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TMI Blog2019 (6) TMI 662X X X X Extracts X X X X X X X X Extracts X X X X ..... essee - Decided in favour of assessee Proportionate disallowance of interest on borrowed funds - HELD THAT:- One of the primary requirement of making disallowance U/s.36(1)(iii) is that the borrowed funds should have been utilized for non-business purposes. In the instant case, we have already held that the payment of higher education fees to Harvard University, USA is for business purposes only. Hence we hold that no disallowance of interest U/s.36(1)(iii) of the Act could become operational. Accordingly the Ground raised by the assessee are allowed. - I.T.A. No. 2486/CHNY/2017 - - - Dated:- 7-6-2019 - Shri M. Balaganesh, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member For the Appellant : Shri N. Devanathan, Advocate For the Respondent : Shri R.V. Aroon Prasad, JCIT ORDER PER M. BALAGANESH, ACCOUNTANT MEMBER: This appeal of the assessee arise out of the order of the Ld. Commissioner of Income Tax (Appeals)-2, Chennai vide proceedings in ITA No.35/CIT(A)-2/2016-17 dated 31.07.2017 for the assessment year 2013-14 against the of assessment passed by the Ld. ACIT, Non-Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses time and money, the assessee reached a compromise with owner of the property and received back ₹ 30 Lakhs out of the advance paid ₹ 60 Lakhs. Hence the balance 30 Lakhs is treated as business expenses and written off. 6. The Ld. AO after going through the reply of the assessee and on perusal of the deed for surrender of lease, observed that the assessee was planning to take the property on lease for 27 years as per the original lease deed and that the amount of lease deposit provided shall be returned back after adjusting the expenditure incurred by the landlord which was fixed at ₹ 30 lakhs. Accordingly, the Ld. AO concluded that the remaining balance of ₹ 30 lakhs which was irrecoverable and not recovered by the assessee would lead to loss arising on capital account transaction and accordingly not allowable as business loss. The Ld. AO furthered his contention by placing reliance on the fact that the lease deed also provide for construction of showroom building by the landlord in accordance with the specifications provided by the assessee therein. Based on this, the Ld. AO concluded that the entire transaction was on capital account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee would also not get any return on that amount spent either in cash or in kind, there was no asset that was left with the assessee on cancellation of lease and hence there cannot be any enduring benefit that can fall on the assessee. Hence it was argued that the lease deposit written off was incidental to the carrying on the business of the assessee in opening various showrooms at various places in India. The Ld. AR placed reliance on the decision of the Hon ble Supreme Court in the case of CIT vs. Mysore Sugar Co. Ltd., reported in 46 ITR 649 in support of his contentions. He also placed reliance on the decision of the co-ordinate Bench of the Delhi Tribunal in the case of FAB India Overseas India Pvt. Ltd.,vs. ACIT in ITA No.199 672/Del/2012 dated 28.06.2013 and also on the decision of the Hon'ble Jurisdictional Madras High Court in the case of the M/s. Tamilnadu Magnesite Ltd., vs. ACIT in T.C. (Appeal) No.907 and 908 of 2007 dated 5th June 2018. At the outset we find that the decision relied upon by the Ld. DR on the Apex Court reported in 98 Taxmann 303 supra is factually distinguishable in view of the fact that in that case the sum of ₹ 20 lakhs was deposite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CANE - WHETHER CAPITAL LOSS OR TRADING LOSS - WHETHER ALLOWABLE - INCOME-TAX ACT, 1922, ss. 10(2)(xi), 10(2)(xv) The assessee who carried on the manufacture of sugar used to advance seedlings, fertilisers and money to sugarcane growers under an agreement by which the growers agreed to sell the next crop of the sugarcane grown by them exclusively to the assessee at current market rates and to have the advances adjusted towards the price of the sugarcane to be delivered to the company. In a certain year owing to drought the sugarcane growers could not grow sugarcane and the advances remained unrecovered. A Committee appointed by the Government recommended that the assessee should ex gratia forgo some of its dues. The assessee accordingly waived its right in respect of ₹ 2,87,422 and claimed this amount as a deduction under sections 10(2)(xi) and 10(2)(xv) of the Income-tax Act. The question was whether the amount of ₹ 2,87,422 which was given up represented a loss of capital or was a revenue expenditure: Held, that so far as the assessee company was concerned it was merely making a forward arrangement for the next year's crops and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the judicial precedents relied upon herein above, we held that the loss of ₹ 30 lakhs on account of cancellation of lease should be treated as business loss of the assessee and accordingly the ground Nos. 2 to 6 raised by the assessee are allowed. 9. The next issue to be decided in this appeal is to whether the Ld. CIT(A) was justified in upholding the proportionate disallowance of interest on borrowed funds to the tune of ₹ 12,98,006/- in the facts and circumstance of the case. 10. The brief facts of the issue is that the Ld. AO observed a sum of ₹ 89.51 lakhs has been included as Harvard University Remittance under the head 'Advances and Deposits' corresponding to Nalli Silk Sarees, Delhi SE. The assessee explained that the said deposit was made on various dates during financial years 2009-10 to 2011-12 on account of higher education of Ms. Lavanya Ramanathan at Harvard University for acquiring professional qualification. It was further stated that the said amount was capitalized in the books of the assessee and no deduction was claimed thereon. It was further stated that after finishing her course, Ms. Lavanya Ramanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the Ld. AO. Aggrieved, the assessee is in appeal before us. 12. We have heard the rival submissions and perused the materials available on record. The facts stated herein above remain undisputed and hence the same are not reiterated herein for the sake of brevity. We find from the perusal of the Balance Sheet of the assessee for the year ended 31.03.2016 that it has got capital account balance of ₹ 1.51 crores and reserves of ₹ 77.32 crores. We find from the perusal of the Balance Sheet that borrowings of the assessee is close to ₹ 98 crores which is more than own funds. Hence various decisions relied by the Ld.AR in the case law compilation does not come to the rescue of the assessee. But we find that there is no dispute that Ms. Lavanya Ramanathan was a family member of the Managing Trustee of the assessee's AOP (trust) and is one of the five beneficiaries in the said AOP and there is no dispute that she was working with Nalli before going for her higher studies in USA. And it is not in dispute that after her higher studies and after a brief stint in M/s. McKinsey Co. Consultants, USA , had indeed come ..... X X X X Extracts X X X X X X X X Extracts X X X X
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