2014 (2) TMI 843

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....Capital-Work-in- Progress(hereinafter referred to as CWIP). 3. The relevant facts giving rise to this appeal are that the assessee is engaged in the business of constructing, operating and management of hotel and resort and service apartment. The assessee filed return of income declaring total income of Rs.10,57,640/-. 4. During the course of assessment proceeding, AO observed that the assessee claimed to have incurred expenses which are being capitalized under the two heads i.e "CWIP" expenditure and "preoperative expenses pending allocations". AO stated that on verification of the details of capital expenditures, it is noticed that the assessee has given advances amounting to Rs.6,02,44,108/- to the suppliers of material and or cont....

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.... any depreciation on these advances. Thus, the capital advances should not be reduced from CWIP. 6. Ld. CIT(A) after considering the submissions of the assessee has confirmed the action of the AO vide para 3.3 of the impugned order which reads as under : "3.3 I have carefully considered the facts of the case, the submission of the appellant and assessment order. I agree with the findings of the AO that the advances given by the appellant is not towards any confirmed expenditure but towards expenditure that may arise or may not arise in future in a situation if the expenditure does not arise in future then the appellant will recover the advances. Thus, the AO is right in holding that since the actual cost has not arisen to the assessee....

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....d that as and when the works is executed, the assessee could capitalized the expenses and merely the advances given for execution of work in future cannot be capitalized till the work is executed and the amount has actually become due to the contractor/suppliers. He further submitted that cases cited by ld. AR (supra) do not apply to the facts of the case as in those cases the liability were actually incurred in respect of installing the machinery and plant prior to the commencement of the production and whereas in the case of assessee the work is yet to be executed and merely the advances were made by assessee. 9. We have carefully considered the orders of authorities below and the submissions of ld. Representatives of the parties. We h....

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.... interest of Rs.1,54,765/- and Rs.4,78,122/- calculated as per Rule 8D of the Income Tax Rules, 1962 for the purpose of making disallowance under section 14A of the Income Tax Act, 1961. 11. AO has stated the the assessee has claimed exempt dividend income amounting to Rs.51,95,116/- exempt u/s 10 of the Act. He has stated that the assessee has not attributed any expenditure towards earning of exempt income u/s 14A of the Act. AO after considering the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co Ltd Vs DCIT (2010) 328 ITR 81 (Bom) and the provisions of section 14A of the Act as also the CBDT notification No.45/2008 dated 24.3.2008 applied Rule 8D of the Rules and calculated the same at Rs.1,54,765/- towa....

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....sidered the orders of authorities below and submissions of ld. Representatives of the parties. We have also considered the balance-sheet of the assessee and the profit and loss account read with Schedule "E" placed at page 5 of the paper book. In respect or disallowance of investment of Rs.1,54,765/- under Rule 8D (ii) of the Rules, we are of the considered view that the contention of ld. AR has merits that no borrowed funds were used by assessee for making the said investment. Moreover, the borrowed money was taken by assessee from IDFC as secured loan which the assessee could utilized only for setting up hotel project. Further it is a fact that in the relevant financial year total investment has come down from Rs.11.22 crores to Rs.7.90 c....