TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1285
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssment and notice under section 143(2) of the Act was issued and served upon the assessee. The ld.AO has determined the taxable income of the assessee at Rs. 70,731/- as against the loss of Rs. 21,88,941/-. The ld.AO has basically disallowed a sum of Rs. 21,54,672/- under section 14A and Rs. 1,05,000/- under section 40(a)(ia) of the Income Tax Act. However, when these issues were taken to the ld.CIT(A), different colour has come on these additions. 5. As far as first addition confirmed by the ld.CIT(A) is concerned, it emerges from the record that the assessee has incurred an expenditure of Rs. 2,60,057/- in respect of solar power project of NTPC. The ld.First Appellate Authority has confirmed this addition on the ground that it is a new line of business which ultimately could not be materialized, and therefore, the expenditure incurred are to be treated as capital in nature and not allowable as deduction. In order to buttress his finding, the ld.First Appellate Authority has relied upon the decision of the Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd., 196 ITR 0237 (Guj). The discussion made by the ld.CIT(A) on this issue reads as under:....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pinion, the expenditure in question, being capital expenditure, its deduction was rightly disallowed by the Tribunal. We, therefore, answer the question which is referred to us in the affirmative and against the assessee' The Jurisdictional High Court has decided on similar lines in its decisions in the case of Shri. Digvijay Ltd 159 ITR 0253 and Ambika Mills Ltd 2136 ITR 91 (Guj). Hence, this expenditure is held not to be allowable in computing the income of the appellant. 4.3.4 The other contention of the appellant is that It had incurred expenditure of Rs. 14,72,347/- for Ahmedabad Township project office. The appellant has submitted that it had setup the Ahmedabad office in order to cater to the needs of the Ahmedabad Township Project which was in no way related to . the investment activity carried out it. But again as can be seen from the submissions, this was a project undertaken by the appellant which did not materialize and no income was earned by the appellant from it. Any expenditure towards this new project was needed to be capitalized to be ultimately allowed against the income earned from the project. Thus, such expenditures are also capital expenditure in nature....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IT(A). This ground of appeal is rejected. 9. In the next fold of grievance, the assessee has pleaded that the ld.CIT(A) has erred in confirming the disallowance of Rs. 14,72,347/- by treating it as incurred for a new project namely, Ahmedabad Township Office Project. Brief facts of the case are that the assessee has incurred expenditure of Rs. 14,72,347/-. According to the assessee, it has set up Ahmedabad office in order to cater the needs of the Ahmedabad Township project. The ld.CIT(A) has confirmed the disallowance on the ground that this expenditure was incurred for a new project, which needed to be capitalized. 10. With the assistance of the ld.representatives, we have gone through the record. A perusal of the MOA and other activities of the assessee will discern that the assessee is in a business of development and construction. It has made investment in four firms, which are realty firms. It has explored a business venture under the Ahmedabad Township Project. To our mind, it is in the line of the assessee's existing business, which cannot be treated as a separate individual and new business for which expenditure has been incurred, which deserves to be capitalized. The ld....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the loans obtained from Infina Finance P. Ltd. and M/s.J.M. Financial Products. According to the assessee, these funds were further advanced to M/s.Pratham Dosti Realty and interest expenditure incurred by it has been taken care of by the interest income earned by the assessee from M/s.Pratham Dosti Reality. The ld.CIT(A) on appreciation of the facts and circumstances, however, did not concur with the assessee. According to the ld.CIT(A), the loans taken by the assessee were not exclusively given to M/s.Pratham Dosti Realty, rather a capital contribution was made by the assessee in all the firms, where it is a partner. Thus, according to the ld.CIT(A) share of profit ought to be received by the assessee from the rest of three firms will be exempt from tax, and disallowance of interest expenditure attributable to earning of tax free income was required to be made. The ld.CIT(A) in this way disallowed interest expenditure claimed by the assessee, and simultaneously taxed the alleged interest income on the ground that this interest income was for making an investment in the partnership firm, which deserves to be assessed as business income. A small amount of interest income, accordin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plied to the assessee for making the disallowance. It is also pointed out by the ld.counsel for the assessee that interest has not been accounted for by the assessee in its books of accounts, rather, it is booked in the books of M/s.Pratham Dosti Realty. 16. On the other hand, the ld.DR relied upon the order of the ld.CIT(A). He specially took us through para-5.5 wherein the ld.CIT(A) has discussed the issue under 9 heads. According to him, the ld.CIT(A) highlighted the facts that the assessee failed to demonstrate exclusive user of this amount for the purpose of financing the affairs of M/s.Pratham Dosti Realty. 17. We have duly considered rival contentions and gone through the record carefully. In order to appreciate the contention of the assessee, we deem it pertinent to take note of the relevant amendment made to the partnership deed of M/s.Pratham Dosti Realty, which authorized the partners to receive interest on loans provided to the firm. The relevant part of this amendment reads as under: "WHEREAS the parties of the First Part to Fifth Part have been carrying on the business in partnership under the name and style of M/S. PRATHAM DOSTI REALTY vide deed of partnership en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovided in the Deed of Partnership dated 1st April, 2010. 18. The amendment to the partnership deed has been given effect from 1.4.2010. While considering this aspect, the ld.CIT(A) in subpara II and III of para-5.5 has observed that while availing the loan from M/s.J.M. Financial Products and Infina Finance P. Ltd., the assessee nowhere provided in the agreement that these loans will be used by M/s.Pratham Dosti Realty. To our mind that cannot be relevant factors to decide the issue whether the interest expenditure allowable in the hands of the assessee or not. The loaners, M/s.J.M. Financial Products and Infina Finance P. Ltd. are not concerned whether the funds are being used by the assessee or they are being further forwarded to someone else for user. It has not been brought to our notice that they have put any condition about particular user of the loan given to the assessee. The ld.CIT(A) failed to take cognizance of the amendment made to the partnership deed. Non-consideration of this amendment had led the ld.CIT(A) to observe that the assessee had made capital contribution to other firm also, where the assessee is a partner. It is pertinent to mention here that the case of....