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TMI Blog2021 (12) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... ght in deleting the disallowances of interest expense and other revenue expenditure, without giving proper opportunity under Rule 46A to the AO for verifying the additional evidences - final accounts of relevant AYs, submitted during appeal proceeding, based on which relief has been given by the Ld. CIT(A). 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. 2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2008-09 on 30.09.2008 admitting a loss of Rs. 106,77,75,500/-. The case was processed under section 143(1) of the Income Tax Act, 1961 ["Act" in short]. Subsequently, the case was reopened and a notice under section 148 of the Act was issued and served on the assessee on 28.03.2013. The reasons for reopening were given to the assessee on 03.10.2013. The assessee is engaged in developing a hotel and commercial complex at Anna Salai, Teynampet, Chennai and had obtained substantial amounts as loans to develop the project. The debts to the banks being M/s. IFCI and TFCI could not be settled and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1. Further, the Assessing Officer has observed that during the course of scrutiny proceedings for the assessment year 2008-09, the assessee stated that for the hotel project, even though a sum of Rs. 108.35 cores has been paid, only Rs. 87.21 has been capitalized and balance charged to P & L account in the earlier years. Likewise, for the commercial project, even through a sum of Rs. 21.14 crores (Rs. 108.35-87.21) and Rs. 7.13 crores (Rs. 48.37-41.24) has been claimed as expenditure in the books of accounts in the earlier years on revenue account. Since the above related to the hotel and commercial project, the same is required to be treated as capital expenditure & deductions allowed as revenue expenditure in the earlier years is required to be reversed. Vide letter dated 14.02.2014, the assessee was given show-cause why same should not be disallowed and treated as capital expenditure & added to total income. Since there was no response from the assessee, the Assessing Officer has assessed the business income of the assessee at Rs. 35,26,98,355/- after reducing the assessed business loss of Rs. 13,01,645/- as per assessment order under section 143(3) of the Act dated 31.12.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the factual evidence submitted above, it is submitted that the interest pertaining to the hotel project loans was not charge to profit and loss account at any time and that such interest had been capitalized to capital work in progress. D) Excess capitalized interest had been reversed in the Profit and Loss Account for the assessment year 2006-07 under the head 'Exceptional Item'. Further, the AR of the assessee has submitted that the interest expenditure of Rs. 41,24,11,072/- was not claimed as revenue expenditure because business operations had not commenced on the hotel project during the relevant previous year. Further, it was explained before the ld. CIT(A) that the hotel and commercial projects were part of an integrated project and therefore, there was a huge component of expenditure common to these projects. After considering the submissions of the AR of the assessee, the ld. CIT(A) has observed that the interest expenditure which had accumulated over a period of years was in the nature of pre-operative expenses and was capitalized. This expenditure was stated to have been apportioned on the basis of direct investment in each of the projects. Further, the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively in connection with the transfer. On the other hand, this amount was claimed as part of the cost of acquisition. This amount being the interest incurred on the loan from ICICI and utilized for the Commercial Project has been considered for the calculation of the cost of acquisition and does not represent any interest paid by the assessee to M/s. ARCIL. The assessee has explained that this amount is the interest on the loan from ICICI cumulative from the F.Y. 1996-97 and did not arise during the financial year 2008-09 when ICICI transferred their loan to ARCIL as alleged in the notice. Thus, it was the submissions of the assessee that the sum of Rs. 41,24,11,072/- has correctly been considered as part of cost of acquisition while assessing the income under section 143(3) of the Act. However, the Assessing Officer disallowed the interest paid on loans amounting to Rs. 41,24,11,072/- and total capital loss returned by the assessee was reduced from Rs. 105,99,78,952/- to Rs. 64,75,67,880/-. 5.1. Before us, the ld. Counsel for the assessee has submitted that the interest expenditure of Rs. 41,24,11,072/- was not at all claimed as revenue expenditure because business operations had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that all the details furnished before the ld. CIT(A) were already furnished before the Assessing Officer in their letter dated 23.12.2013 and after examining the materials available on record, the ld. CIT(A) has held that the interest expenditure had been capitalized and not claimed as revenue expenditure, which was not disputed by the Assessing Officer in his remand report against the submissions of the assessee. In view of the above, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed. 6. With regard to the disallowance of revenue expenditure of Rs. 35,40,00,000/-, the Assessing Officer disallowed the same while computing the income from business. After considering the submissions of the assessee, the ld. CIT(A) observed the disallowance made by the Assessing Officer is untenable and allowed the ground of appeal. 6.1. By referring to the grounds of appeal, the ld. DR has submitted that the ld. CIT(A) has erroneously allowed deduction of other revenue expenditure without giving proper opportunity in violation of Rule 46A of the Income Tax Rules for verifying the additional evidences and pleaded for suitable di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has observed that the disallowance made by the Assessing Officer is untenable and allowed the ground of appeal. 6.3. So far as the contention of the Department that no proper opportunity was given to verify the additional evidences furnished before the ld. CIT(A), which is in violation of Rule 46A, the ld. Counsel for the assessee has submitted that no new evidence was placed before the ld. CIT(A) and the ld. CIT(A) has considered the materials whatever placed before the Assessing Officer and decided the issue on merits. On perusal of the appellate order, it is we find that the ld. CIT(A) has very well called for remand report from the Assessing Officer on the submissions and final accounts for the financial years 1997-98 to 2007-08 furnished by the assessee. However, in the remand report, the Assessing Officer has not furnished any explanation regarding the disallowance of Rs. 35,26,98,355/- and accordingly, the ld. CIT(A) has rightly observed that the disallowance made by the Assessing Officer is untenable. We find no infirmity in the appellate order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue stands dismissed. 7. In the result, the appeal filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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