ITO, Ward - 1(1), Kolkata, Kolkata V. M/s. Amba High-Rise Pvt. Ltd., Kolkata

ITA 2291/KOL/2010

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6444 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: S S GUPTA
• Keywords: Fair market value
• Section: 14A; 144

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 2291 / KOL / 20 10 ASSESSMENT YEAR :2007-08 INCOME TAX OFFICER, WARD-1(1), P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-69 V/S . M/S AMBA HIGH-RISE PVT. LTD., 68/2, HARISH MUKHERJEE ROAD, KOLKATA-25 [ PAN NO.AAFCA 7094 L ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S. DASGUPTA, ADDL. CIT-DR /BY RESPONDENT SHRI S.S. GUPTA, FCA /DATE OF HEARING 14-02-2018 /DATE OF PRONOUNCEMENT 27-04-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 15.09.2010. ASSESSMENT WAS FRAMED BY ITO WARD-1(1), KOLKATA U/S 144 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 31.12.2009 FOR ASSESSMENT YEAR 2007-08 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF IN TEREST RECEIVED ON BANK DEPOSITS TO THE EXTENT OF RS.62,57,436/- AS INCOME FROM OTHER SOURCES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF CA PITAL EXPENDITURE CLAIMED UNDER THE HEAD LOAN SYNDICATION CHARGES OF RS.1,26,27,000/- 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE INTEREST EXPENSE S OF RS.86,90,220/- ON ACCOUNT OF TERM LOAN FROM CENTRAL BANK OF INDIA WHICH WAS NOT ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 2 UTILIZED FOR BUSINESS PURPOSE AND WAS PLACED IN FIX ED DEPOSIT TO EARN INTEREST. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF COMPENSATION PAID FOR RS.12,60,000/- INCURRED FOR ACQUISITION OF LAND WIT HOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOUR CE U/S. 194LA OF THE IT ACT. 5. THE APPELLANT CRAVES LEAVE TO AMEND, MODIFY AND ALTER ANY GROUNDS OF AL DURING THE COURSE OF HEARING OF THIS CASE. SHRI S. DASGUPTA, LD. DEPARTMENTAL REPRESENTATIVE A PPEARED ON BEHALF OF REVENUE AND SHRI S.S. GUPTA, LD AUTHORIZED REPRESEN TATIVE APPEARED ON BEHALF OF ASSESSEE. 2. FIRST ISSUE RAISED BY REVENUE IN GROUND NO.1 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER FOR 62,57,436/- BY HOLDING THE SAME AS INCOME FROM OTHER SOURCE. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY WHICH WAS INCORPORATED ON 25.01.2006 AND THE NATURE OF BU SINESS OF ASSESSEE IS DEVELOPING AND PROMOTING OF LAND AND PROPERTY. THE ASSESSEE DURING THE YEAR HAS TAKEN A TERM LOAN FROM CENTRAL BANK OF INDIA VI DE AGREEMENT DATED 15.11.2006 FOR THE PURPOSE OF CONSTRUCTION OF BUILD ING. HOWEVER, THERE WAS NO UTILIZATION OF SUCH LOAN AMOUNT, THEREFORE THE ASSE SSEE DEPOSITED THE SAME WITH THE ICICI BANK AS FIXED DEPOSIT. THUS, ASSESSE E INCURRED INTEREST COST PAYABLE TO CENTRAL BANK OF INDIA FOR 88,99,809/- AND SIMULTANEOUSLY EARNED INTEREST INCOME ON FIXED DEPOSIT MADE WITH ICICI BA NK AMOUNTING TO 71,47,436//- ONLY. THUS, ASSESSEE TREATED THE EXCES S AMOUNT OF INTEREST FOR 17,52,373/- (88,99,809 71,47,436) AS CAPITAL WORK -IN-PROGRESS (WIP). 3.1 HOWEVER, AO WAS OF THE OPINION THAT THE INTERES T INCOME DOES NOT ARRIVE TO ASSESSEE OUT OF ITS BUSINESS ACTIVITIES. THEREFO RE, THE SAME SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. ACCORDINGLY, AO SHOW CAUSED THE ASSESSEE FOR SEEKING EXPLANATION REGARDING THE INTE REST INCOME TO BE TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, THE ASSESSEE FAILED TO MAKE ANY REPLY THEREFORE, AO AFTER HAVING RELIANCE IN THE JU DGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKAH CHEMICALS & FERTILIZERS LTD. VS. CI T (1997) ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 3 227 ITR 172 (SC) HELD THAT INTEREST WILL BE TAXED U NDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, THE AO WHILE COMPUTING THE INCOME FROM OTHER SOURCES HAS TREATED 10% OF INTEREST EXPENSE PERTAIN ING TO THE IMPUGNED INTEREST INCOME. THUS, AO DISALLOWED THE SUM OF 62,57,636/- (71,47,436 8,90,000) TREATED THE SAME AS INCOME FROM OTHER SOU RCES. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT IT HAS CO MMENCED ITS BUILDING CONSTRUCTION ACTIVITIES BY PURCHASING PIECE OF LAND AND INCURRING THE COST ON THE SAME. THE ASSESSEE HAS INCURRED COST OF 4,15,17,650/- AS EVIDENT FROM THE SCHEDULE-5 OF THE BALANCE-SHEET ALONG WITH THE LAND PURCHASED OF 47.41 CRORES ONLY. THUS, THE PRINCIPLE LAID DOWN IN THE C ASE OF TUTICORIN ALKAH CHEMICALS & FERTILIZERS LTD. (SUPRA) IS NOT APPLICABLE TO THE INSTANT FACTS OF THE CASE. THE ASSESSEE ALSO REFERRED TO THE NOTES ISSUE D BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA FOR THE TREATMENT OF EXPENDITURE INCURRED DURING THE CONSTRUCTION PERIOD. AS PER THE ICAI INTEREST I NCOME EARNED DURING THE CONSTRUCTION PERIOD MAY BE SET OFF AGAINST THE INTE REST EXPENDITURE INCURRED DURING THE YEAR. IN VIEW OF ABOVE, ASSESSEE PRAYED BEFORE LD. CIT(A) THAT THE INTEREST INCOME SHOULD BE TREATED AS INCOME UNDER T HE HEAD BUSINESS AS IT WAS EARNED AFTER COMMENCEMENT OF ITS CONSTRUCTION / BUSINESS ACTIVITIES. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- THE ISSUE RELATES TO THE COMMENCEMENT OF THE BUSIN ESS ACTIVITIES FOR CLAIMING THE INTEREST EXPENSES AS PART OF THE CONST RUCTION EXPENSES WHICH HAS BEEN CAPITALIZED DURING THE YEAR. THE APP ELLANT PROVIDED THE DETAILS OF BALANCE SHEET WHEREIN THE DETAILS OF LAN D PURCHASE, WORK IN PROGRESS EXPENSES, LOANS SECURED AND UNSECURED TAKE N BY THE COMPANY ARE REFLECTED. RELIANCE WAS PLACED ON THE A NDHRA PRADESH HIGH COURT DECISION IN THE CASE OF CIT VS. A.P. FOR EST DEVELOPMENT CORPORATION IN 171 ITR 663. THE NOTES MADE BY THE I CAI ALSO SUGGEST THAT IF ANY PARTICULAR ITEM OF INCOME CAN BE DIRECT LY ATTRIBUTABLE TO A PARTICULAR ITEM OF EXPENDITURE, THE NET AMOUNT SHOU LD BE TREATED IN THE APPROPRIATE MANNER DEPENDING UPON ITS NATURE OF ACT IVITIES. IN THE INSTANT CASE, THE APPELLANT HAD SET OFF THE INTERES T INCOME EARNED ON UNUTILIZED AMOUNT OF SECURED LOAN FROM CENTRAL BANK AGAINST THE INTEREST PAID AND CAPITALIZING THE SAME AS WORK IN PROGRESS. IN ANY CIRCUMSTANCES, THE EXPENSES INCURRED ON INTEREST PA ID ON LOAN TAKEN FOR ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 4 WORKING CAPITAL IS ALWAYS ALLOWABLE IN THE CONSTRUC TION BUS. THE APPELLANT EARNED INTEREST BECAUSE THE APPELLANT MAD E F.D WITH ICICI BANK ON UNUTILIZED AMOUNT TO REDUCE THE COST OF INT EREST TO THE COMPANY. THE AO'S CONTENTION OF NOT ALLOWING THE IN TEREST EXPENSES AND TREATING THE INTEREST EARNED AS INCOME FROM OTH ER SOURCES WAS BASED ON THE FACTS THAT THE BUSINESS ACTIVITIES HAD NOT YET COMMENCED. HOWEVER, ON GOING THROUGH THE EVIDENCE FILED BY THE APPELLANT, IT CLEARLY SUGGESTS THAT THE APPELLANT HAD COMMENCED ITS BUSIN ESS ACTIVITY OF CONSTRUCTION. THEREFORE, THE APPELLANT IS GRANTED T HE SET OFF OF INTEREST INCOME EARNED WITH THE INTEREST EXPENSES AND THE BA LANCE AMOUNT OF INTEREST EXPENSES OF RS.17,52,373/- BEING ALLOWED T O BE CAPITALIZED TOWARDS THE WORK IN PROGRESS. THEREFORE THEE GROUND S ARE DECIDED IN FAVOUR OF THE APPELLANT AND THE ASSESSING OFFICER I S DIRECTED TO ACT ACCORDINGLY. AGGRIEVED BY THIS NOW REVENUE IS IN APPEAL BEFORE U S. 5. BEFORE US LD. DR SUBMITTED THAT THE ACTIVITIES O F THE ASSESSEE HAS NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION AS IT HAS NOT PREPARED ANY PROFIT AND LOSS ACCOUNT FOR THE UNDER CONSIDERATION . THE LD. DR FURTHER SUBMITTED THAT THE LAND PURCHASE D HAS BEEN CLASSIFIED AS FIXED ASSETS. HAD THE BUSINESS BEEN COMMENCED THEN THE SAME SHOULD HAVE BEEN SHOWN AS STOCK-IN-TRADE. THE INTEREST EXPENSES INCURRED BY ASSESSEE ARE INTRINSICALLY LINKED WITH THE BUSINESS OF ASSES SEE THOUGH THE INTEREST INCOME IS NOT ARISING FROM THE CARRYING ON THE BUSI NESS. THERE IS A DIFFERENCE BETWEEN SETTING UP OF THE BUSINESS AND COMMENCEMENT OF THE BUSINESS. AS SUCH THERE IS NO EVIDENCE SUGGESTING THAT BUSINESS OF THE ASSESSEE HAS BEEN COMMENCED. LD. DR ALSO SUBMITTED THAT ASSESSEE WAS GIVEN AN OPPORTUNITY TO JUSTIFY FOR TREATING THE IMPUGNED INTEREST INCOM E AS INCOME UNDER THE HEAD BUSINESS & PROFESSION BUT ASSESSEE FAILED TO AVAI L THE SAME BEFORE AO AT THE TIME OF ASSESSMENT PROCEEDINGS. LD. DR VEHEMENT LY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE FILED PA PER BOOK WHICH IS RUNNING PAGES FROM 1 TO 42 AND SUBMITTED THAT THE ACTIVITIE S OF ASSESSEE HAS COMMENCED DURING THE YEAR UNDER CONSIDER IN THE BUS INESS OF REAL ESTATE. THE ACT OF PURCHASING THE LAND JUSTIFIES THE COMMENCEME NT OF THE BUSINESS OF ASSESSEE. LD. AR IN SUPPORT OF ASSESSEES CLAIM REL IED ON THE JUDGMENT OF ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 5 HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHOMKEETU BUILDERS & DEVELOPMENT (P) LTD. (2013) 368 ITR 680 (DEL) AND LD. AR IN SUPPORT OF ASSESSEES CLAIM ALSO RELIED ON THE JUDGMENT OF HON 'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD . (1973) 91 ITR 170 (GUJ). IN VIEW OF ABOVE LD. AR SUBMITTED TH AT THE AMOUNT OF INTEREST INCOME SHOULD BE TREATED AS INCOME FROM BUSINESS AN D PROFESSION. LD. AR ALSO RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE ASSESSEE HAS BORROWED THE LOAN OF RS. 35 CRORES FROM CENTRAL BANK OF INDI A VIDE LOAN AGREEMENT DATED 15-11-2006. THE ASSESSEE CLAIMED TO HAVE TAKE N THE LOAN FOR THE PURPOSE OF CONSTRUCTION OF THE BUILDING. AS THE BOR ROWED FUND WAS NOT REQUIRED FOR IMMEDIATE UTILIZATION, THEREFORE, THE ASSESSEE DEPOSITED THE SAME AS FIXED DEPOSIT WITH THE ICICI BANK. THE ASSESSEE HAS INCURRED THE INTEREST COST RS.88,9 9,809/- ON ACCOUNT OF BORROWING FROM CENTRAL BANK OF INDIA AND AT THE SAM E TIME IT HAS EARNED INTEREST INCOME ON THE FIXED DEPOSITS WITH ICICI BA NK FOR RS.71,47,436/-. THE BALANCE AMOUNT OF RS.17,52,373/- OF INTEREST EXPENS ES WAS CAPITALIZED BY THE ASSESSEE UNDER THE HEAD WORK IN PROGRESS. HOWEVER T HE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT COMMENCED ITS BUSINESS AC TIVITIES THEREFORE THE INTEREST INCOME EARNED ON THE FIXED DEPOSIT SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. ACCORDINGLY, THE AO TREATED THIS SUM OF RS. 62,57,436.00 (71,47,436 890000) BEING 10% OF TOTAL INTEREST CO ST AS INCOME OF THE ASSESSEE FROM OTHER SOURCES AND ACCORDINGLY ADDED T O THE TOTAL INCOME OF THE ASSESSEE. HOWEVER, THE LD CIT(A) GRANTED THE RELIEF TO THE AS SESSEE BY OBSERVING THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS ACTIVITIES. THE OBSERVATION OF THE LEARNED CIT-A WAS BASED ON THE FACT THAT THE ASSESS EE HAS PURCHASED THE LAND. SIMILARLY THE LEARNED CIT-A ALSO RELIED ON TH E NOTE ISSUED BY THE ICAI ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 6 SUGGESTING THAT INTEREST INCOME DURING THE CONSTRUC TION PERIOD MAY BE SET OFF AGAINST INTEREST EXPENSES INCURRED DURING THE YEAR. 6.1 FROM THE FOREGOING DISCUSSION, WE NOTE THAT THE RE IS NO DOUBT THAT THE ASSESSEE HAS PURCHASED THE LANDS AND ALSO INCURRED COST UNDER THE HEAD CAPITAL WORK IN PROGRESS AS EVIDENT FROM THE AUDITE D BALANCE SHEET FILED BY THE ASSESSEE WHICH IS PLACED ON PAGE 25 OF THE PAPER BO OK. ACCORDINGLY WE ARE OF THE VIEW THAT THE PRINCIPLES LAID DOWN BY THE HO NBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKAH CHEMICALS & FERTILIZERS LTD (SUPRA) ARE NOT APPLICABLE IN THE CASE ON HAND AS IN THAT CASE THE ACTIVITY OF THE ASSESSEE WAS NOT COMMENCED. HOWEVER IN THE CASE ON HAND THE ACTI VITY OF THE ASSESSEE HAS ALREADY BEEN COMMENCED. IN THIS CONNECTION, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF ANDHRA PRADESH HIGH C OURT IN THE CASE OF CIT VS. NAGARJUNA STEEL LTD . REPORTED IN 171 ITR 663 (AP) WHEREIN IT WAS HELD THAT ONCE THE LAND HAS BEEN PURCHASED BY THE ASSESSEE, I T IMPLIES THAT THE ACTIVITY OF THE ASSESSEE HAS COMMENCED. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW : THE OBJECT OF THE ASSESSEE WAS NOT TO EARN INTEREST ON DEPOSITS BUT TO DO BUSINESS. IT WAS IN THE COURSE OF SETTING UP A PLAN T, AND SINCE ALL THE BORROWED MONEY WAS NOT NEEDED AT ONCE, IT PUT CERTAIN MONEYS IN DEPOSITS, WHICH EARNED INTEREST. HENCE, THE SAID INTEREST EARNED ON DEPOSITS SHOULD BE SET OFF AGAINST THE INTEREST PAID BY THE ASSESSEE ON THE LO ANS OBTAINED BY IT AND THE BALANCE OF THE INTEREST AMOUNT WAS TO BE CAPITALISE D. BESIDES THE ABOVE WE ALSO NOTE THAT THERE IS A DIRE CT NEXUS BETWEEN THE INTEREST INCOME AND INTEREST EXPENDITURE AND ACCORD INGLY IF THE INTEREST INCOME IS TO BE BROUGHT TO TAX THEN CORRESPONDING EXPENSES SHOULD BE ADJUSTED AGAINST SUCH INCOME. THUS THE AO IN OUR CONSIDERED VIEW ERRED IN TREATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES WITHOU T ADJUSTING THE COST INCURRED IN EARNING SUCH INTEREST INCOME. 6.2 IN VIEW OF ABOVE WERE OF THE VIEW THAT THE ORD ER PASSED BY THE LEARNED CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. THE ORDER OF THE LD. CIT(A) IS CORRECT ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 7 AND AS PER THE PROVISIONS OF LAW. HENCE THE GROUND OF APPEAL FILED BY THE REVENUE IS DISMISSED. 7. NEXT ISSUE RAISED BY REVENUE IN GROUND NO.2 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 1,26,27,000/- ON ACCOUNT OF SYNDICATION CHARGES. 8. THE ASSESSEE DURING THE YEAR HAS INCURRED AN EXP ENSE OF 1,26,27,000/- ON ACCOUNT OF LOAN SYNDICATION CHARG ES WHICH WAS PAID TO M/S ALCOVE INDUSTRIES LTD. (AIL FOR SHORT). THE ASSESSE E CLAIMED TO HAVE PAID THE CHARGES FOR GETTING THE LOAN FORM CENTRAL BANK OF I NDIA. HOWEVER, AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE DIRECTORS OF AIL ARE COMMON. THE ASSESSEE FAILED TO PROVIDE ANY COGENT E XPLANATION JUSTIFYING THE PAYMENT OF LOAN SYNDICATION CHARGES. IN VIEW OF ABO VE, AO DISALLOWED THE LOAN SYNDICATION CHARGES U/S 40A(2)(A) OF THE ACT A ND ADDED TO THE TOTAL INCOME OF ASSESSEE. 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT LOAN OF S YNDICATION CHARGES WAS PAID IN CONNECTION WITH LOAN OBTAINED FROM CENTRAL BANK OF INDIA. AIL HAS SHOWN SUCH CHARGES IN ITS PROFIT AND LOSS ACCOUNT A ND THE SAME HAS BEEN OFFERED TO TAX. THE PAYMENT WAS MADE THROUGH ACCOUN T PAYEE CHEQUE AND THERE IS NO ALLEGATION FROM THE SIDE OF AO SUGGESTI NG THAT THE EXPENDITURES INCURRED BY ASSESSEE ARE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE SERVICES. HOWEVER, LD. CIT(A) A FTER CONSIDERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- THE AO DISALLOWED THE EXPENSES INCURRED ON LOAN SY NDICATION CHARGE OF RS.1,26,27,000/- WHICH WAS CAPITALIZED AND DEBIT ED TO WORK IN PROGRESS ON THE GROUND THAT THE SAID AMOUNT WAS PAI D TO SISTER CONCERN. THE APPELLANT ARGUED THAT THE PROVISION OF SECTION OF 40A(2)(A) IS NOT APPLICABLE TO THE SINCE THE ASSESSEE COMPANY AS IT NEITHER FALLS WITHIN THE DEFINITION GIVEN UNDER SECTION 40A(2)(B) NOR AN Y FINDING WAS MADE BY THE ASSESSING OFFICER THAT SUCH EXPENDITURE WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF SERVICES RENDERED. IT IS SEEN FROM THE RECORD THAT THE ASSES SING OFFICER HAD NOT ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 8 DISCUSSED THE UNREASONABLENESS OF THE EXPENDITURE I NCURRED BY THE COMPANY. MERE PAYMENTS MADE TO THE COMPANY WHERE TH E DIRECTORS OF THE ASSESSEE ARE SAME DOES NOT IPSO FACTO ATTRACT S ECTION 40A(2)(B) OF THE INCOME TAX ACT, 1961. THEREFORE, THE APPELLANT IS ALLOWED THE EXPENDITURE OF LOAN SYNDICATION CHARGED AND THE SAM E IS ALLOWED TO BE CAPITALIZED TO WORK IN PROGRESS. THEREFORE THE ABOV E GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. THE REVENUE BEING AGGRIEVED BY THIS ORDER OF LD. CI T(A) IS IN APPEAL BEFORE US. 10. BEFORE US LD. DR SUBMITTED THAT NECESSARY DETAI LS WERE NOT FURNISHED BY ASSESSEE REGARDING THE SYNDICATION CHARGES. HE S TATED THAT ASSESSEE HAS NOT PREPARED ANY PROFIT AND LOSS ACCOUNT FOR THE YE AR UNDER CONSIDERATION AND THE IMPUGNED EXPENDITURES WERE CLASSIFIED UNDER CAP ITAL WIP. IN VIEW OF ABOVE, LD. DR SUBMITTED THAT THE AO WAS HANDICAPPED TO EXAMINE WHETHER THE EXPENDITURES ARE UNREASONABLE OR EXCESSIVE. HE VEHEMENTLY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR SUBMITTED THAT THE ACCOUN TING TREATMENT IS NOT SACROSANCT FOR ALLOWABILITY OF THE EXPENSE. THE EXP ENSES WERE INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS WHICH IS INTRINSICAL LY LINK AND THEREFORE SAME WAS CLASSIFIED UNDER THE HEAD CAPITAL WIP. HE RELIE D ON THE ORDER OF LD. CIT. 11. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THIS JUNCTURE WE F IND RELEVANT TO REPRODUCE THE PROVISIONS OF SECTION 40A OF THE ACT WHICH READS AS UNDER : EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRC UMSTANCES. 45 40A. (1) THE PROVISIONS OF THIS SECTION SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISION OF THIS ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION. 46 (2)(A) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON 47 REFERRED TO IN CLAUSE (B) OF THIS SUB-SECTION, AND THE 48 [ASSESSING] OFFICER IS OF OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCRUING TO HIM THEREFROM, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS A DEDUCTION. ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 9 THE CONDITIONS SPECIFIED UNDER SECTION 40A OF THE A CT INTER ALIA REQUIRE TO ESTABLISH THE FACT THAT THE EXPENSES ARE EXCESSIVE AND UNREASONABLE. BUT IT HAS NOT BEEN POINTED OUT AS TO HOW THE EXPENSES INC URRED ARE EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS/SERVICES/FACILITIES FOR WHICH PAYMENT IS MADE OR FOR THE LEGITIMATE NEEDS OF THE BUSINESS OF THE ASSESSEE OR FOR BENEFIT DERI VED OR ACCRUING THERE FROM. AS TO WHICH OF THOSE REQUIREMENTS THE CASE OF THE A SSESSEE FELL, HAD NOT BEEN STATED BY THE ASSESSING OFFICER. THEREFORE, SUCH EX PENDITURE CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40 (A)(2) OF THE ACT. THE ALLEGATION OF THE AO THAT THE ASSESSEE FAILED T O FURNISH THE EXPLANATION FOR MAKING THE PAYMENT OF LOAN SYNDICATION CHARGES IS N OT TENABLE. IT IS BECAUSE THE ASSESSEE HAS GIVEN THE BILL RAISED BY AIL WHICH IS PLACED ON PAGES 16 OF THE PAPER BOOK. 11.1 WE ALSO NOTE THAT THE REVENUE CANNOT PUT ITSEL F IN THE ARMCHAIR OF THE BUSINESSMAN AND ASSUME THE ROLE TO DECIDE AS TO HOW MUCH EXPENDITURE IS REASONABLE HAVING REGARD TO THE CIRCUMSTANCES OF TH E CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE IT AUT HORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT, THE AUTHORITIES MUST NOT LOOK AT THE MAT TER FROM THEIR VIEWPOINT, BUT FROM THAT OF A PRUDENT BUSINESSMAN KEEPING THE COMM ERCIAL EXPEDIENCY. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER PASSED BY LD. CIT(A). THEREFORE THE APPEAL FILED BY THE REVENUE I S DISMISSED. 12. NEXT ISSUE RAISED BY REVENUE IN GROUND NO. 3 IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR 86,90,220/- ON ACCOUNT OF INTEREST EARNED ON TERM LOAN. 13. THE ASSESSEE DURING THE YEAR HAS CAPITALIZED TH E INTEREST EXPENSES ON THE TERM LOAN OBTAINED FOR RS. 35 CRORE FROM CENTRA L BANK OF INDIA. HOWEVER ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 10 THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT ASSESSEE HAS OBTAINED A LOAN OF 35 CRORES FROM CENTRAL BANK OF INDIA DURING THE YE AR BUT THE SAME HAS NOT BEEN UTILIZED FOR THE PURPOSE OF ASSESSEES BUSINESS. ACCORDINGLY, THE AO DISALLOWED THE SAME AND ADDED T O THE TOTAL INCOME OF ASSESSEE. 14. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE AO. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 15. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 16. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, IT WAS OBSERVED THAT WE HAVE ALREADY HELD THAT ASSESSEE HAS COMMENCED ITS BUSINE SS ACTIVITY DURING THE YEAR IN GROUND NO. 1 VIDE PARA 5 & 6 OF THIS ORDER. THEREFORE, WE HOLD THAT THE EXPENDITURE BY WAY OF INTEREST ON TERM LOAN HAS BEE N INCURRED IN CONNECTION WITH THE ASSESSEES BUSINESS AND ACCORDINGLY SAME I S ELIGIBLE TO BE CAPITALIZED IN THE BOOKS OF ACCOUNT OF ASSESSEE. HE NCE WE FIND NO INFIRMITY IN THE ORDER PASSED BY LD. CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVENUE IS DISMISSED. 17. LAST ISSUE RAISED BY REVENUE IN GROUND NO.4 IS THAT LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF 12.60 LACS ON ACCOUNT OF COMPENSATION PAID FOR THE ACQUISITION OF LAND WITHOUT TDS. 18. THE ASSESSEE DURING THE YEAR HAS PURCHASED THE LAND FROM M/S SEEYOK NIWAS AND NIVASH PVT LTD. AND SHRI SUSHIL PODDAR FO R 12 CRORES AND 60 LAKH RESPECTIVELY BY VIRTUE OF SALE DEED/ AGREEMENT OF L AND DATED 28.06.2006. HOWEVER, THE AO OBSERVED THAT ASSESSEE HAS NOT DEDU CTED TDS ON THE PAYMENT OF PURCHASE OF LAND U/S 194LA OF THE ACT. A CCORDINGLY, AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 19. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT THE LAND PURCHASED BY IT WAS NOT ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 11 COMPULSORY ACQUIRED. THEREFORE, THE PROVISION OF SE CTION 194LA OF THE ACT CANNOT BE APPLIED. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY THE AO BY OBS ERVING AS UNDER:- THIS GROUND RELATES TO THE NON-DEDUCTION OF TDS U/ S 194LA AGAINST PAYMENT OF COMPENSATION OF RS.12,60,00,000/- INCURR ED FOR ACQUISITION OF LAND. THE APPELLANT ARGUED THAT THE DEDUCTION OF TDS U/S. 194LA IS APPLICABLE WHEN THERE IS COMPULSORY ACQUISITION. FU RTHER, THE APPELLANT ARGUED THAT IN THE INSTANT CASE, THE PAYMENT WAS MA DE FOR PURCHASE OF LAND TO M/S SEEYOK NIVASH AND NIVESH (P) LTD FOR RS .12.00 CRORES AND SHRI SUSHIL PODDAR FOR RS.60 LAKHS RESPECTIVELY ON THE BASIS OF SALE DEED AGREEMENT OF LAND DATED 28.06.2006. IN THIS CO NTEXT, THE ASSESSING OFFICERS CONTENTION OF TDS APPLICABILITY U/S 194LA, IN THE INSTANT CASE IS INCORRECT SINCE THE APPELLANT HAD P URCHASED THE LAND THROUGH SALE AGREEMENT AND THE ASSESSING OFFICER HA D NOT BROUGHT ANY MATERIAL TO PROVE THE CONTRARY. THEREFORE, THE ASSE SSING OFFICERS COULD NOT PROVE THAT THE ASSESSEE HAD MADE COMPULSORY ACQ UISITION OF THIS LAND, SO AS ATTRACT THE PROVISIONS OF SECTION 194LA OF THE ACT. THEREFORE, THE APPELLANT IS ALLOWED TO CAPITALIZED TO THE COST OF LAND OF RS.12.60 CRORES. THE AO IS DIRECTED TO REVISIT THIS ISS9UE A ND DECIDE THIS ISS9UE AFRESH. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 20. BEFORE US BOTH PARTIES RELIED ON THE ORDER OF A UTHORITIES BELOW AS FAVORABLE TO THEM. 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THIS JUNCTURE, WE FIND IMPORTANT TO REPRODUCE THE PROVISION OF SECTION 194LA, WHICH READS AS UNDE R:- 13 [ PAYMENT OF COMPENSATION ON ACQUISITION OF CERTAIN I MMOVABLE PROPERTY 14 . 194LA. ANY PERSON RESPONSIBLE FOR PAYING TO A RESIDENT ANY SUM, BEING IN THE NATURE OF COMPENSATION OR THE ENHANCED COMPENSATION 14A OR THE CONSIDERATION OR THE ENHANCED CONSIDERATION ON ACCO UNT OF COMPULSORY ACQUISITION, UNDER ANY LAW FOR THE TIME BEING IN FO RCE, OF ANY IMMOVABLE PROPERTY (OTHER THAN AGRICULTURAL LAND), SHALL, AT THE TIME OF PAYMENT OF SUCH SUM IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO TEN PER CENT OF SUCH SUM AS INCOME-TAX THEREON: ITA NO.2291/KOL/2010 A.Y. 20 07-08 ITO WD-1(1), KOL. VS. M/S AMBA HIGH RIS E PVT. LTD. PAGE 12 A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR THAT THE QUESTION OF TDS ARISE WHEN THE LAND HAS BEEN PURCHASED ON ACCOU NT OF COMPULSORY ACQUISITION UNDER ANY LAW FOR THE TIME BEING IN FOR CE. AS THERE IS NO AMBIGUITY THAT NO LAND WAS PURCHASED BY ASSESSEE UNDER COMPUL SORY ACQUISITION AS EVIDENT FROM THE SALE DEED WHICH IS PLACED ON PAGES 21 TO 38 OF THE PAPER BOOK. THUS, WE HOLD THAT THE IMPUGNED TRANSACTION F OR THE ACQUISITION OF LAND IS OUTSIDE THE PURVIEW THE PROVISION OF SECTION 194 LA OF THE ACT. HENCE, WE UPHOLD THE ORDER OF LD. CIT(A). THIS GROUND OF REVE NUES APPEAL IS DISMISSED. 22. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 27/ 04/2018 SD/- SD/- ($ &) ( &) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (- 27 / 04 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO, WARD-1(1), P-7, CHOWRINGHEE SQ. 7 TH FLOOR, KOLKATA-69 2. /RESPONDENT-M/S AMBA HIGH-RISE PVT. LTD. 68/ HARISH MUKHERJEE ROAD, KOL-25 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 $$3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,