TaxTMI 
TaxTMI 
2018 (3) TMI 953
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....er. 2. The sole ground of appeal of revenue is against the order of Ld. CIT(A) in allowing the interest amounting to Rs. 1,77,54,031/- as revenue expenditure related to the business purpose without considering the calculation made by the AO to determine the interest not related to business purpose. Brief facts of the issue are that the AO disallowed the interest payment on unsecured loan on the ground that the assessee diverted Rs. 36.76 cr. for non business purposes out of the borrowed funds. According to AO, the said investment of Rs. 36.76 cr has had no relation with the assessee's business. The AO noted that out of the total borrowed fund of Rs. 97.68 cr., the unsecured loan amounting to Rs. 83,93 cr was interest bearing and the bala....
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....s. 25.90 cr. including the interest free loans in the form of optionally convertible debenture. Meaning thereby that, in any case, the disallowance of interest made by the AO should be reduced proportionately to the extent of availability of own funds. The AO, however, noted that an amount of Rs. 5,51,88,177/- was shown as payment of interest towards unsecured loans taken from different parties and out of the said amount, Rs. 1,46,54,769/- was shown in project expenses and was capitalized under the head "work in progress". And the balance of Rs. 4,05,33,408/- was debited in the P&L Account. The AO after perusal of the Tax Audit Report observed that the assessee is in the business of "Real Estate Development" and no income from the said busi....
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....s so as to warrant disallowance of interest u/s. 36(1)(iii) of the Act. This decision of Ld. CIT(A) is challenged before us as erroneous. 4. We have not gone through the Memorandum of Association of the assessee company to know the business conducted by the assessee. However, we note from the documents produced before us that assessee had two segments of income i.e. one from interest i.e. from the lending segment and the other from the real estate segment. From a perusal of the P&L Account at page 19 of the paper book, we note that assessee has shown inventory of closing work in progress of Rs. 1,98,07,566/- cr. in the income side. However, the AO noted that there is no income from the real estate segment. We note that the assessee had c....
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....epted the fact that no revenue has been recognized in its P&L Account with regard to construction work in progress. Thus, the Ld. CIT(A) erred in finding that assessee had offered income from construction activity. 5. So from the discussion above, the finding of fact by the AO that the assessee had only utilized Rs. 47 cr. for business purpose and has not utilized Rs. 36 cr. for business (nonbusiness purpose) has not been found to be factually wrong by the Ld. CIT(A). The Ld. CIT(A) has simply found fault with the AO after perusal of the P&L Account and was of the opinion that the AO was wrong in stating that no income was offered by the assessee in the P&L Account and thereby he allowed the interest on loan, which action of the Ld. CIT(....
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.... finding as to whether the assessee had utilized the said amount of Rs. 36.76 cr. for business purpose as contended by the assessee. Hence, under these facts and circumstances it is necessary to determine the actual fact whether lending of monies and the investments in subsidiaries, associate companies, partnership firm as tabulated in page 6 of the assessment order and page 9 of CIT(A)'s order are part and parcel of business activity of the assessee. This factual finding would be necessary to determine the fact of utilisation of borrowed funds for the business purposes which will in turn be essential to determine the allowability of interest u/s. 36(1)(iii) of the Act. Hence, in the fitness of things we deem it appropriate to remand this i....