TaxTMI 
TaxTMI 
TaxTMI 
2011 (9) TMI 106
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....nces of the case and in law, ld. CIT(A) has gravely erred in deleting the addition of Rs. 1,60,277/- on account of disallowance of interest expenses debited to the profit and loss account for using the funds for non business purpose and also for the purpose advances for the purchase of fixed assets, made to Vipul Ltd., and Unitech Ltd. 4. That on the facts and circumstances of the case and in law, ld. CIT(A) has gravely erred in deleting the addition of Rs. 2,64,480/- by disallowing the expenses incurred on the market survey got conduct from MDRA." 3. The assessee filed its return of income, on 9.2.2007, declaring income at Rs. 21,57,43,610/-. The assessee is in the business of running hotel. The AO passed the assessment order u/s 143(3) of the Act, on 26.12.2008, assessing the income of the assessee at Rs. 21,65,07,307/-. The AO treated a sum of Rs. 1,45,547/-, as income of the assessee, as it failed to deposit the said sum, on or before the due date u/s 2(24)(x) read with section 36(1)(va) of the Act. The ld. CIT(A), deleted the impugned addition. Therefore, the revenue is in appeal before us. 4. The 'DR' placed reliance on the impugned assessment order passed by t....
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....should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, as stated above, the second proviso resulted in implementation problems, which have been mentioned hereinabove, and which resulted in the enactment of the Finance Act, 2003, deleting the second proviso and bringing about uniformity in the first proviso by equating tax, duty, cess, and fee with contributions to welfare funds. Once this uniformity is brought about in the first proviso, then, in our view, the Finance Act, 2003 which is made applicable by Parliament only with effect from April 1, 2004, would become curative in nature, hence, it would apply, retrospectively, with effect from April 1, 1988. Secondly, it may be noted that in the case of Allied Motors P. Ltd. v CIT [1997] 224 ITR 677 (SC), the scheme of section 43B of the Act came to be examined. In that case, the question which arose for determination was, whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law should be disallo....
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....r than the grace period. After discussion of the factual matrix of the case and the submissions filed by the assessee, the ld. CIT(A), deleted the impugned addition. Having regard to the facts of the case and respectfully following the binding decision of Hon'ble Jurisdictional High Court in the case of Nuchem Ltd. (supra), we do not find any infirmity in the findings of ld. CIT(A). Therefore, the findings of the ld. CIT(A) are upheld. 7. In ground No. 2, the revenue contended that the ld. CIT(A) erred in deleting the addition of Rs. 1,55,616/-, made by the AO, on the ground of disallowances of interest. 8. The AO observed that the assessee has imported new cars and incurred expenditure of Rs. 40,496/-, on marine insurance and interest expenditure of Rs. 1,31,646/-, during the period prior to the car being put to use in India. The assessee was afforded opportunity to as to why such expenses should not be treated as capital expenditure, in relation to purchase new assets. The AO after appreciating of assessee's reply held that the assessee had purchased new assets for its business. It was held by the AO that the said expenditure was incurred to bring new assets into existence and ....
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....of existing business and therefore will not come within the ambit of the proviso to section 36(1)(iii). Furthermore, since it has not been established by the AO that the assets acquired led to any sort of major capacity enhancement which may be considered an extension of business, the addition does not seem justified. Even if section 36(1)(iii) is read in conjunction with Explanation 8 to section 43(1), the results would not change. 15. The addition of Rs. 1,31,646/- is therefore deleted, allowing assessee's plea on this ground." 10. The 'DR' vehemently contended that the interest paid before the asset was put to use is required to be capitalized. Therefore, the AO was legally justified in disallowing the impugned interest. He referred to proviso to sec 36(1)((iii) of the Act. To support his contention, he drew our attention, to para 3 of the assessment order and paras 9,11,13 of the order of ld. CIT(A). The 'DR' also contended that the approach of the AO was judicious and fair enough as it allowed the depreciation on the said asset. 11. The Ld. 'AR' for the assessee contended that having regard to the business carried on, by the assessee, the purchase of new cars is merely an e....
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....sition that the amount was advanced for acquisition of new asset which was claimed to be for the furtherance of the business activity of the assessee before us. Admittedly, the amount was not advanced as a loan and we find no merit in the orders of authorities below in applying the ratio laid down by the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries, 286 ITR 1. However, admittedly the assessee had borrowed the loans which were utilized for making the said advances. We are in conformity with the orders of authorities below that the proviso under Sec 36(1)(iii) of the Act is squarely applicable to the facts of the present case. The amount of interest attributable to the capital borrowed for acquisition of new asset for expansion of the existing business cannot be allowed as deduction for the period beginning from the date on which the capital was borrowed till the date of the asset being put to use. Accordingly we sustain the disallowances of Rs. 6.00 lakhs and dismiss the ground no. 4 raised by the assessee." 13. The decision of Hon'ble Jurisdictional High Court as reproduced above and the express provisions of section 36(1)(iii) of the Act and proviso ther....
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....recedent for grant - Borrowed capital must be used for business purposes - loans advanced interest-free to sister concerns while payment outstanding on borrowings by company - Inference that advances were from borrowed funds and for non-business purposes - Onus on assessee to show borrowings used for business purposes - Not on revenue to show nexus between borrowings and advances - That advances by company were out of its own funds of share capital or out of mixed funds, not sufficient to discharge onus - interest to extent relating to sums advanced interest-free to be disallowed - Income-tax Act, 1961, s. 36(1)(iii). Section 36(1)(iii) of the Income-tax Act provide for deductions of interest on loans raised for business purposes. Once the assessee claims any such deduction in the books of account, the onus will be on the assessee to satisfy the AO that whatever loans were raised by the assessee were used for business purposes. If in the process of examination of genuineness of such a deduction, it transpires that the assessee had advanced certain funds to sister concerns or any other person without any interest, there would be a very heavy onus on the assessee to discharge before....
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....ital, which in fact stood exhausted in setting up of the unit. Such a plea may be acceptable at a stage when no loans have been raised by the assessee at the time of disbursement of funds. This would depend on the facts of each case. The view that where the amount is advanced from a mixed account or share capital or sale proceeds or profits, it would not be deemed diversion of borrowed capital or that the revenue had not been able to establish nexus of the funds advanced to the sister concerns with the borrowed funds, is not correct. Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed u/s 36(1)(iii) of the Act. CIT v. Tin Box Co. [2003] 260 ITR 637 (Delhi), CIT v. Orissa Cement Ltd. [2001] 252 ITR 878 (Delhi), CIT v. Radico Khaitan Ltd. [2005] 274 ITR 354 (All.), CIT v. Prem Heavy Engineering Works (P.) Ltd. [2006] 285 ITR 554 (All.), CIT v. Britannia Ind....
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....erest." 18. A bare perusal of the extract of the decision (supra) shows that the subject-matter of this ground of appeal is covered by the decision of Hon'ble Jurisdictional High Court. Consequently, findings of ld. CIT(A), cannot be sustained. Hence, this ground of appeal is decided in favour of the revenue. 19. In Ground No. 4, the revenue contended that the ld. CIT(A) erred in deleting the addition of Rs. 2,64,480/-, incurred on market survey got conducted from MDRA. 20. The 'DR' referred to para 6 of the assessment order as also para 23 of the ld. CIT(A)'s order. It was contended by the 'DR' that survey report was not produced. 21. The 'AR' for the assessee, on the other hand, placed reliance on the order of ld. CIT(A). 22. We have perused the fact situation of the case, rival submissions and the orders passed by the lower authorities. The relevant portion of the findings of ld. CIT(A) are reproduced hereunder:- "26. I have considered the observations of the AO in the assessment order, submissions of the appellant as well as comments in the remand report. I have perused the survey report and I find that survey was mainly conducted to acquaint the hotel management regardin....