TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1708
X X X X Extracts X X X X
X X X X Extracts X X X X
....al filed by the assessee read as under: 1. The Ld.CIT(A) has erred in confirming the addition / disallowance made by the Dy. Commissioner of Income Tax (15)(2)(2) of interest on loans taken from director wholly and exclusively for the purpose of business activities amounting to Rs. 52,88,800/- . 2. Your appellant company was incorporated on 7.5.2010 for the purpose of carrying on real estate activities as per its main objects in the Memorandum of Association and it has effected purchase of land in the first year of operations for an amount of Rs. 4,94,38,159/- which was financed out of unsecured loan obtained from the directors amounting to Rs. 5,35,20,000/- outstanding as at 31.03.2011. The interest was paid on the above loan @ 10% and sin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. In the case of land, acquired for real estate activities there is no definite plan for development or construction and the same is carried forward for resale purposes also. Hence, borrowing cost incurred for acquisition of such land does not qualify for capitalization as per AS 16 also and has been correctly written off as revenue expenses. 3. Briefly stated, the facts are that the assessee filed its return of income declaring loss of Rs. 51,86,548/-. The activities of the assessee are agriculture, seri-culture, horticulture and aqua-culture. During the course of assessment proceedings, the Assessing Officer (AO)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3.2011 for an amount of Rs. 4,94,38,159/-, which was financed out of unsecured loan obtained from the directors amounting to Rs. 5,35,20,000/- outstanding as at 31.03.2011. It is stated that the interest was paid on the above loan @ 10% and since the borrowings have been effected wholly and exclusively for the purpose of business activities of the company, it has rightly claimed deduction as an expenditure u/s 36(1)(iii) of the Act. The Ld. counsel submits that the confirmation of loan from the directors was filed before the AO in response to the written query dated 29.09.2014 issued by the AO u/s 142(1) of the Act. It is thus stated that the disallowance of Rs. 52,88,800/- made by the AO be deleted. On the other hand, the Ld. DR supports ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....That had commenced on the acquisition of the land or the flat. It was not necessary to show that it was intended for sale or otherwise. The fact remained that by 1994, the house constructed on the land and the flat were sold and shown in the return for the relevant year. That was shown as profit from business. It was not necessary to prove how it was dealt with at the stage of assessment. In CIT v. Associated Fibre & Rubber Industries (P.) Ltd. [1999] 236 ITR 471/102 Taxman 700 (SC), it was held that where the machinery acquired through borrowed capital had not been actually used in the business at the time when the assessment was made, even then the same were to be treated as business assets having been purchased for the purpose of the bus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it is held that section 36(1)(iii) is attracted when the assessee borrows the capital for the purpose of his business and it does not matter whether the capital is borrowed in order to acquire a revenue asset or a capital asset, because all that the section requires is that the assessee must borrow the capital for the purpose of the business. It is further clarified therein that this dichotomy between the borrowing of the loan and actual application thereof in the purchase of a capital asset, seems to proceed on the basis that a mere transaction of borrowing does not, by itself, bring any new asset of an enduring nature into existence, and that it is the transaction of investment of the borrowed capital for the purchase of a new asset which....