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TMI Blog2014 (7) TMI 1263X X X X Extracts X X X X X X X X Extracts X X X X ..... reating the payment towards permission for land utilization, NOC and registration of land and has rightly capitalized them with the cost of land and denied deprecation on this payment - Decided against assessee Addition towards interest on investment expenditure incurred in new the line of business - Held that:- In order to allow as the amount of interest paid in respect of capital borrowed for the purpose of business must be of an existing business. In this case, as the business was not set up at the time of incurring the interest; therefore, no question of allowance of interest is allowable u/s 36(1)(iii). Whether this was a part of new business or not was a fact, which was for the assessee to establish and the assessee was failed to establish the fact even before us. Being so, it is not possible to uphold the contention of the assessee. In the premises, the lower authorities were right in disallowing the proportionate interest expenditure relating to the investment made in the new line of business - Decided against assessee - ITA No. 805/Coch/2013 - - - Dated:- 18-7-2014 - SHRI N.R.S. GANESAN, JM AND CHANDRA POOJARI, AM For The Assessee : Sri R Sreenivasan For Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the fact that the entire cost has been incurred for development of lands, the sum of ₹ 96,90,000 was added to the value of land and removed from the block of windmills. Consequently, the depreciation claimed on this amount or ₹ 38,76,000 (50% for second half addition) was disallowed and added back to the assessee s income. 3.3 On appeal, the CIT(A) observed that the infrastructure development charges are paid to Tamil Nadu Electricity Board for the evacuation of land. Further it is seen from these debit notes that the payments made to TNEB are more in the nature of administrative charges paid for getting permission for use of land/evacuation of land for unhindered space and hence the payment of NOC and registration are towards use of unhindered land to be obtained so that the adjacent rows of wind rotor are a minimum distance of the diameter of the Rotor. It is seen from the breakup of machinery and land cost submitted by the assessee that these charges are not in the nature of infrastructure development that is required for foundation, erection, installing the commissioning, electrical yard or transmission lines for the setting up of the windmill, to be eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and installing and commissioning etc., which, in the sense of terminology of development of windmill are actual infrastructure charges. 3.4 Regarding the payments made to Shubh Reality(South) Pvt Ltd, the CIT(A) found that the assessee has written a letter to the company vide letter dated 4 th Feb 2000 which is evident that the infrastructure development charges are paid to TNEB for arranging land and the evacuation of land, which are separate from the land cost. The CIT(A) observed from the copy of the agreement letter with TNEB that is signed with respective Electricity Distribution Circle, reveals that the nature of this payment towards infrastructure development charges have been made towards application fee for taking permission from the TNEB for setting up of windmill in the unhindered land, wherein the technical specifications of windmill to be installed are spelt out and the other terms and conditions of utilization of energy produced are laid down. Thus, these charges paid to TNEB are for evacuation of land towards fee of NOC of land and its registration and supervision charges to make unhindered land available and ensure technical specifications. Accordingly, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the order of the CIT(A). 5 We have heard the parties and considered the relevant material on record. The arguments of the ld AR are totally misplaced. We find that the CIT(A) after considering the submissions, approval letters from the TNEB and the copies of the debit notes observed that the infrastructure development charges are paid to TNEB for the evacuation of land. Further, from the debit notes, the payments made to TNEB are more in the nature of administrative charges paid for getting permission for use of land/evacuation of land for unhindered space and hence the payment of NOC and registration charges are towards use of unhindered land to be obtained so that the adjacent rows of wind rotor are a minimum distance of the diameter of the Rotor. It is seen from the breakup of machinery and land cost submitted by the assessee that those charges are not in the nature of infrastructure development that is required for found, erection, installing and commission, electrical yard or transmission lines for the setting up of the windmill, to be eligible to be considered as part of wind turbine machinery. The assessee has separately paid the sums to Suzion infrastructure Ltd for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment in the new line of business, operations of which were not yet commenced. Accordingly, the AO held that interest relating to borrowed funds ought to be capitalized. The observation made by the AO has been reproduced by the CIT(A) in his order at pages 7 8 which reads as under: The assessee, during the year, has entered into a new line of business by obtaining a licence for operating a FM Radio. Total amount invested during the year amounts of ₹ 8,32,16,000. Though, the amount has been paid for obtaining a license from the Ministry of information and Board Casting and Prasar Bharati, th assessee has not commenced its operations in the line of business. It has not started operating the FM Radio. While this investment of ₹ 8.32 lakhs is made out of borrowed capital, the assessee has not capitalized the interest relating to the capital borrowed. The assessee was asked to explain why, out of the entire interest claimed as expenditure; the portion relating to the investment in FM radio should not be disallowed. The assessee submitted that the investment was made out of its own funds and therefore there was not interest attributable to the same. It further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized 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. In the light of this proviso to section 36(1)(iii), since the assessee has borrowed capital for acquisition of assets (herein in this case being payment of licence fee) for the extension of existing business or profession, and the airing of programs on FM radio in pursuance of such license has not started, therefore, this amount cannot be allowed as deduction. As assessee has not commenced his business of FM radio, the AO is right in capitalized the interest and disallowing the same holding that the business operations have not commenced. 6.3 Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 7 The ld AR submitted that during the relevant year the assessee had entered in to a new line of business by obtaining license for operating FM radio in the state of Tamil Nadu. The total amount of investment during ..... X X X X Extracts X X X X X X X X Extracts X X X X
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