ANIL DAYALAL OSWAL,,PUNE vs. INCOME-TAX OFFICER,,

The assessee has raised the following grounds of appeal:-

The assessee in the present appeal is aggrieved by the addition of ₹ 1,54,521/- made on account of disallowance of interest expenditure claimed as deduction under section 57(iii) of the Act.

Briefly, in the facts of the case, the Assessing Officer on verification noted that the assessee had made investment in purchase of plot at ₹ 1,20,50,000/-. The source of the same was claimed to be loan availed from M/s. Satyam Construction and withdrawal from the capital account of the assessee. The assessee had paid interest of ₹ 1,54,521/- on loan of ₹ 50 lakhs from M/s. K.D. Construction. The Assessing Officer also noted that the said interest was adjusted against interest received of ₹ 9,10,170/- declared as income from other sources. The Assessing Officer observed that interest paid to M/s. Satyam Construction on loan of ₹ 50 lakhs was not allowable as the said loan was utilized for purchase of capital asset. The Assessing Officer show caused the assessee in this regard. On perusal of Balance Sheet, it transpired that the assessee had made an investment of ₹ 2.70 crores, out of

Before the CIT(A), the assessee furnished Memorandum of Understanding (MOU) for the proposition that he had incurred interest expenditure with an intention to earn income from advances given to Mr. Abhay N. Bhosale and Mr. Nitin Patil. The said interest expenditure was thus, claimed as deduction under section 57(iii) of the Act. The CIT(A) on perusal of MOU observed that the intention of parties was to earn commercial profits and not interest income. Further, reference was made to MOU, wherein the assessee was described as Purchaser and the other party as Vendor. Reference was also made to other clause of MOU and the CIT(A) held that the assessee was not indulging in transaction to earn interest and hence, transaction was held to be an adventure in the nature of trade and commerce and the loan having been utilized for purchase of capital asset, the interest had to be capitalized to the cost of asset.

The assessee is in appeal against the order of CIT(A).

The learned Authorized Representative for the assessee pointed out that MOU was entered into in Marathi language, copy of which is placed at pages 6 to 11 of Paper Book. He further pointed out that an English translation of MOU

The learned Departmental Representative for the Revenue on the other hand, pointed out that earlier transaction which was given by assessee and once the terms of said MOU have been interpreted and applied, then there is no merit in revised translation of Marathi document being filed by the assessee before the Tribunal.

On perusal of record and after hearing both the learned Authorized Representatives, the issue which arises in the present appeal is linked to a document which was executed between the parties in Marathi. As per the said document in Marathi before the Assessing Officer and CIT(A), the assessee had filed an English translation of said Marathi document. However, later on revised MOU was filed, under which the assessee claims that its rights were for the development of property and not for purchase of property. The case of Revenue on the other hand, was that the loan which has been raised as per

On perusal of document, the first step which needs to be applied is the true and correct translation of document executed in Marathi. The parties had come to an understanding and recorded the same in writing, which is duly available on record. The first English translation of said document talked about Vendor and Vendee i.e. transaction between the two parties being of Seller and Purchaser of property. However, in the second document, the intention of parties was to enter into MOU for the development of property. If it is for the development of property, then it is business transaction and any loan taken by the assessee, which in turn, is utilized for the said purpose, then interest expenditure is allowable as business expenditure. However, in case the amount has been utilized for making capital investment, then interest cost is to be attributed to the cost of asset and not to be allowed as deduction. But, this needs verification at the level of Assessing Officer. Accordingly, the issue is remitted back to the file of Assessing Officer to decide the same after going through the clauses of relevant document. The assessee shall produce the document and its certified English translation before the Assessing Officer for verification, who in turn, shall decide the issue in line with above directions.

In the result, appeal of assessee is allowed for statistical purposes.