TaxTMI 
TaxTMI 
2015 (6) TMI 348
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....talization of interest expenditure of Rs. 42,25,030/- without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. ii) The Learned CIT(A) has erred on facts and in law in directing the Assessing Officer to allow the capitalization of interest expenditure of Rs. 42,25,030/- ignoring the fact that since there is direct nexus of borrowed funds to the purchase of new shares shown as investments, the same is liable for disallowance under section 14A r.w.s.8D." 2. Facts of the case are that the assessee had purchased 45 shares of M/s. Merino Home land Pvt. Ltd. from Anil Kumar Mehta for Rs. 4,32,00,000/- . From the break-up, it was found that purchase consideration of shares was of Rs. 4,32,00,....
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....apitalized and was of the opinion that the arguments of the AO were not tenable, when no such expenditure can be claimed as Revenue expenditure, same is also not liable for disallowance u/s. 14A read with rule 8D. Thus, the Ld. CIT(A) directed the AO to allow capitalization of interest expenditure of Rs. 42,25,030/-. Against this the revenue is in appeal before us. 3. We have heard both the parties and perused the material available on record. In this case the assessee never claimed the interest incurred on loan which was used for the purpose of purchase of shares as revenue expenditure, but it was capitalized as part of the investment in shares. The contention of the AO was that it cannot be added to the cost of the investment so as to ....
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....intended to allow such expenditure as deduction, it had specifically provided so under various heads. For example, in computing the income from house property, the assessee is allowed deduction under section 24 of the Act on account of interest paid on the borrowed funds utilised for acquiring the immovable property. Similarly, when the income is to be computed under the head "Profits and gains from business or profession", the deduction account of interest on borrowed fund is provided under section 36(1)(iii) the Act, where the business assets are acquired out of borrowed funds. At this stage, it may be pertinent to note that depreciation is also allowable as deduction under section 32 in respect of business assets on the cost of acquisiti....
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....ibited as laid down by the Hon'ble Supreme Court in the case of Escorts Ltd. (supra). The entire scheme of the Act, therefore, reveals that interest component after the date of acquisition and till the date of sale cannot be treated as the cost of acquisition. It is only allowable as a revenue deduction on year to year basis against the income generated from such asset or likely to be generated to the extent provided by the Legislature under different heads. 4.2 The view taken by us is fortified by the decision of the coordinate Bench of the Tribunal in the case of Macintosh Finance Estates Ltd. vs. ACIT(12 SOT 324), wherein it has been held "once we find that interest expenses is an allowable expenditure under the head "Income from ....
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.... into existence and put them in working condition. Nowhere in the above observations, the Hon'ble Supreme Court held that the expenditure incurred after the acquisition of asset would be included in the cost of assets. The terminal point is the time when the asset is brought into existence or when the asset is put in a working condition. Therefore, on the basis of the Supreme Court judgment, it cannot be said that expenditure incurred after the asset brought into existence, i.e., after the acquisition of the asset would form part of the actual cost. The Hon'ble Supreme Court laid down the proposition that interest paid on monies borrowed for acquisition of capital asset and to meet expenses connected with its installation etc. and capit....
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....AR . Accordingly, this ground is rejected. 5. Next ground that we take is ground No.3 which reads as follows:- "The ld. CIT(A) has erred on facts and law, in deleting the disallowance of expenditure of Rs. 16,77,597/- under section 14A r.w. Rule 8D ignoring the facts that, the assessee has used the business funds and infrastructure to earn exempt income and therefore disallowance under section 14a as per rule 8D is justified and also rule 8D provides uniform method for computing disallowance." 5.1 The facts of the issue are that the assessee had shown dividend income of Rs. 735/- and claimed it as exempt u/s. 10(33) of the IT Act. According to the AO the assessee has not considered any expenses for disallowance of expenditure u/s. 14A....