TaxTMI 
TaxTMI 
2018 (9) TMI 1618
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....asset was aborted"? 4. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal." 3. The assessee is a Company. It is engaged mainly in the business of purchase of lands and to construct, sell flats, apartments, dwelling-houses, shops, etc. The assessee in the course of its business participated in the bids invited for sale of properties by (i) the official liquidator of New Government Electric Factory Ltd. (NGEF) and (ii) Hyderabad Urban Development Authority (HUDA) during financial year 2005-06 and 2006-07 respectively. The assessee accordingly had made earnest money deposit (EMD) of Rs. 186 crores and Rs. 107.60 crores with NGEF and HUDA respectively. In order to arrange the finance for making the deposits, the Assessee signed Memorandum of understanding (MOU) with various persons whereunder it received share application money from such persons. In addition, the assessee also accepted Inter Corporate Deposits (ICDs) for financing the payment of EMD. 4. During the year under consideration, the assessee paid interest of Rs. 16,68,11,932 in respect of share application monies received. The said interest expenditur....
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....659 10,94,03,980 9. Before the CIT(Appeals), the assessee pointed out that during 2005- 06, in response to the public notice inviting sealed tenders by the official liquidator of New Government Electric Factory Limited (NGEF), a Government of Karnataka undertaking, under liquidation before the Hon'ble High Court of Karnataka for sale of its movable and immovable assets, the assessee submitted its tender and accordingly remitted the Earnest Money Deposit (EMD) of Rs. 186 crores. On completion of the tendering process, the official liquidator reported to the Hon'ble High Court of Karnataka of the assessee's tender being the highest bid. Subsequently, pursuant to an application filed by the Government of Karnataka seeking to revive and pleading not to proceed with the sale of NGEF assets, the Hon'ble High Court of Karnataka vide its order dated 22nd December 2005 terminated the sale proceedings and ordered refund of EMD along with interest upto 31st December 2005 to the bidders. The assessee being aggrieved by the said order refused to accept refund of the EMD and preferred an appeal before the division bench of the Hon'ble High Court on 30th December 2005. Based on th....
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....on 36(1)(iii) was not at all applicable. The Assessee therefore submitted that the disallowance made by the AO should be deleted. 13. In respect of EMD and installments paid to HUDA, the submissions of the assessee was that during the year 2006-07, in response to the public notice inviting sealed tenders by the Hyderabad Urban Development Authority (HUDA) for sale of lands at Kokapet village, the assessee submitted its tender for 3 plots under auction and remitted the Earnest Money Deposit (EMD) of Rs. 6.00 crores on July 20 2006. On completion of the tendering process, the HUDA informed that the assessee has been awarded the bid. Accordingly the assessee paid first and second installments duly aggregating to Rs. 101.60 crores towards the said lands. Meanwhile, a writ petition was filed before the Hon'ble High Court of Andhra Pradesh in which the petitioner in the writ petition claimed title to the said lands as against HUDA and also made the assessee a party to the litigation pending between the HUDA and the petitioner. While the matter was pending with High Court, the assessee vide its letter dated November 27, 2006 to HUDA, informed its decision to terminate the land purch....
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....he same period. The fact that there were no business receipts during the previous year cannot be a ground for disallowing expenditure incurred in carrying on business. The CIT(Appeals) thus directed the AO to allow claim of assessee for deduction on account of interest expenses. 17. Aggrieved by the order of CIT(Appeals), the revenue has preferred the present appeal before the Tribunal. The ld. DR reiterated the stand of the AO as contained in the order of assessment. According to him, the proviso to section 36(1)(iii) of the Act is applicable in the present case and therefore the interest expenses ought to have been capitalized in the books of account. The ld. counsel for the assessee, on the other hand, relied on the order of CIT(Appeals) and further submitted that proviso to section 36(1)(iii) of the Act is not applicable and that the interest expenses in the present case is admittedly incurred for the purpose of business of the assessee and irrespective of the fact whether the borrowing is for capital or revenue purposes, deduction has to be allowed. The ld. counsel for the assessee in this regard relies on the decision of the Hon'ble Supreme Court in the case of DCIT v. ....
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....sions which states that "it is, therefore, proposed to provide that no deduction will be allowed in respect of interest paid, in respect of capital borrowed for acquisition of new asset for extension of existing business or profession (whether capitalised in the books of account or not) for the period beginning from the date on which the capital was borrowed for the acquisition of the asset till the date on which such asset was first put to use." The logic behind provision is only to ensure that wherever interest is capitalised for books of accounts, it remains capitalised for the purpose of income-tax. This interest cannot be claimed as a deduction under Section 36(1)(iii) of the Act. 19. The first condition for applicability of the proviso is that there should be acquisition of an asset. The second condition is that such acquisition should be for extension of existing business. In the present case both the conditions are not satisfied. There was no acquisition of any asset by the Assessee from NGEF or HUDA and both the transactions did not ultimately fructify. The Assessee had to abandon its idea of carrying out development on these properties. The Assessee w....