9911796707
TMI Blog2009 (7) TMI 1100X X X X Extracts X X X X X X X X Extracts X X X X ..... nses for making advances to one of the directors without appreciating the fact that so far as relevant assessment year is concerned the interest liability of the assessee has gone up due to such advance. 3. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts of the case in deleting the addition made by way of disallowance of interest under section 14A of the Act disregarding the fact that the assessee failed to substantiate that only interest-free funds had been used for making investment in shares/mutual funds and, therefore, the Assessing Officer was justified in considering the funds as mixed." The facts of the case are that the assessee-company is engaged in the business of corporate consultancy, financing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w-how vested with the assessee-company. The learned Commissioner of Income tax (Appeals) decided in favour of the assessee on the ground that the ownership of the portal did not vest with the assessee and expenditure was incurred by the assessee for earning revenue from members who would visit the site. According to him, the expenditure was incurred for making the website functional and for promoting and enrolling new members. Against this, the learned Departmental representative submitted that the asset so created was to be divided between the assessee and VGS in the sense that rights over technical know-how would vest with the assessee, therefore, a part of the expenditure certainly would be capital. Against this, the learned authorised r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Deputy CIT v. Gujarat Alkali and Chemicals Ltd. [2008] 299 ITR 85 held that where expenditure is incurred for the extension of its business activities, it would be allowable under section 37(1). Similar view was held by the hon'ble Delhi High Court in CIT v. Usha Iron and Ferro Metal Corporation Ltd. [2008] 296 ITR 140. The hon'ble Supreme Court in Veecumsees v. CIT [1996] 220 ITR 185 held that expenditure incurred in connection with the existing business would be revenue expenditure. In that case, loan was obtained for running a cinema theatre though the assessee was in the business of jewellery. It was held that it was a composite business and, therefore, interest paid on such loan would be allowable. The hon'ble Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that a sum of Rs. 2.5 crores was reflected as a cost of office building purchased as on March 31, 2000. But in a subsequent year the company classified the office building amount as "loans and advances" and added back the depreciation claimed on the office building. On the change of the stand, the assessee explained that a sum of Rs. 2.5 crores was given by an earlier company, namely, M/s. Jupiter Infosoft Ltd. for acquiring the use of premises at building Sakar-II for business purposes. This advance was given by Jupiter Infosoft Ltd. when it was not amalgamated with the assessee-company. After amalgamation, the claim of depreciation which continued to be passed on to the assessee-company was claimed but the error was rectified by filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Therefore, the question of disallowing interest paid by the present company does not arise. There is neither any evidence nor any suspicion that interest bearing funds of the present company have been invested in interest-free advances to the director. Even otherwise, amalgamation of the earlier company with the present company is clearly a business deal and there is a clear business connection in respect of outstanding amount against the director. Following the decision of the hon'ble Supreme Court in S. A. Builders Ltd. v. CIT (Appeals) [2007] 288 ITR 1, the interest paid by the assessee could not be disallowed. As a result, we dismiss the ground of the Revenue. The last issue is regarding disallowance of interest under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the decision of the Special Bench in ITO v. Daga Capital Management Pvt. Ltd. [2009] 312 ITR (AT) 1, the Income-tax Appellate Tribunal, Mumbai Special Bench held that this amendment is procedural in nature and hence retrospective and, therefore, would be applicable to past assessment years also. Further, this decision would be applicable to a case where the assessee fails to establish a direct nexus between investment in exempted income and interest-free capital available with the assessee. If it is established that in some earlier years investment in purchase in shares and securities was made out of interest-free funds available with the assessee and that investment continued to exist in subsequent years in which dividend income became ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
