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TMI Blog2010 (1) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... ts' for the purposes of arriving at deemed dividend. 1.3. The appellant prays that the learned Assessing Officer be directed to delete the addition made or alternatively rework the amount of alleged deemed dividend under section 2(22)(e) of the Act and reduce the total income of the appellant accordingly. 2. Disallowance of interest on borrowings Rs. 2,67,10,450 : 2.1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of interest on borrowed funds amounting to Rs.2,67,10,450 claimed by the appellant in terms of the provisions of section 36(1)(iii) of the Act. The learned Commissioner of Income-tax (Appeals) failed to appreciate the contentions of the appellant in this behalf. 2.2. The appellant prays that the learned Assessing Officer be directed to allow deduction for interest on borrowed funds and reduce the total income accordingly. 3. Disallowance of depreciation on office premises Rs. 3,09,66,960 : 3.1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of the claim for dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 taken from M/s. Cavim Reality Pvt. Ltd. by the assessee-company as deemed dividend under section 2(22)(e) of the Income-tax Act. Aggrieved by the decision of the Assessing Officer, the assessee went in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) after deliberating upon the issue at length and also relying on the judgment in the case of CIT v. Surat Cotton Spg. and Wvg. Mills P. Ltd. [1993] 202 ITR 932 (Bom) upheld the order of the Assessing Officer in taxing the amount of Rs. 88,23,000 as deemed dividend income under section 2(22)(e) of the Act. Aggrieved by the same, the assessee is in appeal before us. We have heard the rival submissions and perused the records. From the perusal of records, we find that the issue is covered by the decision of the Special Bench of the Mumbai Tribunal in Asst. CIT v. Bhaumik Colour P. Ltd. [2009] 313 ITR (AT) 146 ; [2009] 27 SOT 270, wherein the taxability of deemed dividend under section 2(22)(e) of the Act was elaborately discussed. The Special Bench of the Tribunal deliberated upon the issue at length in the case of Asst. CIT v. Bhaumik Colour P. Ltd. [2009] 313 ITR (AT) 146 (Mumbai) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 and disallowed the claim of the assessee. Aggrieved by the same, the assessee went in appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) elaborately deliberated upon this issue and observed as under : "4.4 I have carefully considered the assessment order passed by the Assessing Officer, written submissions filed by the appellant during the course of appellate proceedings and other material available on record on the basis of which, I am unable to accept the contentions raised by the appellant. It is seen that the assessee has been making contradictory submissions/contentions as suits to its end with regard to the nature of accounting treatment and intention/motive/purpose for which the office premises at Mafatlal Centre have been purchased by the appellant. On the one hand, during the course of discussion on ground No. 2 of the appeal, the appellant has claimed that these office premises have been purchased by them for use of the same as its office premises and based on the said claim, the appellant has shown the said premises under the head `fixed assets' in Schedule `D' of its bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly held by the Assessing Officer. In this regard, the manner of treatment of interest paid or payable in connection with the acquisition of an asset has been made explicitly clear in Explanation 8 below section 43(1) which provides as under : `Explanation 8.-For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included, in the actual cost of such asset.' 4.8 As may be seen from the position clarified in Explanation 8 as reproduced above, any amount of interest paid or payable in connection with the acquisition of an asset which is relatable to any period after such asset is first put to use shall not be included in the actual cost of such asset. Keeping in view the above provisions, here, in the case of the appellant, the Assessing Officer has correctly included that portion of interest which is relatable up to the date of its first put to use in the actual cost of the office premises because in accordance with the position cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of real estate and brokerage. Therefore, decision of the hon'ble Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 relied on by the Assessing Officer has no application to the facts of the present case. Learned counsel for the assessee further submitted that the amendment brought to section 36(1)(iii) is applicable to the assessment year 2004-05. Learned counsel for the assessee relied on the following judgments : (i) India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC) ; (ii) Asst. CIT v. Arvind Polycot Ltd. [2008] 299 ITR 12 (SC) ; (iii) CIT (Joint) v. United Phosphorus Ltd. [2008] 299 ITR 9 (SC) ; (iv) Deputy CIT v. Gujarat Alkalies and Chemicals Ltd. [2008] 299 ITR 85 (SC) ; and (v) Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 (SC). On the other hand, the learned Departmental representative supported the orders of the authorities below. We have heard rival submissions and perused material on record including the case law relied on by learned counsel for the assessee. The assessee is in the business of real estate and brokerage and had shown a sum of Rs.1,25,780 as brokerage and service charges of Rs. 4,80,556 as can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in connection with loan taken for expansion of business, which are treated as interest or commitment charges are allowable under section 36(1)(iii) or in the alternative under section 37(1) of the Act. Respectfully following the above judgments of the hon'ble Supreme Court we hold that the assessee is entitled to deduction under section 36(1)(iii) of the Act and the Commissioner of Income-tax (Appeals) is not justified in denying the claim of the assessee by invoking Explanation 8 to section 43(1) of the Act. The learned Commissioner of Income-tax (Appeals) denied the claim of the assessee for deduction under section 36(1)(iii) on one another ground that the assessee had acquired capital asset. We have considered the matter. In the case of Deputy CIT v. Core Health Care Ltd. [2008] 298 ITR 194 the hon'ble Supreme Court considered the provisions of section 36(1)(iii) and held that the expression "for the purpose of business" occurring in section 36(1)(iii) indicates that once the test of "for the purpose of business" is satisfied in respect of the capital borrowed, the assessee would be entitled to deduction under section 36(1)(iii) of the Act. It was further held that this pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether the asset is acquired for the purpose of business or not. In the present case, the assessee is already in the business of real estate and brokerage, acquired the asset for the purpose of business, paid interest thereon and claimed it as deduction under section 36(1)(iii) of the Income-tax Act. Respectfully following the judgment of the hon'ble Supreme Court, we hold that the assessee is entitled to deduction under section 36(1)(iii) of the Act. With regard to the argument of learned counsel for the assessee that the amendment brought to section 36(1)(iii) is prospective in nature, we find that section 36(1)(iii) was amended and a proviso was inserted by the Finance Act, 2003 with effect from April 1, 2004 as under : "Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not) ; for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." We agree with learned counsel for the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the perusal of records, we find that the Assessing Officer disallowed the claim of depreciation of the assessee as there was no electricity connection, no telephone connection to support the claim of the assessee that they used the premises for business purpose. Further, the Ward Inspector visited the premises many times and found that nobody was there to conduct the business transactions in the said premises. Section 32 of the Act specifically stipulates as under : "32. Depreciation.-(1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets ; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed ; (ii) in the case of any block of assets, such percentage on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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