When the statements made by the assessees here, later retracted, do not have any evidentiary value, there is no basis in holding that there are materials available before the Assessing Officer to make out cases of escapement of income. A reason must be formed by the Assessing Officer to reopen an assessment on the basis of material or information recognized under law.
Assessee has invested in purchase of new residential house at Rs. 70,80,620/- within the period of two years in which the transfer took place and therefore, the assessee was eligible for deduction u/s 54F(1) of the Act in respect of the said investment out of this deemed long term capital gains. In our considered opinion, the Assessing Officer was not justified in not granting exemption u/s 54F with reference to this investment made by the assessee in computing long term capital gains of the year under consideration.
In the present case, the land owned by the assessee comes within the purview of urban area and the assessee is carrying on agricultural activities on the same. There is nothing on record to show that construction of building on assessee’s land is prohibited.
The term ‘agriculture’ has not been defined in the Act. One must necessarily fall back upon the sense in which it is understood in common parlance. ‘Agriculture’ in its root sense means ‘Agar’ a field and ‘culture’, cultivation of a field which of course implies expenditure on human skills and labour upon land. For growing coconut trees one has to perform basic essential operations which involve expenditure of human skill and labour upon the land.
On the date of issue of notice under section 148 on 31-3-2008 by the Assessing Officer for reopening of the assessment, the earlier view taken by the Assessing Officer in the assessment framed under section 143(3) on 31-3-2006 was supported by the decision of the Supreme Court in the case of HCL Comnet Systems & Services Ltd. (supra), and the decision of Delhi High Court in the case of CIT v. Eicher Ltd. [2006] 287 ITR 170.
The Assessing Officer has deleted the interest on borrowed capital without recording any finding to the effect that the borrowed capital on which interest was paid by the assessee was diverted by the assessee for providing interest-free advances to its sister concerns. It is not the case of the revenue that the interest-free funds available with the assessee were not sufficient to advance interest-free money in question to its sister concerns.
The assessee borrowed money and instead of financing in rural areas invested the same in the company ‘J,’ where the founders of the assessee-trust are having substantial interest, which is contrary to the object of which the registration was granted to the assessee under section 12AA. Apart from the above, the assessee is paying interest on money borrowed without receiving any benefit from ‘J’. Therefore, the assessee borrowed money for the benefit of ‘J’ and not for the purpose of carrying on its object.
One of the important Supreme Court decisions relied on by the counsels appearing for the assessees is the decision rendered in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 193 Taxman 234, wherein the Hon’ble apex court has considered the question whether merely on account of such remittance to the non-resident abroad by an Indian company per se, could it be said that income chargeable to tax under the Income-tax Act, 1961 arises in India.
Assessing Officer has disallowed the interest of Rs. 72,83,21,913/- on the ground of borrowed funds were used by the assessee for making investment in shares. The contention of the assessee is that in the earlier Assessment Year 2006-07 where no dividend income was received by the assessee, the Tribunal has held that no disallowance of expenditure can be made u/s. 14A of the Act and therefore, the disallowance made in the year under appeal may also be deleted as in this year also the assessee has not received any dividend income on the shares,
As per the assessee, since it had received a benefit of enduring nature, the outgo was on capital account and it had acquired an asset by making such payment. There cannot be any quarrel on this argument. The assessee had derived an interest in the property since leasehold interest is a valuable right. But, the question here is not whether the outgo was capital or revenue, the question is whether the upfront fee paid will fall within the definition of ‘rent’ as given under Explanation to section 194-I. It is pertinent to note that section 194-I does not make any differentiation between capital outgo and revenue outgo.
