2015 (5) TMI 844 - AT - Income Tax

Interest received from Bank deposits to the extent as income from other sources.- CIT(A) deleted the addition - Held that - The income from interest by the assessee since is assessable separately under the head income from other sources , therefore, this income cannot be set off against the expenditure incurred by the assessee prior to set up. We accordingly set aside the order of the ld. CIT(Appeals) - Decided in favour of revenue. Addition of capital expenditure claimed under the head loan syndication charges - CIT(A) deleted the addition - Held that - This expenditure under section 40A(2) (a) has been incurred by the assessee during the year but this expenditure has not been claimed as revenue expenditure as contended by the ld. A.R. This expenditure has been debited by the assessee under the head work-in-progress . The disallowance has been made by the Assessing Officer by applying the provisions of section 40A(2)(a). On perusal of section 40A(2)(a), it is apparent that this section is applicable only for restricting the claim of any expenditure, which is otherwise allowable while computing the income under the head profit and gains of the business or profession . Since the expenditure has not been claimed by the assessee while computing the income under the head income from business , therefore, no disallowance under section 40A(2)(a) can be made. The provisions of sect ion 40A(2)(a) are applicable only if the assessee has claimed deduction of the expenditure while computing the income under the head income from business . We noted that no such expenditure has been claimed, therefore, the disallowance under section 40A(2)(a) cannot be made - Decided against revenue. Disallowance of the interest expenses on account of term loan - CIT(A)deleted the addition - Held that - In this case the assessee has incurred interest amounting to ₹ 86,90,220/- on the term loan from Central Bank of India. The said interest has not been claimed by the assessee as deduction while computing the income under the head income from business . The said interest, in fact, has been capitalized by the assessee under the head work-in-progress , i.e. the expenditure has been capitalized by the assessee. It is not a case where the assessee has claimed deduction under section 36(1)(iii) of the Income Tax Act while computing the income from business. Once the assessee itself has not claimed as revenue expenditure, therefore, in our opinion, no disallowance should have been made. - Decided against revenue. Disallowance of compensation paid for acquisition of land - CIT(A)deleted the addition - Held that - . It is not a case when the land has been compulsory acquired under any law, therefore, in the absence of sect ion 194LA being applicable, no question of any deduction of TDS arises. The provisions of section 194LA are not applicable when the assessee has purchased the immovable property by an agreement or sale deed. We accordingly confirm the order of the ld. CIT(Appeals) in deleting the addition of ₹ 12,60,000/- and dismiss this ground of appeal taken by the Revenue. - Decided against revenue.

Issues Involved:

1. Deletion of addition of interest received on bank deposits as income from other sources.
2. Deletion of addition of capital expenditure claimed under the head loan syndication charges.
3. Deletion of disallowance of interest expenses on account of term loan.
4. Deletion of disallowance of compensation paid for acquisition of land due to non-deduction of tax at source under section 194LA of the I.T. Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Interest Received on Bank Deposits as Income from Other Sources:

The primary issue was whether the interest received from bank deposits amounting to Rs. 62,57,436/- should be treated as income from other sources. The assessee had capitalized this interest as part of capital work-in-progress. The Assessing Officer (AO) treated this interest as income from other sources, relying on the Supreme Court decision in Tutocorin Alkali Chemicals & Fertilizers Ltd. v. CIT, which held that interest income is of revenue nature and taxable under section 56 of the Income Tax Act. The CIT(A) deleted the addition, considering that the assessee had commenced its business activities. However, the Tribunal found that the business had not commenced as the essential activities were not started, and thus, the interest income should be taxed as income from other sources. The Tribunal allowed the Revenue's appeal on this ground.

2. Deletion of Addition of Capital Expenditure Claimed under the Head Loan Syndication Charges:

The AO disallowed the loan syndication charges of Rs. 1,26,27,000/- under section 40A(2)(a) of the Income Tax Act, citing that the directors of the assessee company and the company to whom the charges were paid were the same. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the expenditure was capitalized under work-in-progress and not claimed as revenue expenditure. Consequently, section 40A(2)(a) was not applicable as it pertains to disallowance of expenses claimed under the head "income from business."

3. Deletion of Disallowance of Interest Expenses on Account of Term Loan:

The AO disallowed the interest expenses of Rs. 86,90,220/- on the term loan from Central Bank of India, stating it was not incurred for business purposes. The CIT(A) deleted the disallowance, and the Tribunal confirmed this decision. The Tribunal noted that the interest was capitalized under work-in-progress and not claimed as a deduction under section 36(1)(iii) of the Income Tax Act. Therefore, no disallowance was warranted.

4. Deletion of Disallowance of Compensation Paid for Acquisition of Land:

The AO disallowed the compensation of Rs. 12,60,000/- paid for land acquisition, citing non-deduction of tax at source under section 194LA. The CIT(A) deleted the disallowance, and the Tribunal confirmed this decision. The Tribunal clarified that section 194LA applies to compensation for compulsory acquisition under any law, not to voluntary transactions like the purchase of land by agreement or sale deed. Hence, no TDS was required, and the disallowance was correctly deleted.

Conclusion:

The Tribunal partly allowed the Revenue's appeal, specifically on the issue of treating interest income from bank deposits as income from other sources. The other grounds of appeal were dismissed, confirming the CIT(A)'s deletions of disallowances related to loan syndication charges, interest expenses on the term loan, and compensation paid for land acquisition. The judgment was pronounced on May 14, 2015.

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