9911796707
TMI Blog2014 (10) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... tration Charges 2. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance of Rs. 1,65,707/- out of interest paid, on account of alleged interest-free loans given to the sister concerns. 3. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance of Rs. 1,62,16,245/- out of interest paid, on the ground that the same should be capitalized towards projects/plots/ premises". 2. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of real estate development and construction. During the course of scrutiny assessment the AO observed that as per the Tax Audit Report in Form No.3CD, clause-18, Annexure-3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the CIT(A) and we have filed appeal before ITAT which has been heard on 26.11.2010. The similar issue has been decided by ITAT in our sister concern case M/s.Tolaram & Co., for AY.2001-02 and Vazirani Land Dev. Pvt. Ltd., A Y.1999-2000. In view of the above, you are requested to please allow the expenses covered u/s.40A(2)(b) which are neither unreasonable nor excessive." However, the AO was not satisfied by the reply of assessee, therefore, made a disallowance of Rs.,30,000/- u/s.40A(2)(b). 3. By the impugned order, the CIT(A) confirmed the addition and assessee is in further appeal before us. 4. It was submitted by learned AR that exactly similar issue was dealt by the Tribunal in assessee's own case in the AYs 2003-04, 2006-07, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, the similar addition made in earlier years were deleted by the Tribunal. We also found that payments made for business centre facility and administrative charges were not in excess of fair market value of similar services available in the market. Respectfully following the order of the Tribunal in assessee's own case for earlier years, we do not find any merit in the addition so made by the AO under Section 40A(2)(b) of the Act. Accordingly, we direct to delete the same. 6. The AO has also disallowed a sum of Rs. 1,65,707/- out of interest paid on account of alleged interest-free loans given to the sister concerns. Relevant observation of the AO was as under :- On verification of profit and loss account, it was found that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest should not be capitalized as assessee is in the business of construction activity and has made investment in plots, premises, loans and advances, closing stock of premises. In this regard assessee has made written submission which is reproduced hereunder: "Reasons for high amount of loans and utilization thereof During the year under consideration we have the interest bearing fund of Rs. 12,74, 00,800/-which has been utilized for the purpose of business as under: Advance towards plot Rs.4,32,38,015/- Advance towards premises Rs. 26,00,000/- Closing stock of premises Rs.8,09,73,546/- Stock of plot Rs. 18,17,341/- Sundry debtors Rs. 38,34,297/- Total Rs.13,24,63,199/- Since the interest bearing funds are used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs. 10.22 crores out of which advance given to the sister concern was Rs. 6.99 crores. There is no dispute to the well settled proposition that if the interest bearing funds have been diverted for non-business purpose, disallowance is required to be made with respect to the interest expenditure attributable to such advances. However, where interest free funds have been utilized for advancing non-business purpose, no disallowance can be made. In the instant case, assessee has demonstrated the interest free funds available which was alleged to be advanced to sister concern without charging interest which requires due consideration by the AO. In the interest of justice, we restore this ground back to the file of the AO for deciding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue is also covered by the decision of the ITAT Mumbai in the case of K. Raheja (P) Ltd., (2006) 102 ITD 414 (Mum), wherein it was observed that where the assessee was following completed contract method for recognizing its income/loss, but claimed finance cost in nature of interest as a period cost, the same is deductible in the year in which it was incurred or accrued. It was further observed that the Accounting Standard 7 issued by the ICAI, also suggested that in case where expenditure cannot be attributed to a particular activity carried on by the assessee, same is to be allowed as period cost. It was further observed that various benches of the Tribunal have also taken a consistent view that claim made by the assessee for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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