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Per B.R. Baskaran (AM) :-

The assessee has filed the appeal for A.Y. 2006-07 and the Revenue has filed the appeal for A.Y. 2006-07 & 2007-08. All the appeals are directed against the order passed by the learned CIT(A)-12, Mumbai. All these appeals were heard together and hence they are being disposed of by this common order, for the sake of convenience.

Essel Infraprojects Ltd.

2. The assessee-company is engaged in the business of operating amusement park, infrastructure development management and finance activities.

interest-free loan to its sister concern. What is relevant is whether the amount so advanced was as a measure of commercial expediency or not. It is not necessary that the amount so advanced is earning profit or not but there must be some nexus between expenses and the purpose of business. If the assessee makes a claim for deduction in terms of section 36, he has to place materials in support of his claim of entitlement to the deduction. The assessee has to satisfy the assessing authority that he is entitled to obtain deduction in accordance with the taxing statute. Unless the borrowing is for the purposes of business or profession, the interest on such borrowing is not deductible. Therefore, what is to be seen is "business purpose" and what the sister-concern did with the money advanced the AO has relied upon the order of CIT v/s United Breweries (1973) 89 ITR 17 (Mys) to state that the said interest income was capital in nature and cannot be allowed. The AO has also relied upon the proviso to section 36 (I) (iii) of the IT Act to state that the investment in the shares of the subsidiary would need to be disallowed as interest-bearing loans had been used for advancing Rs.25 crores as share application money to gain control of the said subsidiary. Stating this, the AO proceeded to disallow the entire interest expenditure of Rs. 1,48,10,695/- debited in the P&L Account holding it to be capital in nature. In the submission made, it has been argued by the appellant that the AO has misunderstood the entire transactions. The submission of the appellant has been reproduced above in this order wherein it has been stated by the appellant that it is engaged in the business of infrastructure development management and finance in addition to its amusement park and water park. The wholly owned subsidiary to which these funds are provided to, take up the infrastructure project on behalf of the company. The finance provided to the wholly owned subsidiary by way of advance for share application money is for its business of infrastructure and is used for that purpose. In this case, the amount has been advanced to Pan India Infrastructure Pvt. Ltd. for development of MMKI toll road Project and the said concern further passed on the amount to its wholly owned subsidiary Maharashtra Hydrocarbon Products Pvt. Ltd. which is 50% share holder of MMKIPL which is in the business of construction management and operation of Malegaon Kopargaon road project. Therefore, it cannot be stated that the same was not for the purpose of the business of the appellant. Carefully considering the issue, I find that this contention of the appellant would need to be accepted. It is seen that the appellant has been able to connect the advance made by the appellant to its subsidiary with its business purpose. As the nexus between the advance of funds and the business of the appellant carried out through the subsidiary stands established, no disallowance u/s 36 (1) (iii) of the IT Act was warranted. It has been stated Essel Infraprojects Ltd.

"Ld A.0. disallowed Rs. 2,76,75,5301/- being amount incurred for making and filing bids for modernization of Mumbai and Delhi airports. The Ld. A0 disallowed the claim considering the expenses to be either a capital loss or capital expenditure being pre-commencement expenses and project considered as new line of business and expenses being shown in the Profit & Loss Account as exceptional item.

Submissions The assessee is engaged in the business of infrastructure development management and finance in addition to its amusement parks and water parks as per the Memorandum of Association of the company. The name of the company is also changed from Pan India Paryatan Limited to Essel Infraprojects Limited to reflect the addition to the infrastructure business activities carried on by the company. The business of infrastructure requires filing bids, tenders for getting work i. e. Roads, bridges, Airports, Ports etc to prove capabilities to execute such contract Essel Infraprojects Ltd.

As noticed earlier, the Ld CIT(A) upheld the view taken by the AO by holding that the assessee has commenced a new line of business and the same is not linked to the existing business of the assessee. He also observed that the Essel Infraprojects Ltd.

projects were under preparatory stage and the assessee itself has capitalized the expenditure, which indicates that the benefit would accrue to the assessee in the future.

26. We heard the parties on this issue and perused the orders passed by the tax authorities and the submissions made by the assessee. The question of treating pre-commencement expenses as capital expenditure would arise only if the assessee is creating its own capital asset. In this case, the assessee is, inter alia, engaged in infrastructure development. The object clause of the assessee makes it clear the objective of formation of the assessee company. Even though the assessee might not have carried the infrastructure development business earlier, the very fact that the assessee changed its name would show that the assessee has commenced the infrastructure development business in this year. This fact is further fortified by the fact that it has submitted its bid to acquire infrastructure projects. The impugned bidding expenses have been incurred by the assessee in connection to filing bids for infrastructure development and it could not succeed in the bidding.