TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 1111
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....assessee's investment: revenue or capital? Procedural History: 3. The appellant-assessee filed its return of income for the assessment year 2006-07. The Revenue reopened the assessment and determined a higher income. Aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), Kochi, ("CIT(A)"); it ended in dismissal, through an order, dated 23.10.2013. Further aggrieved, the assessee filed the second appeal, ITA No. 805/Coch/2013, before the Income Tax Appellate Tribunal, Cochin Bench ("the Tribunal"). It too failed. The Tribunal, through its order dated 18.07.2014, dismissed the appeal. So, the assessee came before this Court. Facts: 4. The assessee advances loans against the gold ornaments pledged with it. On 16.11.2006 it filed its return of income for the assessment year 2006-07, declaring a total income of Rs. 34,07,48,202/-, eventually declared to be Rs. 34,52,67,560/- under section 143(3) of the Income Tax Act, 1961 ("the Act"). 5. Through a notice, dt.16.03.2011, under section 148 of the Act, the Revenue reopened the assessment. Finally, it completed the assessment; the Assessment Officer ("AO") determined the total income at Rs. 35,74,65,1....
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....y and free assess to land, the up-keep of the vacant area around, and so forth-was carried out by Shubh Realty. And the assessee paid it separately as was evident from the six debit notes, dated 16.02.2006 and 28.02.2006. 13. On the assessee's investment in the new-line of business, the learned counsel has contended that the AO, the lower appellate authority, and the Tribunal have discarded the audited statements of accounts. They in fact establish that the assessee had sufficient funds of its own to invest in the new business. So the disallowance of Rs. 83,21,600, out of the interest expenditure claimed, asserts the learned counsel, was grossly unjustified. 14. In the end, Sri Mohan submitted that the Tribunal ought to have appreciated that the proviso to Sec. 36 (1)(iii) "disallows deduction of interest only for the period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use." 15. On facts, Sri Mohan contends that the assessee duly acquired the licence and, on its strength, it commenced work for setting up the FM Radio station. So it cannot be said that the asset was not "put to use....
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.... starting this business. So he disallowed Rs. 83,21,600, which is 10% of the expenditure on the new-line of business. 22. To sum up, the AO disallowed Rs. 38,76,000 and Rs. 83,21,600--the depreciation claimed on the wind mills and interest on investment in the assessee's new line of business, respectively. 23. As seen from the record, the AO has concluded that the depreciation of Rs. 38.76 lac claimed on Wind Mills had actually been incurred for developing the land-not the windmill infrastructure. While affirming the AO's decision, the CIT (A) and the Tribunal held that the debit notes produced by the assessee itself revealed that the amounts were paid "towards IDC representing infrastructure development charges." Guided by the expression "registration charges" in those debit notes, both the forums concluded that the entire cost had been incurred for developing the land because "registration" only concerns land. 25. Factual as it may seem, let us consider how sound the Tribunal's conclusion is. 26. Annexure D has three debit notes; they were raised by Shubh Realty on the assessee. They identically read thus: "Being amount paid to the TNEB on your behalf towards IDC-NOC, ....
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....e must say, does not refer to TNEB's evacuating the land. In the letter, the assessee merely asks Shubh Reality to arrange "for the land (a prox. 2 acres per WTG)". The assessee also requires Shubh Reality to "pay Infrastructure Development Charges (IDC) @ Rs. 32.30 lakh per WTG" to TNEB. Therefore, the Tribunal's concluding that the expenditure was "more in the nature of administrative charges paid for getting permission for use of land/evacuation of land for unhindered space and hence the payment of NOC and registration" cannot be sustained. 31. To install the wind turbine generators, the assessee must have excavated some earth on the land it purchased. Such excavation, to our mind, does not amount to improving the land; rather, it amounts to a preparatory step for erecting the wind turbines. Therefore, the land evacuation, if any, must be taken as part of infrastructure development for establishing the windmills. 32. CIT (A) has observed that the assessee has separately paid to one Suzion Infrastructure Ltd for the infrastructure development and commissioning of the Wind Turbines: Wind Mill foundation, electrical yards, erection, installing, testing, and commissioning Transmis....
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....hich such asset was first put to use, shall not be allowed as deduction. 38. Section 28 concerns profits and gains of business or profession. Under section 36 (1) of the Act, if assessee pays interest on the capital borrowed for the business or profession, it can deduct the interest. But the proviso carves out an exception: the assessee may borrow capital to acquire an 'asset'- distinguished from 'business or profession'. Then, till the asset is used, the assessee cannot claim the deduction. 39. Indeed, the assessee asserted that it had its own net fund of Rs. 63.73 crores as on 31.3.2005; it submitted before the AO a copy of its audited financial statement. 40. Pithily put, the assessee objected to AO's capitalising interest. It contends that its new line of business is only an expansion of its existing business. It has also contended that it has not diverted funds to any third party. And so the investment must be treated as revenue expenditure. 41. As seen from the record, the authorities have concurrently held that the assessee has forayed into an entirely new business, and so whatever investment it has made must amount to capital investment. Eventually, the authoriti....