2015 (5) TMI 844

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....e disallowance interest expenses of Rs. 86,90,220/- on account of Term loan from Central Bank of India which was not utilized for business purpose and was placed in fixed deposit to earn interest. (4) On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the disallowance of compensation paid for Rs. 12,60,000/- incurred for acquisition of land without appreciating the fact that the assessee failed to deduct tax at source under section 194LA of the I.T. Act. 2. Ground No. 1 relates to the deletion of the addition of Rs. 62,57,436/- added by the Assessing Officer as interest received from Bank deposits to the extent of Rs. 62,57,436/-. 3. Brief facts relating to this ground are that the assessee-company filed its return on 18.03.2008 declaring total income of Rs. NIL. The assessee-Company was incorporated on 25.01.2006 and the nature of business of the Company is developing and promoting of land and property. The Company has produced Balance-sheet and state of affairs of the Company as on 31.03.2007 which was duly audited and has also debited a sum of Rs. 1,27,231/- under the head "deferred revenue expenditure", which includes a sum of Rs. 2,044....

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....bsp;       "5. The Company has been sanctioned a Term Loan of Rs. 110 crore by the Central Bank of India, Camac Street Branch, Kolkata for its up-coming project at 2, Dakshindari Road, Kolkata. Such credit facility is being secured by the Equitable mortgage of the Company's land and building situated at the premises no. 2, Dakshindari Road, Kolkata by the deposit of Title Deeds and Hypothecation of construction materials. Further, the Directors of the Company Shri Amar Nath Shroff and Shri Navin Kumar Bhartia have also given their personal guarantee to the bank with respect to this term loan. Till Balance sheet date, the company has taken disbursement of Rs. 35 crore from such Tem Loan A/c." 6. This note, in our opinion, simply states the fact and proves that the assessee-company has invested in land and building and has also taken the loan from the Banker. This note does not talk whether the assessee has set up its business and land and building has been purchased for the purpose of carrying out developing and promoting the land and property. Even in the audited balance-sheet, we noted that the land purchased by the assessee has not been shown as s....

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....t was utilized to repay the interest on the loan taken by the assessee, it did not cease to be his income. When the question is whether a receipt of money is taxable or not or whether certain deductions form that receipt are permissible in law or not, the question has to be decided according to the principles of law, and not in accordance with accountancy practice. Accounting practice cannot over ride section 56 or any other provision of the Income Tax Act. Under the Income Tax Act, 1961, the total income of a company is chargeable to tax under section 4. The total income has to be computed in accordance with the provisions of the Act. Section 14 lays down that for the purpose of computation, income of an assessee has to be classified under six heads. It is possible for a company to have six different sources of income, each one of which will be chargeable to income tax. Profits and gains of business of profession is only one of the heads under which a company's income is liable to be assessed to tax. If a company has not commenced business, there cannot be any question of assessment of its profits and gains of business. That does not mean that until and unless the company comme....

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....return of income filed on June 22,1982, the company disclosed the said sum of Rs. 2,92,440 as income from other sources. It also disclosed business loss of Rs. 3,21,802/-. After setting off the interest income against the business loss, the company claimed the benefit of carry forward of net loss of Rs. 29,360/-. The company later on realised its mistake and on December 26,1984, it filed a revised return showing business loss of Rs. 3,21,802/-. It claimed that according to the accepted accounting practice, interest and finance charges along with other pre-production expenses had to be capitalised, and that, therefore, the interest income of Rs. 2,92,440/- should go to reduce the pre production expenses (including interest and finance charges), which would ultimately be capitalised. During the previous year relevant to the assessment year 1983-84, the assessee had received interest income of Rs. 1,08,336/-. The assessee filed its return in which it claimed that the interest income of Rs. 1,08,336/- should go to reduce the pre-production expenses including the interest and financial charges which would ultimately be capitalised. The Income Tax Officer rejected the assessee's claim th....

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....ve also gone through the decision of the Hon'ble Karnataka High Court in the case of CIT & Another -vs.- Mfar Construction limited reported in (2010) 48 DTR (Kar.) 360 as relied by the ld. A.R. We noted that in this case also the assessee has submitted the tender application for construction of Embassy Heights on Magrath Road and acceptance of tender and issuance of order dated 20.03.1997, therefore, the business has already been set up as the assessee has done primary activities for carrying on business. This decision also, in our opinion, will not assist the assessee as in the case of the assessee, the assessee has not done any act to generate that the assessee has set up its business for developing and promoting the land and building. The assessee no doubt bought the land and building but that has been bought by the assessee as fixed asset not for the purpose of purchase and sale. We have also gone through the decision of the Hon'ble Delhi Bench of this Tribunal dated 08.09.2014 in the case of Jcdecaux Advertising India Pvt. Ltd. -vs.- DCIT in ITA No. 964/Del./2011. This decision also, in our opinion, does not apply in the case of the assessee because in that case also, the a....

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....aimed, therefore, the disallowance under section 40A(2)(a) cannot be made. We, therefore, dismiss this ground. 11. Ground No. 3 relates to the deletion of the disallowance of the interest expenses of Rs. 86,90,220/- on account of term loan. 12. Brief fact s relating to this ground are that the assessee has incurred interest expenses of Rs. 86,90,220/- on term loan from Central Bank of India. The said term loan has been sanctioned for the purpose of construction of the building. The Assessing Officer was of the view that the interest has not been incurred for the purpose of business therefore he disallowed the claim of capitalization of the interest incurred on term loan. When the matter went in appeal before the ld. CIT(Appeal s), the ld. CIT(Appeals) deleted the disallowance. 13. We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below. We noted that in this case the assessee has incurred interest amounting to Rs. 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head "income from business". The said....