Case Law Details
DCIT Vs M/s. Prestige Garden Estates Pvt. Ltd. (ITAT Bangalore)
Conclusion: Deduction was allowable under section 36(1)(iii) on interest on borrowing to pay earnest money deposits (EMD) to purchase properties being lands, flats, etc. as the same was for purpose of assessee’s business of acquiring properties.
Held: In the present case, assessee-company was engaged mainly in the business of purchase of lands and to construct, sell flats, apartments, dwelling-houses, shops, etc. In the course of its business, it participated in the bids invited for sale of properties by NGEF and HUDA during financial year 2005-06 and 2006-07 respectively. Accordingly, it had made earnest money deposit (EMD) of Rs 186 crores and Rs 107.60 crores with NGEF and HUDA respectively. In order to arrange the finance for making the deposits, assessee signed Memorandum of understanding (MOU) with various persons whereunder it received share application money from such persons. In addition, assessee also accepted Inter Corporate Deposits (ICDs) for financing the payment of EMD. During the year under consideration, assessee paid interest of Rs 16,68,11,932 in respect of share application monies received and the said interest expenditure was claimed as deduction while computing income under the head ‘income from business or profession’. AO rejected claim of the assessee and he held that interest expense had to be capitalised and could not be allowed as deduction. It was held the first condition for applicability of the proviso was that there should be acquisition of an asset. The second condition was that such acquisition should be for extension of existing business. In the present case, both the conditions were not satisfied. There was no acquisition of any asset by assessee from NGEF or HUDA and both the transactions did not ultimately fructify. Assessee had to abandon its idea of carrying out development on these properties and was already in the business of acquiring properties and constructing flats. In the ordinary course of its business, assessee sought to acquire properties from NGEF and HUDA. Therefore it could not be said that assessee indulged in any extension of existing business or profession. Thus, interest expenditure was for the purpose of business of assessee and an allowable deduction under section 36(1)(iii).
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal by the revenue against the order dated 27.07.2017 of the CIT(Appeals)-5, Bengaluru relating to assessment year 2008-09.
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