DCIT, V. M/s Prestige Garden Construction Pvt. Ltd.,

ITA 1292/BANG/2013

• Counselvise Citation: 129221114 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADAMCHAND KHINCHA
• Assessee Lawyers: DR P K SRIHARI
• Keywords: Revised return; Revenue expenditure
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.V. VASUDEVAN , JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 1292 /BANG/201 3 (ASSESSMENT YEAR : 2008 - 09 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGA LORE. VS. M/S. PRESTIGE GARDEN CONSTRUCTIONS PVT. LTD., FALCON HOUSE, NO.1, MAIN GUARD CROSS ROAD, BANGALORE - 560 001 PAN AABCP 2091E APPELLANT RESPONDENT. APPELLANT BY : SHRI PADAMCHAND KHINCHA, C.A. RESPONDENT BY : DR. P. K. SRIHARI, ADDL. CIT ( D.R.) DATE OF H EARING : 01.10 . 2 01 4 . DATE OF P RONOUNCEMENT : 14.11 . 201 4 . O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEAL B Y REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, BANGALORE DT.4.6.2012 FOR ASSESSMENT YEAR 2008 - 09. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF R EAL ESTATE AND CONSTRUCTION ACTIVITI ES, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2008 - 09 ON 30.9.2008. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 17.9.2009 WHEREIN THE INCOME DECLARED WAS RS.77,38,420. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') AND THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER 2 ITA NO. 1292 /BANG/ 2013 SECTION 143(3) OF THE ACT BY ORDER DT.31.12.2010 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.2,24, 70,861 AS AGAINST RETURNED INCOME OF RS.77,38,420 IN VIEW OF THE ASSESSING OFFICER DISALLOWING INTEREST AMOUNTING TO RS.1,47,32,44 1 . 2.2 AGGRIEVED BY THE ASSESSMENT ORDER OF THE ASSESSMENT FOR ASSESSMENT YEAR 2008 - 09 DT.31.12.2010, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(APPEALS) III, BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED OFF THE MATTER BY ORDER DT.4.6.2013 ALLOWING THE ASSESSEE'S APPEAL. 3. REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT(APPEALS) III, BANGALORE FOR ASSESSMEN T YEAR 2008 - 09 DT.4.6.2013, IS IN APPEAL BEFORE THIS TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (A PPEALS) ERRED IN HOLDING THAT THE FACTUM OF CURRENCY SWAP INCOME WHICH HAS NO SEPARATE COSTS DOES NOT IMPACT THE OVERALL INTEREST CLAIM IN ANY WAY, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE EARNED INCOME FROM CURRENCY SWAP ARRANGEMENT FROM UNUTILIZED FUNDS IN THE LOAN ACCOUNT AND NOT FROM ANY INVESTMENT MADE BY THE ASSESSEE TOWARDS WHICH SPECIFIC COST IS INCURRED. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. THE GROUNDS RAISED AT S.NOS.1, 3 AND 4 OF REV ENUE S APPEAL BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5. DISALLOWANCE OF INTEREST : RS.1,47,32,441. 5.1 THE GROUND AT S.NO.2 IS THE ONLY ISSUE FOR CONSIDERATION BEFORE US; I.E. WHETHER THE LEARNED CIT (APPEALS) W AS CORRECT IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.1,47,32,441. 3 ITA NO. 1292 /BANG/ 2013 5.2.1 THE ASSESSEE, ENGAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION, BORROWED A LOAN OF RS.81.30 CRORES FROM J.P. MORGAN CHASE BANK O N 18.12.2006 FOR THE PURPOSE OF CON STRUCTION AND DEVELOPMENT OF FORUM VALUE MALL AT WHITEFIELD, BANGALORE @ 12.25% PER ANNUM WHICH WAS PAYABLE MONTHLY. THE ASSESSEE ALSO ENTERED INTO A CURRENCY SWAP ARRANGEMENT WITH THE BANK TO REDUCE THE BURDEN OF THE INTEREST COST. WHEN THIS LOAN WAS TAKEN, THE CONSTRUCTION AND DEVELOPMENT OF FORUM VALUE MALL WAS IN THE INITIAL STAGE, AND THE ASSESSEE NOT BEING IN IMMEDIATE NEED OF THE ENTIRE FUNDS, PLACED A SUM OFRS.63 CRORES OUT OF RS.81.30 CRORES WITH PRES TIGE E STATE PROJECTS LTD., AS I NTER CORPORATE DEPOSIT ON 20.12.2006 FROM WHICH INTEREST RECEIVABLE WAS 13% PER ANNUM ON THE DAY TO DAY BALANCE. THE CONSTRUCTIONOF THE FORUM VALUE MALL COMMENCED IN JANUARY, 2007 AND THE INTER CORPORATE DEPOSIT WAS REPAID BY PRESTIGE ESTATE PROJECTS LTD., AS AND WHEN THE FUNDS WERE NEEDED BY THE ASSESSEE FOR CONSTRUCTION THEREOF, AND THE ENTIRE INTER CORPORATE DEPOSIT WAS SQUARED OFF ON 26.1.2008. THE ASSESSEE REPAID OFF THE ENTIRE LOAN OFRS.81.30 CRORES ON 1.2.2008. 5.2.2 THE ASSESSEE HAS ACCOUNTED FOR TOTAL INTEREST OF RS.8,49,32,272 ON THE LOAN OF RS.81.30 CRORES, OUT OF WHICH RS.5,32,82,402 WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS A DEDUCTION IN COMPUTING THE INCOME FROM PROFITS AND GAINS OF BUSINE SS IN THE PERIOD UNDER CONSIDERATION AND THE REMAINING AMOUNT OF RS.3,16,47,870 WAS CAPITALISED. INTEREST ON INTER CORPORATE DEPOSITS @ 13% ON DAY TO DAY BALANCES FOR THE PERIOD 1.4.2007 TO 26.1.2008 AMOUNTED TO RS.4,09,10,163 AND AN AMOUNT OFRS.1,75,28 ,315 WAS EARNED ON ACCOUNT OF CURRENCY SWAP ARRANGEMENT IN RESPECT OF THE LOAN TAKEN FROM THE BANK. THE TOTAL THEREOF, AMOUNTING TO RS.5,84,38,928 WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR THE PERIOD UNDER CONSIDERATION; RS.4,09,10,163 UNDER THE HEA D INCOME FROM OTHER SOURCES AND RS.1,75,28,315 4 ITA NO. 1292 /BANG/ 2013 EARNED ON ACCOUNT OF CURRENCY SWAP ARRANGEMENT WAS OFFERED TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 5.2.3 IN THE ORDER OF ASSESSMENT DT.31.12.2010, THE ASSESSING OFFICER QUANTIFIED A SUM O F RS.3,85,49,961 AS THE INTEREST COST OF FUNDS KEPT AS INTER CORPORATE DEPOSIT WITH PRESTIGE ESTATE PROJECTS LTD., @ 12.25% (BEING THE RATE AT WHICH THE LOAN OF RS.81.30 CRORES WAS BORROWED) ON THE BASIS OF DAY TO DAY BALANCES. OUT OF THE INTEREST AMOUNT ING TO RS.5,32,82,402 DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT, ONLY THE ABOVE SUM OF RS.3,85,49,961 WAS ALLOWED AS A DEDUCTION BY THE ASSESSING OFFICER. THE REMAINING AMOUNT OF RS.1,47,32,441 (I.E. RS.5,32,82,402 LESS RS.3,85,49,961) WAS D ISALLOWED BY THE ASSESSING OFFICER. THE COMPUTATION OF THE ABOVE BY THE ASSESSING OFFICER IS AS PER THE FOLLOWING TABLE EXTRACTED FROM PAGE 2 OF THE ASSESSMENT ORDER : - INTEREST INCOME / GAIN OFFERED RS. INTEREST DEBITED TO P/L ACCOUNT RS. NET INCOME OF FERED. RS. 4,09,10,613 3,85,49,961 23,60,652 1,75,28,315 1,47,32,441 27,95,874 5,84,38,928 5,32,82,402 51,56,526 THE CONCLUSION S OF THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT WERE THAT : - (I) THE AMOUNT EARNED FROM THE CURRENCY SWAP ARRANGEME NT IS FROM UNUTILISED FUNDS IN THE LOAN ACCOUNT; (II) THERE CAN BE NO SPECIFIC EXPENDITURE ATTRIBUTABLE TO THE AMOUNT EARNED FROM CURRENCY SWAP ARRANGEMENT; AND (III) THE ASSESSEE IS NOT JUSTIFIED IN DEBITING THE INTEREST ON ACCOUNT OF CURRENCY SWAP. 5 ITA NO. 1292 /BANG/ 2013 5.3 THE L EARNED DEPARTMENTAL REPRESENTATIVE RELIED ON AND SUPPORTED THE FINDING OF THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT. IT WAS SUBMITTED THAT THE INCOME FROM CURRENCY SWAP ARRANGEMENT WAS IN RESPECT OF UNUTILISED LOAN FUNDS AND THEREFORE THERE CANNOT BE DEDUCTION OF ANY EXPENDITURE OR OUTGO AGAINST THIS INCOME. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO SUBMITTED THAT THE CURRENCY SWAP ARRANGEMENT INVOLVES EXCHANGE OF ONE CURRENCY FOR ANOTHER CURRENCY AND THEREFORE IT IS A SPECULATIVE TRANSACTION . IT WAS SUBMITTED THAT THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE CLAIM OF INTEREST DESPITE AGREEING TO THE REVENUE S CONTENTION THAT CURRENCY SWAP INCOME HAS NO SEPARATE COSTS. THE LEARNED DEPARTMENTAL REPRESENTATIVE THEREFORE PRAYED FOR REVERSAL OF THE LEARNED CIT (APPEALS) ORDER AND RESTORATION OF THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 5.4.1 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE RATE OF INTEREST ON INTER CORPORATE DEPOSIT OF RS.63 CRORES PLACED WITH PRESTIGE ES TATE PROJECTS LTD. @ 13% WAS HIGHER THAN THE INTEREST PAYABLE @ 12.25% IN RESPECT OF THE LOAN OF RS.81.30 CRORES TAKEN FROM JP MORGAN CHASE BANK. IT WAS CONTENDED THAT SINCE THE INTEREST ON THE INTER CORPORATE DEPOSIT AND THE INCOME FROM CURRENCY SWAP A RRANGEMENT WAS HIGHER THAN THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT, NO DISALLOWANCE OUGHT TO BE MADE. THE LEARNED AUTHORISED REPRESENTATIVE FILED A WRITE UP IN ORDER TO EXPLAIN THE NATURE OF CURRENCY SWAP ARRANGEMENT. IT WAS SUBMITTED THAT IN A CURRENCY SWAP ARRANGEMENT, THE NET PRESENT VALUE OF A FUTURE CASH FLOW OF FUNDS IN A FOREIGN CURRENCY IS DETERMINED AT THE TIME OF EXECUTION OF THE CURRENCY SWAP ARRANGEMENT. IT WAS FURTHER SUBMITTED THAT CURRENCY SWAP ARRANGEMENT IS AN ARRANGEMENT T O SECURE A FUND ON A PARTICULAR DAY IN FUTURE AND TO ACHIEVE THIS, USUALLY AN ARRANGEMENT IS ENTERED INTO WITH A BANK / AUTHORISED DEALER. IN THIS ARRANGEMENT, THE BANK AGREES TO GIVE THE 6 ITA NO. 1292 /BANG/ 2013 ASSESSEE A PREDETERMINED SUM OF INDIAN RUPEES ON THE PROMISE OF THE ASSESSEE PAYING AN EQUIVALENT AMOUNT IN FOREIGN CURRENCY AT A FIXED EXCHANGE RATE. FOREIGN EXCHANGE FLUCTUATION RISKS ARE THUS ASSUMED BY THE ASSESSEE COMPANY AND IN THIS PROCESS THE ASSESSEE COMPANY MAY ALSO ENTER INTO A DERIVATIVE CONTRACT. AN INTERM EDIARY CURRENCY MAY ALSO BE INVOLVED, AS IN THE CASE ON HAND, IF THE COUNTRY HAS NO ARRANGEMENT FOR CURRENCY SWAP. 5.4.2 IN RESPECT OF THE FACTS OF THE CASE ON HAND, IT WAS SUBMITTED THAT THE ASSESSEE ENTERED INTO A CURRENCY SWAP ARRANGEMENT WITH ABN A MRO BANK WHEREIN THE INR LOAN WAS NOTIONALLY SWAPPED WITH CHF (SWISS FRANC RATE), AS PER WHICH THE ASSESSEE WAS TO RECEIVE INR FROM ABN AMRO BANK @ 12.25 % AND IT WAS TO PAY CHF @ 10% AT THE END OF THE SWAP ARRANGEMENT. IT WAS SUBMITTED BY THE LEARNED AUT HORISED REPRESENTATIVE, THAT THE ABOVE CURRENCY SWAP ARRANGEMENT RESULTED IN INTEREST SAVINGS OF 2.25%. THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE NOTES TO ACCOUNTS, FORMING PART OF THE STATUTORY AUDIT REPORT, WHEREIN IT WAS STATED THAT THE CURRE NCY SWAP ARRANGEMENT WAS ENTERED INTO IN ORDER TO REDUCE THE INTEREST COST AND WITH AN INTENTION OF HEDGING THE INTEREST RATE RISK AND NOT FOR SPECULATION OR TRADING PURPOSES. THE LEARNED AUTHORISED REPRESENTATIVE THEREFORE CONTENDED THAT THE CURRENCY SWA P ARRANGEMENT WAS IN RESPECT OF THE ENTIRE LOAN OF RS.81.30 CRORES AND CONSEQUENTLY THE FINDING OF THE ASSESSING OFFICER THAT THE CURRENCY SWAP ARRANGEMENT AND THE INCOME THEREFROM IS IN RESPECT OF UNUTILISED PORTION OF THE LOAN PLACED AS INTER CORPORATE D EPOSIT WITH PRESTIGE ESTATE PROJECTS LTD., IS ERRONEOUS. 5.4.3 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE INTEREST EXPENDITURE RELATABLE TO THE CONSTRUCTION OF FORUM VALUE MALL, AMOUNTING TO RS.3,16,47,870 WAS RIGHTLY CAPITALISED AS PER ACCOUNTING STANDARDS ( A S ) 16 AND NO DEDUCTION WAS CLAIMED IN RESPECT OF 7 ITA NO. 1292 /BANG/ 2013 THE SAME AND THE ASSESSING OFFICER DID NOT DISPUTE THIS FACT. IT WAS SUBMITTED THAT, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 57(III) OF THE ACT, THE ENTIRE INTEREST DEBIT ED TO THE PROFIT AND LOSS ACCOUNT WAS EXPENDED FOR THE PURPOSE OF EARNING INTEREST ON INTER CORPORATE DEPOSITS AND INCOME FROM THE CURRENCY SWAP ARRANGEMENT AND CONSEQUENTLY, THE ENTIRE INTEREST SO DEBITED IS ELIGIBLE FOR DEDUCTION. IT WAS ARGUED THAT THE ASSESSING OFFICER HAD ERRED IN ARTIFICIALLY SEGREGATING THE INTEREST PAID AND DISALLOWING A SUM OF RS.1,47,32,441. IN RESPECT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE S ARGUMENT THAT THE INCOME FROM SWAP ARRANGEMENT WAS SPECULATIVE IN NATURE, THE LEARN ED AUTHORISED REPRESENTATIVE RELIED ON THE NOTES TO ACCOUNT FORMING PART OF THE STATUTORY AUDITOR S REPORT WHEREIN IT WAS STATED THAT THE CURRENCY SWAP ARRANGEMENT WAS ENTERED INTO WITH THE INTENTION OF HEDGING THE INTEREST RATE RISK AND NOT FOR SPECULAT ION OR TRADING PURPOSES. ALTERNATIVELY, IT WAS SUBMITTED THAT EVEN IF THE SAID ARRANGEMENT WAS HELD TO BE SPECULATIVE IN NATURE, THERE WAS NO LOSS FROM THE SAID TRANSACTION AND THE INCOME THEREON HAD BEEN OFFERED TO TAX. THE LEARNED AUTHORISED REPRESENTA TIVE PRAYED THAT, IN VIEW OF THE ABOVE ARGUMENTS, REVENUE S APPEAL BE DISMISSED. 5.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IN THE CASE ON HAND, THE FACTS AS EMANATE FROM THE RECORD ARE THA T, THE ASSESSEE BORROWED A LOAN OF RS.81.30 CRORES FROM JP MORGAN CHASE BANK ON 18.12.2006 FOR THE PURPOSE OF CONSTRUCTION OF FORUM VALUE MALL AT WHITEFIELD, BANGALORE ON WHICH INTEREST WAS PAYABLE ON A MONTHLY BASIS @ 12.25% PER ANNUM. THE ASSESSEE THE N ENTERED INTO A CURRENCY SWAP ARRANGEMENT WITH ABN AMRO BANK TO REDUCE THE BURDEN OF INTEREST COST AND FOR HEDGING THE INTEREST RATE RISK. THIS IS EVIDENT FROM PARA 10 OF NOTES TO THE ACCOUNTS FORMING PART OF THE 8 ITA NO. 1292 /BANG/ 2013 AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDING 31.3.2008 (PLACED AT PAGE 20 OF THE ASSESSEE'S PAPER BOOK), WHEREIN IT IS STATED AS UNDER : - 10. THE COMPANY HAD TAKEN A TERM LOAN OF RS.813,000,000 IN THE PREVIOUS YEAR. IN ORDER TO REDUCE ITS INTEREST COST, THE COMPANY HAD ENTERED INTO A C URRENCY SWAP ARRANGEMENT WITH ITS BANKERS, WHEREIN THE INR LOAN WAS NOTIONALLY SWAPPED WITH CHF. THE CURRENCY SWAP ARRANGEMENT WAS STRUCTURED ALONG WITH USD / CHF EMBEDDED OPTIONS. THE COMPANY ENTERED INTO THIS ARRANGEMENT WITH THE INTENTION OF HEDGING T HE INTEREST RATE RISK AND NOT FOR SPECULATION OR TRADING PURPOSES. THE ARRANGEMENT WAS SETTLED DURING THE CURRENT YEAR AND GAIN ON SETTLEMENT OF THE CONTRACT AMOUNTING TO RS.17,528,315 HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. THERE ARE NO OTHER O UTSTANDING DERIVATIVE CONTRACTS AS AT THE BALANCE SHEET DATE. 5.5.2 THE CONSTRUCTION AND DEVELOPMENT OF FORUM VALUE MALL WAS IN THE INITIAL STAGE OF DEVELOPMENT WHERE THE LOAN OF RS.81.30 CRORES WAS BORROWED FROM JP MORGAN CHASE BANK ON 18.12.2006. THE ASSESSEE THEREFORE PLACED AN AMOUNT OF RS.63 CRORES OUT OF THE LOAN OF RS.81.30 CRORES WITH M/S. PRESTIGE ESTATE PROJECTS LTD., AS INTER CORPORATE DEPOSIT ON 20.12.2006 ON WHICH INTEREST THEREON WAS RECEIVABLE @ 13% PER ANNUM ON THE DAY TO DAY BALAN CE. THE INTER CORPORATE DEPOSIT WAS REPAID BY PRESTIGE ESTATE PROJECTS LTD., AS AND WHEN FUNDS WERE REQUIRED BY THE ASSESSEE AFTER THE CONSTRUCTION AND DEVELOPMENT OF FORUM VALUE MALL COMMENCED IN JANUARY, 2007. THE BALANCE OF THE INTER CORPORATE DEPOS IT AS ON 1.4.2007 WAS RS.45.75 CRORES WHICH WAS SQUARED OFF BY26.1.2008 AND THE ENTIRE LOAN OF RS.81.30 CRORES TAKEN BY THE ASSESSEE FROM JP MORGAN CHASE BANK WAS REPAID ON 1.2.2008. 5.5.3 INTEREST PAID ON THE LOAN OF RS.81.30 CRORES FOR THE PERIOD 1 .4.2007 TO 31.3.2008, (VIZ. THE PERIOD UNDER CONSIDERATION) TOTALLY AMOUNTED TO RS.8,49,32,272. OUT OF THIS INTEREST AMOUNTING TO RS.5,32,82,402 WAS DETERMINED AS INTEREST COST RELATABLE TO THE INTER - CORPORATE DEPOSIT AND THE SAME WAS DEBITED TO THE PROFI T AND LOSS ACCOUNT. THE REMAINING INTEREST AMOUNTING TO RS.3,16,47,870 WAS CAPITALISED TO BUILDING IN THE BALANCE SHEET AND NO DEDUCTION 9 ITA NO. 1292 /BANG/ 2013 WAS CLAIMED IN RESPECT OF THIS CAPITALISED INTEREST. ACCORDING TO THE ASSESSEE, THE INTEREST CAPITALISED REPRESENTED P ROPORTIONATE COST OF BORROWINGS DEPLOYED FOR CONSTRUCTION OF FORUM VALUE MALL. THE ASSESSING OFFICER DOES NOT DISPUTE THE WORKING AND QUESTION OF BOTH THE INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT AND THAT PORTION WHICH IS CAPITALISED. IN VIEW OF THE F ACT THAT INTEREST WAS PAYABLE ON A MONTHLY BASIS ON THE LOAN OF RS.81.30 CRORES TAKEN, THE INTEREST COST RELATABLE TO THE BORROWINGS PLACED AS INTER CORPORATE DEPOSITS SHOULD ALSO BE COMPUTED @ 12.25% ON A MONTHLY BASIS, WHICH WORKS OUT TO RS.5,32,82,402 A ND WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. IN THIS FACTUAL MATRIX OF THE MATTER, WE HOLD THAT THE FINDING OF THE ASSESSING OFFICER THAT AN AMOUNT OF RS.3,85,49,961 WAS THE INTEREST RELATABLE TO THE INTER - CORPORATE DEPO SIT APPEARS TO BE FACTUALLY ERRONEOUS. 5.5.4 AS AGAINST THE INTEREST EXPENDITURE OF RS.5,32,82,402 RELATED TO INTER CORPORATE DEPOSITS @ 12.25% PER ANNUM PAYABLE MONTHLY, INTEREST EARNED FROM INTER CORPORATE DEPOSITS @ 13% PER ANNUM AMOUNTED TO RS.4,09 ,10,613. THE INTEREST EXPENDITURE WAS MORE THAN THE INTEREST EARNED EVEN THOUGH THE RATE OF INTEREST ON THE INTER - CORPORATE DEPOSIT WAS HIGHER THAN THE LOAN OF RS.81.30 CRORES TAKEN BY THE ASSESSEE . THIS WAS BECAUSE THE INTEREST PAYABLE TO THE BANK WAS C OMPUTED ON MONTHLY BALANCE WHEREAS THE INTEREST RECEIVABLE WAS CALCULATED ON DAY TO DAY BALANCE. FURTHER, AS PER THE MATERIAL ON RECORD AND THE AUDITOR S REPORT, THE CURRENCY SWAP ARRANGEMENT, IN RESPECT OF THE ENTIRE LOAN, WAS ENTERED INTO WITH A VIEW TO REDUCE THE INTEREST COST AND FOR HEDGING THE INTEREST RATE RISK. THE LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT DEMONSTRATE AS TO HOW THE CURRENCY SWAP ARRANGEMENT WAS ONLY IN RESPECT OF THE UNUTILISED FUNDS AS CONCLUDED BY THE ASSESSING OFFICER. IN TH IS VIEW OF THE MATTER, WE HOLD THAT THE FINDING OF THE ASSESSING OFFICER THAT THE CURRENCY SWAP ARRANGEMENT WAS ONLY IN RESPECT OF 10 ITA NO. 1292 /BANG/ 2013 UNUTILISED FUNDS IS FACTUALLY ERRONEOUS. WE, THEREFORE, HOLD THAT THE CURRENCY SWAP ARRANGEMENT AND THE RESULTANT INCOME THE REFROM AMOUNTING TO RS.1,75,28,315 WAS IN RESPECT OF THE ENTIRE LOAN AND THE SAME WAS LINKED TO THE LOAN BORROWED FOR THE PURPOSE OF REDUCTION OF INTEREST COST. 5.5.5 AS PER SECTION 57(III) OF THE ACT, ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME IS ALLOWABLE AS DEDUCTION. UNDER SECTION 37 OF THE ACT, REVENUE EXPENDITURE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRYING ON BUSINESS IS ALLOWED AS A DEDUCTION. IN THE CASE ON HAND, T HE INTEREST AMOUNTING TO RS.5,32,82,402 DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS THE INTEREST COST OF THE LOAN FINDS TEMPORARILY PLACED AS A INTER - CORPORATE DEPOSIT. THE CURRENCY SWAP ARRANGEMENT AND THE INCOME THERE FROM AMOUNTING TO RS.1,75,28,315 WAS ALSO IN RESPECT OF THE ENTIRE LOAN AND WAS LINKED TO THE LOAN BORROWED FOR THE PURPOSE OF REDUCTION OF INTEREST COST. THUS, THE INTEREST DEBITED TO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.5,32,82,402 WAS INCURRED FOR EARNING INCOME FROM THE INTER - COR PORATE DEPOSIT AND THE CURRENCY SWAP ARRANGEMENT AND IN THE REGULAR COURSE OF BUSINESS CARRIED ON BY THE ASSESSEE AND WE, THEREFORE, HOLD THAT THE INTEREST SO DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ADMISSIBLE AS A DEDUCTION UNDER SECTION 57(III) OF THE ACT OR ALTERNATIVELY UNDER SECTION 37(1) OF THE ACT. 5.5.6 FURTHER, THE INTEREST FROM INTER - CORPORATE DEPOSIT AND THE CURRENCY SWAP ARRANGEMENT TOTALLY AMOUNTING TO RS.5,84,38,928 (RS.4,09,10,613 PLUS RS.,175,28,315) WAS HIGHER THAN THE INTEREST PAID AMOUNTING TO RS.5,32,82,402 DEBITED TO THE PROFIT AND LOSS ACCOUNT AND HAS ALSO ADMITTEDLY BEEN BROUGHT TO TAX. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED 11 ITA NO. 1292 /BANG/ 2013 ABOVE, THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING INTEREST PAID AMOUNT ING TO RS.1,47,32,441 IS THEREFORE FACTUALLY INCORRECT AND IS ACCORDINGLY DELETED. 6. THE ASSESSEE AT PAGE 44 OF ITS PAPER BOOK HAS ALTERNATIVELY SUBMITTED THAT SINCE THE CURRENCY SWAP ARRANGEMENT WAS ENTERED WITH A VIEW TO REDUCE THE INTEREST COST, TH E RESULTANT INCOME OF RS.1,75,28,315 THEREFORE SHOULD GO TO REDUCE THE INTEREST PAID ON BORROWINGS I.E. RS.8,49,30,272. THEREFORE, THE EFFECTIVE INTEREST PAID AFTER REDUCTION OF INCOME FROM THE CURRENCY SWAP ARRANGEMENT WOULD BE RS.6,74,01,957 (VIZ. RS.8, 49,30,272 LESS RS.1,75,28,315). OUT OF THE ABOVE, AN AMOUNT OF RS.3,16,47,870 WAS CAPITALISED AS PART OF THE FUNDS WERE USED FOR THE ONGOING CONSTRUCTION OF FORUM VALUE MALL AND THE BALANCE SUM OF RS.3,57,54,087 (RS.6,74,01,957 LESS RS.3,61,47,870) ONLY COULD HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT. WHILE THE ASSESSING OFFICER HAS COMPUTED THE INTEREST COST PERTAINING TO THE INTER - CORPORATE LOAN AT RS.3,85,49,961 @ 12.25% ON THE DAY TO DAY BALANCE, THE NET INTEREST PAID CHARGED TO THE PROFIT AN D LOSS ACCOUNT AS PER THE ABOVE WORKING AT RS.3,57,54,087 IS LOWER THAN THE INTEREST COST COMPUTED AT RS.3,85,49,961 BY THE ASSESSING OFFICER. IN THIS ALTERNATE FACTUAL MATRIX ALSO, WE FIND THAT THE ASSESSEE HAS NOT MADE ANY EXCESS CLAIM ON ACCOUNT OF INTE REST. 7. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH NOV., 201 4 . SD/ - SD/ - ( N.V. VASUDE VAN ) ( JASON P BOAZ ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP