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TMI Blog2014 (3) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ject work, will not be appropriate - It cannot be said that the loan raised by assessee from ICICI Bank, which was utilized for paying advances for acquiring built up spaces, was in relation to extension of an existing business. Business of assessee was real estate and the assesese's intention was to trade in constructed spaces - It never contemplated to use such constructed spaces for its own use – the decision Commissioner of Income-Tax Versus Lokhandwala Construction Inds. Ltd. [2003 (1) TMI 93 - BOMBAY High Court] followed - As long as the payment of advance was not for acquisition of fixed assets but only for acquiring stock-in-trade, assessee was entitled for deduction under section 36(1)(iii) of the Act – thus, the CIT(Appeals) was justified in deleting the addition made by the Assessing Officer – Decided against Revenue. Deletion of disallowance of processing charges on loan – Held that:- Since loan raised from State Bank of India was used by the assessee for financing its stock - processing charges incurred for raising such loan was an allowable expenditure – there is no reason to interfere with the order of CIT(Appeals) – Decided against Revenue. Disallowance of dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,660/-. Assessee had during the relevant previous year received dividend of Rs.1,10,79,771/- which was claimed as exempt. A notice was issued by Assessing Officer requiring the assessee to show why the expenditure attributable to such exempt income should not be disallowed under section 14A of the Act. Assessee in its reply stated that major chunk of the dividend was received from one M/s. Magma Shrachi Finance Ltd.. As per the assessee, no expenditure was incurred by it for earning such income except salary paid for a person who had devoted part of his time for monitoring the dividend income, besides Demat charges. As per the assessee, such amount came to Rs.88,732/- of which Rs.84,000/- was the proportionate salary and Rs.4,732/- was Demat charges. Assessing Officer was, however, not impressed by this submission. According to him, involvement of top management was required for taking decisions of investments. Such decisions were strategic in nature and, therefore, as per the Assessing Officer, proportionate management and administrative expenditure were required to be deducted while computing the exempt income. According to the Assessing Officer, even if assessee had not earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different. Further, according to him, assessee was having substantial holding of shares and for taking a decision as to whether the shares were to be held or sold, inputs from top management was required. Assessee's claim that it had incurred only a pro rata salary expenditure of Rs.84,000/- for this purpose was unbelievable. Thus according to him, Assessing Officer had reached an objective satisfaction that the claim of the assessee was incorrect. 8. Per contra, ld. A .R. submitted that major part of the shares held were nothing but opening investment. Shares acquired through own funds were only worth Rs.1,96,69,793/-. This clearly implied that management expenditure incurred was negligible. Further, according to him, assessee was the holding Company of Magma Shrachi Finance Ltd., and it was holding shares valued at Rs.1,07,35,58,387/- in the said company. Such shares had come to the assessee by virtue of merger of Stratus Developers (P) Ltd. with the assessee. These shares were earlier held by Stratus Developers (P) Ltd. Assessing Officer had not dwelled upon these submissions, but had simply arrived at a subjective satisfaction that the claim of expenditure of Rs.88,732/- for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying Rule 8D(2) Assessing Officer had only made a disallowance under clause (iii) thereof. Thus he has accepted that no loan funds were used by assessee for the purpose of making the investments. Investment made by assessee during the relevant previous year was Rs.1,96,69,793/- only. When viewed from this angle, we cannot say that the suo motu disallowance of Rs.88,390/- made by assessee was incorrect or unbelievable. The satisfaction recorded by the Assessing Officer with regard to the claim of expenditure made by the assessee is reproduced hereunder :- "The submissions of the assessee company have been considered carefully and the same is not acceptable at all. In this context, it is to be mentioned that involvement of top management is required for making decision for investment. It is a strategic decision. A question whether to invest or not to invest is always taken by the Top Management. Further, the decision regarding retention or sale of investment is very complicated. Therefore, proportionate management and administrative expenses is required to be deducted while computing the exempt income, in this case, income from dividend. In other words, financial administrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and selling real estate since many years; properties for which advances were paid to the builders during the relevant previous year were still to be received from such builders. It had therefore shown such amount under the head 'advances'. When received this will be a part of its stock-in-trade and, therefore, as per the assessee, interest on loans taken for financing such acquisition was an allowable expenditure. 12. However, Assessing Officer was not impressed by the above arguments. According to him, assessee had not in the earlier or the relevant previous year done any transaction of sale and purchase of property. There was no income from real estate business. The properties on which advances were given were still under construction by the concerned builders. According to him, assessee was following completed contract method of accounting for its real estate business. Interest paid for financing the advance had to be capitalized. Applying section 36(1)(iii) of the Act. Assessing Officer held that interest of Rs.29,68,289/- paid to M /s. ICICI Bank Ltd. was not allowable. 13. Aggrieved, assessee moved in appeal before ld. CIT(Appeals). Argument of assessee was that it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly stated that it could carry on business of real estate. Relying on the tax audit report for the relevant previous year, ld. AR submitted that accrual basis was followed for accounting. Interest paid on ICICI Bank loan which was used for paying advances, with the intention of purchasing stock-in- trade was, as per ld. AR, an allowable outflow. Reliance was placed on the decision of the Hon'ble Mumbai High Court in the case of CIT -vs.- Lokhandwala Construction Industries Ltd. [260 ITR 579]. 17. We have heard the rival contentions. Business of assessee as mentioned in the Tax Audit Report, copy of which has been placed at paper book page nos. 22 to 40, was real estate, trading in shares and securities and guest house business. There is no case for the revenue that advance given by the assessee was for any trading activities in shares and securities or in relation to its guest house business. Claim of assessee was that it was not doing any business of construction of buildings but only buying constructed flats and spaces and selling it. This claim has not been found to be wrong by the Assessing Officer. It might be true that during the relevant previous year or preceding year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition of an asset intended for extension of an existing business. In the case of the assessee here, we cannot say that the loan raised by assessee from ICICI Bank, which was utilized for paying advances for acquiring built up spaces, was in relation to extension of an existing business. Business of assessee was real estate and the assesese's intention was to trade in constructed spaces. It never contemplated to use such constructed spaces for its own use. In our opinion, the decision of the Hon'ble Mumbai High Court in the case of Lokhandwal a Construction Industries Ltd. (supra) would clearly come to the aid of assessee. As long as the payment of advance was not for acquisition of fixed assets but only for acquiring stock-in-trade, assessee was entitled for deduction under section 36(1)(iii) of the Act. We are, therefore, of the opinion that ld. CIT(Appeals) was justified in deleting the addition made by the Assessing Officer. Ground No. 2 of the Revenue stands dismissed. 18. Vide its Ground No. 3, grievance of the revenue is that processing charges on loan which was disallowed by the Assessing Officer was allowed by ld. CIT(Appeals). 19. Facts apropos are that Rs.7,21,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of l d. CIT(Appeals). 27. We have heard the rival contentions. There is no dispute that the boiler on which depreciation was not allowed, was one which was leased out by the assessee in earlier years, income from which was admitted. Thus the boiler was already part of the block of assets of the assessee. Once a machinery is becomes the part of a block, it looses its separate identity. Depreciation is granted on block of assets as stipulated in section 36(1)(ii). Once the boiler was already used, we cannot say that it was not ready for use. Passive use of the boiler, argument by the assessee has to be accepted. We, therefore, find that the disallowance was not in accordance with law. Such disallowance stands deleted. Ground No. 3 of the assessee's appeal stands allowed. 28. Vide its Ground No. 4, grievance raised by assessee is that long- term capital gain on transfer of assets was worked out by applying section 50C of the Income Tax Act, but without considering assessee's plea for reference of the valuation to the Departmental Valuation Officer. 29. Facts apropos are that assessee had during the relevant previous year transferred several leasehold units. The value shown in it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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