SHREE MADHUR REALTORS P.LTD, MUMBAI V. ITO 8(3)(1), MUMBAI

ITA 407/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75309 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M SUBRAMANIAM IZRFKHZ DH LS
• Keywords: Capital asset; Business income; Cost of acquisition; Revenue expenditure
• Section: 37(1)

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI JH VKJ JH VKJ JH VKJ JH VKJ- -- - LH LHLH LH- -- - 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA MK0 ,L MK0 ,L MK0 ,L MK0 ,L- -- - VH VHVH VH- -- - ,E ,E,E ,E- -- - IOYU IOYU IOYU IOYU] U;KF;D ] U;KF;D ] U;KF;D ] U;KF;D LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND DR. S.T. M PAVALAN, JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO.407/MUM/2012 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2008-09. SHREE MADHUKAR REALTORS PVT LTD. A-38, NANDIYOT INDUSTRIAL ESTATE ANDHERI KURLA ROAD, ANDHERI (EAST), MUMBAI 400 072. CUKE@ VS. INCOME TAX OFFICER 8(3)-1 MUMBAI. PAN:- AAICS7097J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI M. SUBRAMANIAM IZR;FKHZ DH VKSJ LS @ REVENUE BY SHRI R.K. SAHU VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER R.C. SHARMA, AM. THIS IS AN APPEAL, FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A) DATED 14.11.2011 FOR A.Y. 2008-09. THE ASSESSEE IN THIS APPEAL IS BASICALLY AGGRIEVED FOR DISALLOWANCE OF RS. 7,26,45 4/-. GROUND NO. 2 IS WITH REGARD TO PROCESSING CHARGES WAS NOT PRESSED B Y THE LD. AR AT THE TIME OF HEARING, ACCORDINGLY THE SAME IS DISMISSED IN LIMINE AS NOT PRESSED. LQUOKBZ DH RKJH[K@ DATE OF HEARING 13 - 01 - 2014 ?KKS'K.KK DH RKJH[K@ DATE OF PRONOUNCEMENT 1 3 - 01 - 2014 - 2 - 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. WE FIND THAT OUT OF TOTAL CLAIM OF INTEREST OF RS. 22,39,35 5/-, THE AO HAS DISALLOWED INTEREST OF RS.7,26,454/- REPRESENTING I NTEREST ON BORROWED FUNDS USED FOR MAKING INVESTMENT IN THE CONTROLLING INTEREST IN THE SHARES OF M/S AGIO PHARMACEUTICALS LTD. AND M/S MEL ODY HEALTHCARE PVT. LTD. THE AO MADE DISALLOWANCE BY OBSERVING THA T INTEREST CLAIMED FOR ACQUISITION OF CONTROLLING INTEREST IS NOT ALLO WABLE U/S 37(1) IN VIEW OF THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. AMRITABEN R. SHAH ( 206 ITR 616) . WE FOUND THAT DISALLOWANCE MADE ON THE PLEA THAT FUNDS HAVE BEEN INVESTED FOR ACQUI SITION OF CONTROLLING INTEREST IN THE COMPANY AND, THEREFORE THE SAME IS NOT REVENUE IN NATURE. SINCE SUCH INTEREST IS GOING TO INCREASE TH E COST OF ACQUISITION OF CAPITAL ASSET, WE MODIFY THE ORDER OF LOWER AUTHORI TIES AND DIRECT THE AO TO TREAT THE INTEREST EXPENDITURE AS PART OF COST A CQUISITION OF CONTROLLING INTEREST. AFTER CAPITALIZATION OF SUCH INTEREST THE ASSESSEE WILL BE AT A LIBERTY TO OFFER PROFIT OR LOSS ON SUCH CONTROLLING INTEREST IN THE YEAR OF SALE, AS PER CAPITALIZATION OF INTEREST AS SUGGESTE D HEREINABOVE. 3. THERE IS NO DISPUTE TO THE WELL SETTLED PROPOSIT ION THAT WHILE COMPUTING THE BUSINESS INCOME, ONLY REVENUE EXPENDI TURE CAN BE CLAIMED. THE EXPENDITURE INCURRED TOWARDS CAPITAL A SSET OR ACCRETION OF CAPITAL ASSET IS REQUIRED TO BE CAPITALIZED AND THE SAME CAN BE ALLOWED AS REVENUE EXPENDITURE WHILE COMPUTING THE BUSINESS INCOME FOR THE CONCERNED ASSESSMENT YEAR. IN THE INSTANT CASE THE EXPENDITURE SO INCURRED WAS CORRECTLY HELD BY AO AS NOT IN REVENUE NATURE. HOWEVER SUCH EXPENDITURE IS FIT TO BE CAPITALIZED AS A PART OF COST OF ACQUISITION OR CREATION IN CAPITAL ASSET. ACCORDINGLY AO IS DIRECT ED TO ALLOW - 3 - CAPITALIZATION OF INTEREST SO THAT IN THE YEAR OF S ALE OF SUCH CONTROLLING INTEREST ASSESSEE CAN BE TAXED ON CORRECT AMOUNT OF CAPITAL GAINS. WE DIRECT ACCORDINGLY. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED ON 13 /01/2014 SD/- SD/- (DR. S.T.M. PAVALAN) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 13 /01/2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI