TaxTMI 
TaxTMI 
2017 (12) TMI 1120
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....acts in upholding disallowances made of Finance Cost incurred during the year under the consideration u/s 36(1)(iii) of the IT Act, 1961 to the tune of Rs. 1,37,08,749/-. 2. The Learned CIT (A) has erred in law & on facts in upholding imposition/re- computation of interest under section 234B of the Act in the order of-Income Tax passed by the Assessing Officer u/s. 143 (3) of the Income Tax Act, 1961 which is bad in law." . 3. The brief facts of the case are that assessee has claimed to be in the business of Advertising Agency. During course of assessment proceedings u/s 143(3) r.w.s. 143(2), it was observed by the A.O that assessee has debited/incurred finance cost amounting to Rs. 1,37,08,749/- as interest on Bank Overdraft . The assessee was asked by the AO to explain why such finance cost should be allowed as business expenses, if there is no business carried on by the assessee during the assessment year . The assessee submitted as under:- " During A.Y. 2010-11 the Assessee Company has entered in to Memorandum of Understanding (MOU) with M/s. Sapphire Land Development Pvt. Ltd. for purchase of Land viz. Manvelpada situated at Vasai (West), Mumbai for a cons....
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....ied upon decision of Hon'ble Supreme Court in the case of Madhav Prasad Jatia v. CIT 118 ITR 200(SC), S A Builders Limited v. CIT 288 ITR 1(SC) and decision of Hon'ble Delhi High Court in the case of Punjab Stainless Steel Industries v. CIT 324 ITR 396(Del. HC) to contend that interest paid by the assessee on overdraft be allowed u/s 36(1)(iii) as the overdraft from bank was used for business purposes and hence should be allowed as business expenses. The learned CIT-A rejected the contentions of the assessee by holding as under, vide appellate order dated 31-01-2017 passed by learned CIT(A):- "5.3.1 I have considered the submissions of the appellant and perused the materials available on record. The point for adjudication is whether the A.O was justified in disallowing the finance cost of Rs. 1,37,08,749/- on the ground that there was no business activity during the relevant period. In this connection, the appellant has rightly drawn attention to the meaning of the phrase "for the purpose of business" occurring in section 36(l)(iii) of the Act. It is well-established that where the assessee makes a claim for deduction in terms of section 36(1)(iii), he has to place materia....
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....o fault can be found with the action of the A.O. is disallowing the appellant's claim of deduction of aforesaid finance cost of Rs.l,37,08,749/- u/s. 28(i) of the, Act. 5.3.3 Secondly; it deserves to be noted that the appellant company was incorporated to carry on the business of advertising agency and had nothing to do with the business of land dealings. It is observed from the record that the appellant was having investments in quoted and unquoted shares of HDIL and its group companies only and that it had not made any investment in acquiring land in the preceding A.Y.2011-12 (except the transaction in question). Likewise, the appellant was having neither any opening stock nor any closing stock of land. during F.Y.2011-12 relevant to the A.Y. under consideration. Although the appellant has not placed on record copy of its Memorandum of Association, it can safely be assumed that the activity of purchase and sale of lands is not among the main objects for which the appellant company was set up. Therefore, it can by no stretch of imagination be said that the aforesaid bank overdraft for alleged purchase of land from SLDPL had been obtained and the corresponding finance ....
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....y to SLDPL on 10.04.2010 and received it back from Emerald Realtors Pvt. Ltd. on 18.07.2011. In this regard, the appellant has not placed any material on record any cogent materials to show what its sister concern, SLDPL did with the money advanced and how it served to advance the business interest of the appellant. The burden of proof u/s.36(l)(iii) on the appellant cannot be said to have been discharged merely by citing some case laws or elaborating the meaning of the words "commercial expediency". 5.3.6 In view of the above discussion, there is no hesitation in holding that the appellant had failed to discharge the onus of proving that that the borrowed funds on which interest is claimed as deduction had been utilized for the purpose of business and. that the aforesaid interest expenditure of Rs.l,37,08,749/- had been incurred out of commercial expediency. The' disallowance of interest of Rs. 1,37,08,749/- made by the A.O is accordingly upheld even u/s. 36(1)(iii) of the Act. Ground no. 2 of the present appeal is hence dismissed." 5. Aggrieved by the appellate order dated 31-01-2017 passed by learned CIT(A), the assessee has come in an appeal before the tribunal.....
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....tion thereof. It was submitted that the assessee advanced money to Sapphire Land Development Private Limited on 10-04-2010 for purchase of land while the refund of money was made by Emarald Realtor Private Limited on 18-07-2011. It was submitted that all the three parties mainly assessee, M/s. Sapphire Land Development Pvt. Ltd. and Emerald Realtors Pvt. Ltd are associated/sister concern . Thus it is claimed that the business of real estate is within the object clause of the assessee which was incidental or ancillary to the attainment of the main objects of the assessee . The learned counsel for the assessee also relied upon the decision of Hon'ble Karnataka High Court in the case of CIT v. Sridev Enterprises (1991) 59 Taxman 439 (Kar HC). It was also submitted that the loans were obtained in earlier years and no disallowance were made in earlier years as the interest was allowed in earlier years and hence the same was to be allowed in this year also keeping in view principles of consistency . It was submitted that this is the first year when the interest on said loans were disallowed. On being asked by the Bench, the Ld. Counsel for the assessee submitted that in the earlier years....
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....ng from time to time such sums of money as may be necessary or expedient for the purpose of improving, adding to, altering, repairing and maintaining the buildings, machineries and properties for the time being of the Company. **** ****" We are afraid that clause B(5) as reproduced above is merely an incidental or ancillary objects to the achievements of the main objects while the main objects as per MOA of the assessee is to pursue advertising agency business and consultancy business related thereto . No Resolution passed by Board of Directors/shareholders is placed on record to substantiate that the assessee has adopted to carry out business of real estate as are contained in other objects clause. On perusal of the audited financial statements of the assessee which are placed in paper book filed with the tribunal, it is observed that there has been no revenue from activities of advertising agency or real estate business during the previous year relevant to the impugned assessment year. The only revenue earned by the assessee is from dividend income to the tune of Rs. 4.50 lacs. The other expenses apart from finance costs also reveal that there is no business ....
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....e refund has been received from Emerald Realtors Pvt. Ltd while there is no such reasons furnished by the assessee as to why Emarald Realtors Private Limited refunded the money on alleged cancellation of MOU, while it is admitted position that all the three companies mainly assessee, M/s. Sapphire Land Development Pvt. Ltd and Emerald Realtors Pvt. Ltd are associated/sister concerns . It becomes all the more important for the assessee to have brought on record cogent evidences to substantiate its contention as all the three parties are related parties/sister concerns. No such evidences are brought on record to prove the genuineness of the transaction for entering into an MOU for purchase of land as well to prove genuineness of the transaction for cancellation of MOU. It is also pertinent to mention there is no income earned by the assessee as per audited financial statements from advertising business as well from real estate business apart from dividend income of Rs. 4.50 lacs . It is also not on record backed with evidences as to what was the purpose of acquiring said land for which the assessee paid substantial advances of more than Rs. 26 crores out of the total stated considera....