2019 (2) TMI 1323 - AT - Income Tax

Capital gain computation - cost of the parking area should be loaded with the cost of the shops and the parking area is a capital asset of the assessee - HELD THAT - The only revenue the assessee can derive from the parking area is on account of parking fee charged from the patrons or tenants or any other party. The revenue arising from such parking fee shall obviously be reflected in the assessee s profit and loss account. AO has based his decision on the budgeted cost prepared by the assessee for the project in which the parking area has been specially mentioned as saleable area . But what the AO has ignored is that the saleable area has been mentioned at 0.00 sq ft. This itself shows that the parking area is not a saleable area. Considering the facts of the case in totality, we do not find any error or infirmity in the findings of the CIT(A). Addition being interest paid to DLF Ltd on borrowed capital - HELD THAT - There is no dispute that the assessee has borrowed funds for its business. There is also no dispute that the assessee was having sufficient interest free funds to make the investment in shares of Hyderabad based companies. Assuming, yet not accepting, the borrowed funds have been utilised for purchase of shares for getting controlling interest in the land owned by the companies so that it can construct malls/multiplexes at Hyderabad. This strategic investment clearly shows that the borrowed funds, if any, have been utilised for expansion of the business and is for the business purposes. The Hon ble High Court of Delhi in the case of Reebok India Company 2018 (10) TMI 439 - DELHI HIGH COURT has held that once it is established that there was a connection and nexus between the interest paid and claimed by the assessee as expenditure and the purpose of business which need not necessarily be business of the assessee itself, the revenue cannot assume role and occupy the arm chair of a business man to decide whether expenditure was reasonable. In assessee s sister concern, DLF Brand Limited, the Tribunal had the occasion to consider a similar issue and has allowed the claim of interest expenditure on the amount borrowed for investment in subsidiary companies. Charging interest upto the cut off - non exclusion of interest income from two customers - HELD THAT - There is no dispute that the cut off date has been chosen by the assessee as 25th March. It is also true that every year the assessee is charging interest upto 25th March. This, in itself, complete one full year. There is no reason why interest should be assumed for six days. We, therefore, do not find any error or infirmity in the findings of the CIT(A) to this extent. In so far as non exclusion of interest income from two customers, namely, Shri Kiran Deep Mann and Shri Rajpal Singh is concerned, we are of the considered opinion that a business man has to discharge many social and moral obligations and while discharging such obligations, the business man may not charge anything from the customers. We, therefore, do not find any error in such practice of the assessee. Proportionate interest on borrowed capital being used for making investment in shares - HELD THAT - CIT(A) allowed the grievance of the assessee by deleting the expenditure since he has deleted the disallowance of proportionate interest. Since we have confirmed the findings of the CIT(A) vide Ground No. 2 this ground is also dismissed.

Summary

Issues involved:
1. Deletion of addition of ?5.73 crores in assessment year 2006-07 and ?2.96 crores in assessment year 2007-08 related to the cost of parking area in a commercial complex.
2. Deletion of addition of ?50,99,086 being interest paid to DLF Ltd on borrowed capital.
3. Deletion of addition of ?4,45,425 regarding recognition of interest on delayed payments from customers.
4. Deletion of addition of ?3,46,460 for travelling and related expenses incurred for acquisition of shares of land owning companies.

Detailed Analysis:
1. The first issue involved the deletion of additions related to the cost of parking area in a commercial complex. The Assessing Officer had added the cost of parking area to the project's budget, which was contested by the assessee. The CIT(A) ruled in favor of the assessee, stating that the parking area was mandatory and not for commercial use, leading to the deletion of the addition. The ITAT upheld the CIT(A)'s decision, emphasizing that the parking area was not a saleable area and was essential for the project, resulting in the dismissal of the Revenue's appeals.

2. The second issue concerned the deletion of addition of interest paid to DLF Ltd on borrowed capital. The Assessing Officer disallowed the interest, linking it to the investment in shares of land-owning companies. However, the CIT(A) found no violation of Section 36(1)(iii) and directed the deletion of the addition. The ITAT concurred with the CIT(A), highlighting the strategic investment nature of the borrowed funds, leading to the dismissal of the Revenue's appeal.

3. The third issue addressed the deletion of an addition related to the recognition of interest on delayed payments from customers. The Assessing Officer assumed interest for six days, which was contested by the assessee, citing a cut-off date for charging interest. The CIT(A) agreed with the assessee's practice and deleted the addition. The ITAT upheld the CIT(A)'s decision, emphasizing the consistency in charging interest and the moral obligations towards customers, resulting in the dismissal of the Revenue's appeal.

4. The final issue involved the deletion of expenses for travelling and related costs incurred for acquiring shares of land owning companies. The Assessing Officer disallowed these expenses based on the disallowed interest amount. As the interest disallowance was reversed by the CIT(A), the related expenses were also deleted. The ITAT upheld the CIT(A)'s decision, leading to the dismissal of the Revenue's appeal in this regard.