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TMI Blog2010 (2) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) that the correct treatment would have been to treat the entire interest expenses as work-in-progress and the prorata disallowances made during the year have to be actually be made for the following year. Disallowance of salary and other expenses - According to the Assessing Officer the original return was filed after enclosing audited accounts. Therefore, the plea that certain changes were made during the course of audit was not acceptable. - held that:- there is no dispute to the fact that there is a difference of Rs.32,46,000 on account of expenses in the original return as well as in the revised return. - no evidence could be produced by the learned counsel for the assessee to substantiate the genuineness of such increase in the expenses - decided against the assessee. - ITA No. 7058/Mum/2007, - - - Dated:- 8-2-2010 - N.V. Vasudevan, R.K. Panda, JJ. Yogesh A. Thar for the Appellant A.P. Singh for the Respondent ORDER R.K. Panda:- 1. This appeal filed by the assessee is directed against the order dated 6th September, 2007 of the CIT(A)-VIII, Mumbai relating to assessment year 2003-04. 2. In grounds of appeal No. 1, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount on these loans. He observed that the assessee had also advanced loans to the following parties on which no interest has been charged:- S. No . Name Opening Balance (Rs.) Closing Balance (Rs.) a. Bina Power Supply Co. Ltd. 40,19,935 98,05,935 b. Rosa Power Supply Co. Ltd. 39,24,685 75,86,955 c. TN LNG Power Co. P. Ltd. 1,44,66,652 3,13,69,371 d. Indian Rayon and Ind. Ltd. Nil 9,77,16,580 5. On being questioned by the Assessing Officer it was explained that the transactions with item Nos. a, b and c cannot be treated as loan as these were expenses recoverable from the aforesaid companies and, therefore, had been shown as advances recoverable. Therefore, it cannot be said that interest bearing loans had been diverted for interest free loans. As regards the outstanding amount with M/s. Indian Rayon and Industries Ltd., it was submitted that this amount represents the expenses incurred by the assessee company on behalf of M/s. Indian Rayon Industries regarding their BPO project. 6. However, the Assessing Officer was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of fee paid for consultancy for the BPO project and, therefore, is not admissible as assessee's expenses. Therefore, he disallowed the same from assessee's expenses and attributed to the BPO account. 9. In appeal, the CIT(A) upheld the action of the Assessing Officer. He observed that the assessee is in the business of developing business for its clients which are associate concerns and that till the time "financial closures" of such businesses are achieved the assessee keeps incurring the expenditure and treats the same as advances recoverable. Such expenditure could be in the nature of legal and professional fees or consolidated third party expenditure or in the nature of interest attributable to the third party concern on whose behalf the expenditure is being incurred. He further observed that it is not at all necessary that financial closure of such projects are certain and, therefore, at the end of the day there may also be a situation when such expenditure incurred and treated as 'advance recoverable' may not result in any business and third party would, therefore, not be liable for meeting out such liability. He observed that when the entire business is based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly relied on the orders of the Assessing Officer and the CIT(A). He submitted that the loss can be booked in the accounts only when it accrues. However, in the instant case although the assessee has shown expenses as advances recoverable, however, it has claimed the same as revenue expenditure in the computation. The assessee has not brought anything on record to substantiate that these are losses. Therefore, Accounting Standard-7 is clearly applicable. Referring to the order of the CIT(A), he submitted that the CIT(A) has given a clear cut finding that the assessee is in the business of developing business for its clients which are associated concerns and till the time of financial closure of such business is achieved the assessee goes on incurring the expenditure and treats the same as advances recoverable. Further he has also given a finding that financial closure of such projects is uncertain and there may also be a situation that such expenses incurred and treated as advances recoverable may not result in any business and the third party would not be liable for meeting out such liability. In other words, the entire business is based on uncertainty and speculation. Relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the CIT(A). We, therefore, do not find any infirmity in the order of the CIT(A) in holding that the entire expenditure claimed inclusive of the expenditure which has been subjected to disallowance would have to be treated as work-in-progress and as and when if a project does come to a financial closure and the revenue is realised by the assessee, the necessary expenditure will be allocated on a pro-rata basis depending on the volume of revenue and other financial parameters. The decision relied on by the learned counsel for the assessee in the case of Lokhandwala Construction Industries Ltd. (supra) for claiming of interest is not applicable to the facts of the present case, since the assessee is neither a contractor nor doing any service. In this view of the matter, we do not find any infirmity in the order of the CIT(A) and accordingly uphold the same. The grounds of appeal Nos.1, 2, 3, 5, 6 and 8 are accordingly dismissed. 13. In grounds of appeal No. 2, the assessee has challenged the order of the CIT(A) in upholding the Assessing Officer's action in disallowing proportionate interest paid amounting to Rs.45,29,236. 13.1 Facts of the case, in brief, are that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stepped in to take over the entire project at cost. First and foremost, the cost which has been incurred by the appellant on the project for the year under consideration was nothing else but the work-in- progress of the project inasmuch as, at least, during the year under consideration, there were not even a confirmed party for which the project was being carried out. Thus, the correct treatment would have been to treat the entire interest expenditure as 'work-inprogress' and pro-rata disallowances made during the year has to be actually made for the following year. In effect, the AO shall load the entire interest expenditure as a part of the project expenses in the form of 'work-inprogress' and take necessary action in the following year for making the pro-rata disallowances on account of the interest expenditure not being for business purposes. The ground is decided accordingly." Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 13.3 The learned counsel for the assessee referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Lokhandwala Construction Industries Ltd. reported in 260 ITR 579 and submitted that the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the correct treatment would have been to treat the entire interest expenses as work-in-progress and the prorata disallowances made during the year have to be actually be made for the following year. The decision of the Hon'ble Bombay High Court in the case of CIT vs. Lokhandwala Construction Industries Ltd., reported in 260 ITR 579 relied on by the assessee to claim the interest as deduction u/s. 36(1)(iii) of the Act is, in our opinion, not applicable to the facts of the present case since the assessee is neither a contractor nor doing any service. In this view of the matter, we do not find any infirmity in the order of the CIT(A) and accordingly uphold the same. This ground raised by the assessee is accordingly dismissed. 14. In grounds of appeal No. 4, the assessee has challenged the order of the CIT(A) in disallowing an amount of Rs.32,46,000 on account of salary and other expenses disallowed by the Assessing Officer. 15. Facts of the case, in brief, are that the assessee in its original return has claimed expenses to the extent of Rs.7,63,72,808 which has gone up to Rs.7,96,18,808 in the revised return. It was explained by the assessee that the increase is on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is accordingly dismissed. 19. In grounds of appeal No. 7, the assessee has challenged the order of the CIT(A) in considering the amount of Rs.6,77,250 as income from other sources received from M/s. Grasim Industries Ltd. 19.1 Both the parties submitted that this matter has to go back to the Assessing Officer since neither the order of the Assessing Officer nor the order of the CIT(A) is very clear on facts. Under these circumstances, we deem it proper to restore the matter back to the file of the Assessing Officer with a direction to decide the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. This ground by the assessee is accordingly allowed for statistical purposes. 20. In grounds of appeal No. 9, the assessee has challenged the order of the CIT(A) in upholding the action of the Assessing Officer in charging of interest u/s. 234B of the Act. 20.1 After hearing both the sides, we find charging of interest u/s. 234B is mandatory and consequential in nature. Therefore, this ground by the assessee is dismissed. 21. In the result, the appeal filed by the assessee ..... 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