakhs to the said concern. This was also in the same line of business, i.e. purchase and sale of real estate, development thereof and construction of lands. The assessee before starting an independent project of its own thought it fit and more profitable to advance the said amount to the said concern, as the assessee company was not having any plot of land in it possession for starting any construction activity. The assessee therefore thought it appropriate to join hands with the said concern on certain terms and conditions. The terms and conditions were contained in letter dt.29th May, 19....

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....k from whom the funds were originally taken on loan against equitable mortgage for plot No. S-561, Greater Kailash-II. It was also contended that the purpose was earning profits in joint-venture between the assessee and the other concern. It was obviously for the purpose of earning profit in the joint-venture in office building space over and above the fixed compensation and not of construction of any independent project on its own. It was further pointed out that the action of the ITO was self contradictory inasmuch as the interest received or compensation received amounting to Rs. 1,50,000 was treated as revenue receipt and taxable income in the hands of appellant but disallowed the amount of Rs. 2,26,227 being interest paid to the bank. ....