TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 671
X X X X Extracts X X X X
X X X X Extracts X X X X
....d included it in capital work-in-progress amounting to Rs.3,51,55,074/-. In the assessment year under consideration, the assessee reversed the said entries and debited the interest amount to Profit & Loss Account and credited the said amount of Rs.3,51,55,074/- to "Capital Work-in-Progress" written off. Thus, the assessee claimed the said amount as deduction. 4. AO did not accept the contention of the assessee stating that there is no provision in the Income Tax Act under which the write-off a "Capital Work-in-Progress" is allowed as a deduction. He further stated that the said expenditures of Rs.3,51,55,074/- were incurred by assessee in earlier years as interest on capital borrowed and it was essentially on capital account. However, the reasons given by AO have also been summarized by ld. CIT(A) as under : "1. The assessee is following mercantile system of accounting. In mercantile system of accounting any expenditure is allowed as deduction in the year in which it is incurred in the instant case, interest expenditure is incurred by the assessee in earlier year i.e. F.Y. 1997-98 to 99/00. Therefore even though the same is credited to the capital WIP written off account in F.Y. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... implemented was not allowable and as a revenue expenditure. It was held that expenditure was attributable to capital having been incurred with a view to bringing an asset an advantage into existence and having enduring benefit. Merely because the project did not materialize the nature of expenditure would not change to revenue. The Hon'ble Supreme Court in the case of Hasmira Industries (230 ITR 927) also held that a deposit which was made for the purpose of acquiring a profit making asset would not held to be on revenue account and non implementation of the leave and licence agreement resulted as a loss on capital account to the assessee and the same should not be treated as business loss. The Hon'ble Himachal Pradesh High Court in the case of Mohan Meaken Breweries Ltd. Vs. CIT (227 ITR 878) has also held that loss arising out of discarding of milk Plant and written off was not allowable as an expenses. In view of the above discussion and the ratio laid by various courts, the expenditure of Rs.3,51,55,074 claimed as revenue expenses were treated as capital expenditure and disallowed. " In view of above, AO disallowed the claim of assessee and treated the same as capital expend....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g and not in real estate business. He submitted that purchase of flat by assessee is a capital asset and therefore the decision of the Hon'ble Bombay High Court in the case of Lokhandwala Construction Inds. Ltd. (supra) relied upon by ld. AR is not applicable to the facts of case of assessee. He submitted that assessee is following mercantile system of accounting and the said interest expenditure relates to earlier assessment years and therefore, the same even otherwise cannot be allowed in the assessment year under consideration. 8. We have carefully considered the submissions of ld. Representatives of the parties and the orders of authorities below and also the decision of Hon'ble Bombay High Court relied upon by the ld. AR (supra). 9. Firstly, we agree with the ld. DR that the case of Lokhandwala Construction Inds. Ltd. (supra) relied upon by ld. AR is not applicable to the facts of the case of assessee as the assessee is not in the business of construction of building and therefore, the monies were not borrowed for obtaining development rights in respect of land unlike in the case relied upon by ld. AR. The assessee borrowed money to acquire capital asset and the interest on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est on loan borrowed for advancing to subsidiary company was not allowable u/s 36(1)(iii) of the Act. Being aggrieved, assessee filed appeal before the First Appellate Authority. 12. On behalf of the assessee, the submissions were made on the lines of submissions made before the AO. It was also contended that the shares of subsidiary company and advance to acquire shares of the subsidiary company were given for commercial expediency and other commercial consideration. The assessee placed reliance on the decision of the decision of Hon'ble Apex Court in the case of S.A Builders vs. CIT (2007) 288 ITR 1(SC) and submitted that disallowance made by AO in respect of interest is not justified. However, the ld. CIT(A) did not agree with the contentions of the assessee and confirmed the action of AO. Ld. CIT(A) has stated that he does not agree with the assessee that the ratio of the decision of S A Builders (supra) is applicable to the facts of the case as in that case the advance was given to subsidiary company for business purpose but in the case of assessee, the advance was given to purchase shares of its subsidiary company. That the assessee-company is not investment company and henc....