2023 (7) TMI 735

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....Tax Act, 1961 (hereinafter referred as to 'the Act') for Assessment Year 2010-11 with the following grounds: "1 The Ld. CIT(appeals) has erred in law and on facts in upholding the disallowance out of consultancy charges of Rs.20,76,342/- as capital expenditure relatable to capital work in progress and not allowable u/s.37(1)of the Act. 2 He has erred in law and on facts in upholding the disallowance of interest of Rs.44,89,423/- as pertaining to capital work in progress without properly appreciating the facts of the appellant. 3 He has erred in law and on facts in upholding disallowance of Rs.2,14,419/- out of travelling expenses." 2. At the time of hearing of the instant appeal, none appeared on behalf of the ....

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....ancy/interest expenditure proportionately and request you not to make any addition on this ground." 5. As the part of consultancy charges has been paid in connection with term loan for purchase of fixed assets, according to the Ld. AO, such expenditure needs to be capitalized. As per the working of disallowance made by the assessee of Rs.20,76,342/- was, therefore, disallowed and added back to the total income of the assessee holding it capital in nature, which was, in turn, confirmed by the First Appellate Authority with the following observation: "(d).2 The appellant reiterated the explanation and contended that AO has not appreciated the facts, explanation and evidences properly. The payments made for consultancy expenses are....

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....igh Court in the case of CIT vs. Hindustan Conductors (P)Ltd. (2000) 108 Taxman 258 held that - Any and every payment in the garb of interest in excess of what can really be termed as 'interest' cannot be allowed as deduction under the section 36(l)(iii) of the Act." These charges / payments are not finance charges and appellant had already taken into account the processing charges for both Bank of India as well as State Bank of India in the capital work in progress. It is therefore, the allowability of these consultancy charges has to be examined only u/s.37(1) of the Act. (d).5 I am not inclined with the AO that without assigning any sustainable reason he treated these expenditure as capital because a part of this expendi....

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....spect of 'capital work in progress' and not for existing business or continuing the  business hence such part is excludable as capital expenditure and not allowable  u/s.37(1) of the Act. That part of expenditure is not for commercial expediency for facilitating the carrying on the business. It is therefore, such part expenses out of consultancy charges are though not capital expenditure but the same are related to /incidental to acquisition of plant/machinery for 'capital work in progress' and therefore not allowable u/s.37(1) of the Act. Now in reference to quantum of disallowances, on being asked, the appellant himself submitted the working of disallowances of Rs. 20,76,342/- (No such details were filed before m....

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.... us. The Ld. AO disallowed the interest of Rs.63,37,826/- on the ground that the same is relatable to 'capital work in progress'. The appellant, on the other hand, requested for direction for capitalization and allowability and depreciation thereon. It was further pointed out by the assessee that there is no direct nexus between funds utilized for the capital work in progress and availability of sufficient interest free funds, however, the same were not found to be acceptable in the absence of funds flow submitted by the assessee. 8. During the course of appellate proceeding, the assessee submitted as follows: (e).3 The appellant during appeal contended that A.O. has not appreciated the explanation and evidences submitted in thi....

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....ng, the purpose of travelling was not submitted by the appellant, the details of such travels or the tour since not submitted, the foreign travel expenses of Rs.6,74,542/- was disallowed by the Ld. AO. 12. Before the First Appellate Authority, the details thereof was duly submitted, particularly, bills for ticket booking, forex purchases etc. Upon verification of the same, the Ld. CIT(A) restricted such disallowance to the amount of Rs.2,14,419/- with the following observations: "The appellant submitted details in the form of bills for ticket booking, forex purchase etc.  From the verification of such bill / vouchers, it has been gathered that (i) Shri Bhawan Bharwad and Shri Himanshu Varia travelled through Thai A....