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TMI Blog2019 (7) TMI 1708X X X X Extracts X X X X X X X X Extracts X X X X ..... ng is not the same as the transaction of investment and if this dichotomy is kept in mind, it becomes clear that the transaction of borrowing attracts the provisions of section 36(1)(iii). Assessee filed before the AO the confirmation of loan from the directors in response to the written query dated 29.09.2014 issued by the AO u/s 142(1) - Assessee-company had effected purchase of land in the first year of operation i.e. from 07.05.2010 to 31.03.2011 for an amount which was financed out of unsecured loan obtained from the directors amounting outstanding as at 31.03.2011. Interest was paid on the above loan @ 10%. The borrowing had been effected for the purpose of business activities of the company. The assessee has rightly claimed u/s 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for the purpose of business activities of the company, the interest paid on loan during the AY. 2011-12 of ₹ 52,88,000/- was claimed deduction as an expenditure u/s 36(1)(iii) of the Income Tax Act, 1961. 3. The Ld.CIT(A) has failed to consider the decision of the Hon, Delhi High Court that in the case of Commissioner of Income Tax Vs Dhoomketu Builders and Development Pvt. Ltd reported in (2014) 368 ITR 680 (Delhi) wherein it has been that in the case of real estate company, the business can be said to have been commenced on acquisition of land, since after acquisition of such land, the assessee was in a position to do business as the business has been set up. The ratio above decision has been relied on and followed by Delhi ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of ₹ 52,88,800/- on account of loans taken from directors and disallowed it. The reason given by the AO is that the assessee failed to furnish any explanation for allowing the same as an expenditure attributable to business and further the impugned assessment year is the first year of operation of the assessee-company. In appeal, the Ld. CIT(A) observed that the assessee has borrowed monies from its directors for purchasing the land, which has been capitalized in the books of the assessee and it has merely acquired the land but has not carried out any business activities during the year. Further observing that the assessee has merely purchased the land and has not entered into any contract for the development of land or other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A). 5. We have heard the rival submissions and perused the relevant materials on record. In the instant case, the assessee-company was incorporated for the purpose of carrying on real estate activities as per its main objects in the Memorandum of Association . This is the second year of operation. We find that the assessee purchased land in the first year of operation for an amount of ₹ 4,94,38,159/-, which was financed out of unsecured loan obtained from the directors amounting to ₹ 5,35,20,000/- outstanding as at 31.03.2011. The assessee paid interest on the above loan @ 10% and the borrowing has been effected for the purpose of its business. In the case of Tetron Commercial Ltd. (supra), the assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the interest paid on the amount borrowed for the purchase of such machinery is an amount deductible, once the other ingredients are fulfilled. It is shown in the balance sheet under the capital and asset heading as an asset but not a stock-in-trade. The description in the books of account would be immaterial. If it is a stock-in-trade, in that event, the amount invested would be a revenue expenditure and not a capital expenditure. The amount borrowed may be utilized for the purpose of acquisition of stock-in-trade or for the purpose of acquisition of capital assets. So long the money is utilized for business purposes, the interest is allowable as deduction. It is well-settled that business expenditure is not confined to expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs that asset into existence; the transaction of borrowing is not the same as the transaction of investment and if this dichotomy is kept in mind, it becomes clear that the transaction of borrowing attracts the provisions of section 36(1)(iii) of the Act. As mentioned earlier the assessee filed before the AO the confirmation of loan from the directors in response to the written query dated 29.09.2014 issued by the AO u/s 142(1) of the Act. The assessee-company had effected purchase of land in the first year of operation i.e. from 07.05.2010 to 31.03.2011 for an amount of ₹ 4,94,38,159/-, which was financed out of unsecured loan obtained from the directors amounting to ₹ 5,35,20,000/- outstanding as at 31.03.2011. The interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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