TaxTMI 
TaxTMI 
2018 (1) TMI 235
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred in confirming the said disallowance. Ground No. 2 The Assessing Officer on the facts and in the circumstances of the case and in law, has er red in arbitrar i ly disal lowing the deduct ion on interest expendi ture of Rs. 151,370 being an amount beyond 12% Interest rate by stating in i ts remand repor t that interest should be restricted to 12% being market rate. The Assessing Officer has not provided any basis of the market rate of interest of 12%. The Learned CIT (A) - I I has fur ther erred in confirming the said disallowance. Ground No. 3 Your appellant craves leaves to add, alter, amend or withdraw any of the ground/s, if necessary." 2. Apropos ground No.1, it was contended that the assessee is a company engaged in the real estate development activities in Bengaluru. Assessee has filed the return of income declaring loss of Rs. 68,88,407/-. The return of income was selected for scrutiny and during the assessment proceedings, the AO disallowed the loss claimed by the assessee on the ground that the company had not been set up and therefore the expenditure incurred was required to be capitalized. The AO has also treated the interest income of Rs. 15,08,040/- a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and to confirm whether such expenses have been actually incurred during the year under consideration under the specific heads, as claimed by the appellant. The AO was also directed to call for the Books of Accounts and other relevant records to verify whether the expenses have been actually incurred for the specific purpose as claimed in the financial statements. 7.1 In response, the AO furnished his repor t dated 06/01/2017. The AO examined the expenses incurred under various heads such as Employee benefit expenses, Finance cost and other expenses. However, the AO was of the view that the assesse company has not yet started any business activity during the 'ear under consideration and therefore the expenses incurred, specifically the Other expenses' are required to be capitalised as part of the project cost. The copy of the Remand Report was forwarded to the appellant for furnishing its counter comments on the observations made by the AO. The appellant has furnished their submissions in this regard vide letter dated 27/02/2017. Taking into consideration the material facts of the case and considering the explanation if the appellant and the observations made by the AO, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee had advanced money to various land owners for the purpose of acquiring and dealing in landed properties is not in dispute. Therefore, as rightly contended by the learned counsel for assessee, the moment company is incorporated and the amounts have been advanced for the purpose of acquiring and dealing in landed property, the business of the assessee should have been treated as commenced. Interest earned there cannot be treated as pre-operative. The case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT 227 ITR 172 (SC) ........ As rightly contended by the learned counsel for assessee, the decisions relied on by the authorities below are factually distinguishable. In the case of the assessee neither setting up factory or erection of machinery is required. The moment the assessee-company incorporated and the amounts advanced, it will lead to the conclusion that the business of the assessee has been commenced. Therefore, /find much more in the stand taken by the assessee. The income shown by the assessee has to be treated as income from business and necessary benefits or deductions claimed by the assessee have to be allowed in accordance with law. It is ordered accordingly....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The following are the details of expenses claimed to have been incurred by the appellant . Sl. No. Nature of expenditure Amount 1. Employee benefit expenses 16,42,200 2. Finance cost 6,19,720 3. Depreciation and Amortization 5,00,360 4. Other expenses 57,62,420 10.1 From the details of the 'Employee benefit' expenses furnished by the appellant, it is observed that the expenses pr imar ily compr ise of Salary paid to employees and other staff welfare expenses. The appellant has also claimed that out of the total salary expenses of Rs. 23,00,462/- it has capitalized such expenses to the extent of Rs. 10,57,322/- . The amount debited to the P&L account is found to be pr imar ily salary paid to four staff members who are stated to be engaged in the administrative, f inance and market ing related act ivit ies. Therefore consider ing the nature of the expenses, the same is found to be not direct ly related to the project and hence they should be allowed as revenue expenditure. 10.2 The Finance cost of Rs. 6,19,720/- pr imar ily includes Rs. 6,18,150/- towards interest on loan taken and other interest cost of Rs. 1570/- . The expenses claimed a....