TaxTMI 
TaxTMI 
2025 (6) TMI 1624
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.... was laid out wholly and exclusively for the purpose of its business and the Hon'ble Commissioner of Income-tax (Appeals) has erred in law and facts in confirming the aforesaid addition. 2. Without prejudice to the above, the learned A.O. has erred in law and facts in disallowing the interest expenses of Rs. 1,53,55,135/- and the Hon'ble Commissioner of Income-tax (Appeals) has erred in law and facts in confirming the aforesaid addition by ignoring the fact that if the expenses prior to acquisition of Land are treated to be part of Work in Progress (WIP), then the temporary income earned from investment in Mutual Funds should also be reduced from the WIP. 3. Without prejudice to the above, the learned A.O. has erred in law and facts in disallowing the interest expenses of Rs. 1,53,55,135/- and the Hon'ble Commissioner of Income-tax (Appeals) has erred in law and facts in confirming the aforesaid addition in not considering the said interest expense as part of investment cost to be set off against income from capital gains as earned from the temporary investments in mutual funds." 3. The relevant facts in brief are that the Assessee, a private limited company en....
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.... In response, the Assessee stated that the Assessee had raised INR.750 Crores for the Project by way of issuance of debentures. Funds were raised for the purpose of business of the Assesses. However, since the same were not required for 7 days, the same were invested in mutual funds and fixed deposits. The Assessing Officer observed that the Assessee had declared income from sale of units of mutual funds as Short Term Capital Gains. The Assessee-Company was involved in the business of developing of property and not in the business of investments/trading in shares. Therefore, the Assessing Officer concluded that the interest paid on funds utilized for the purpose of investment cannot be attributed to the business of the Assessee and hence, deduction for the same as business expenditure cannot be allowed under Section 36(1)(iii) of the Act. The Assessing Officer further observed that there was no provision in the Act for allowing deduction of interest expenses while computing capital gains. However, the Assessing Officer allowed as deduction under Section 57 of the Act in respect of interest expenses debited to the Profit & Loss Account to the extent of interest income of INR.2,51,02....
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....ll the 3 ingredients i.e. (1) interest must have been paid, (ii) the capital must have been borrowed, (iii) such interest expenses were incurred for the purpose of business. 8.5. The Assessee has also relied on various case laws to justify its claim of deduction under Section 36(1)(iii) of the Act. 8.6. The dividend income was tax free and Short Term Capital Gain was taxable at the concessional rate depending on its nature as per the prevailing laws of that time. It is not in doubt that the Assessee has deployed its funds in fixed deposits and mutual funds. It is crystal clear that the funds were used to generate tax free income and Short Term Capital Gain. As regards fixed deposits, the Assessing Officer has given the corresponding deduction. As regards mutual funds, according to the Assessing Officer the Assessee is in receipt of dividend income of INR.4,54,581/- and profit on sale of investments of INR.1,52,76,877/-. 8.7. It is well known that the Section 14A was introduced by the Finance Act, 2001. The case law of Commissioner of Income Tax, Mumbai vs. Lokhandwala Constructions Ltd., (2003) 180 CTR Bom 136, referred by the appellant pertains to Assess....
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.... the assessee for the period commencing from the date of acquisition of shares till the date of sale would not form part of the cost of acquisition". 2. [2015] 61 taxmann.com 297 (Mumbai - Trib), Natural Gas Company (P) Ltd vs Deputy Commissioner of Income Tax "The two, i.e., the interest cost and cost of the asset, are in any case independent of each other. So, however, it shall not be wrong to describe the interest cost as a period cost, chargeable against the income of the enterprise for the relevant period, against its income from the assets, including the asset under reference, deployed for its activity Coming back to the acquisition, the said process or event is complete on the transfer of the relevant capital asset to the assessee. The interest cost for the post-acquisition period, as would be apparent from the foregoing, does not in any manner contribute toward the same, which process stands completed on the transfer........ The cost of an investment is, again, as per the relevant accounting standard (AS-13), to include all the acquisition costs, including brokerage, fees and duties...... The interest cost, which is a time cost, and thus has only nexus with the tim....
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.... strangers and it is the job of the courts to interpret the provisions only in the event of ambiguity or conflict and not where the provisions of the Ach are unequivocal. The ratio laid down by the Hon'ble Supreme Court in the case of N H Lakshmibhai vs CWT. 206 ITR 688 is relevant, wherein it was held that, it is settled law that a taxation statute in particular has to be strictly construed and that there is no equity in a taxing provision It is because of this that the strict interpretation of the proviso would cause hardship to small depositors as against the richer ones, even if true, has no relevant. 8.12. In view of the above judicial precedents laid down by Hon'ble HC and Tribunal and clear-cut provisions of law at my humble view the question of allowing interest expense against capital gain does not arise. 8.13. In view of the above discussion, I am of the view that the interest amount of INR.1,53,55,135/- cannot be allowed as a deduction either under Section 36(1)(iii) of the Act or against the Short Term Capital Gain of INR.1,52,76,877/- and tax-free dividend Income of INR.4,54,581/-offered by the appellant Accordingly, this ground of appeal is D....
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....CIT in ITA No.4737/Del/2017, dated 01/12/2017 - Decision of the Hon'ble Delhi High Court in the case of Sita Nanda Vs. CIT [251 ITR 575] 12. Per contra, the Learned Departmental Representative relied upon the decision of the CIT(A) and the Assessment Order. It was submitted that since the funds were deployed for making investment in mutual funds and shares deduction as claimed by the Assessee in respect of interest expenses under Section 36(1)(iii) of the Act could not be allowed. More so, when the funds were utilized for making investment in mutual funds and fixed deposits which was admittedly not the business of the Assessee. The Learned Departmental Representative also made reference to Paragraph 8.7 of the order passed by the CIT(A) to contend that interest amount on borrowed funds used for investment in mutual funds yielding exempt dividend income and Short Term Capital Gain cannot be allowed as business expenditure. It was pointed out that the CIT(A) had also rejected the alternative plea raised by the Learned Authorized Representative for the Assessee observing that interest expenses/finance charges cannot be treated as part of cost of acquisition of the asset. T....
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....hould have been offered to tax by the Assessee as business income. However, we note that the Assessee had offered the income from purchase/sale of mutual funds as Short Term Capital Gains taxable under the head 'Capital Gains', claimed dividend income as exempt income and offered interest income as 'Income from Other Sources'. This was not objected to by the Assessing Officer during the assessment proceedings and the Assessing Officer accepted the income as characterized and offered to tax by the Assessee. The Assessing Officer only disallowed interest expenses under Section 36(1)(iii) of the Act. During the course of hearing, it was pointed out by the Learned Authorised Representative for the Assessee that since the Short Term Capital Gains were set off against the Business Loss (arising on account of the interest expenses debited to Profit & Loss Account), and therefore, the benefit of lower rate of tax was not claimed by the Assessee in respect of the Short Term Capital Gains. Computation of Income furnished by the Assessee supports the aforesaid submissions advanced on behalf of the Assessee. Therefore, even if the income from purchase/sale of investments was characterized as b....