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TMI Blog2013 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... . any amount of interest paid in respect of capital borrowed for acquisition of new assets or extension of existing business or profession beginning from the date on which the capital was borrowed for acquisition of assets till date on which such asset was first put to use shall not be allowed as deduction in view of provisions of section 36(1)(iii). Since in the instant case the capital asset amounting to Rs. 34,56,00,000/- which has not been put to use, therefore, he was of the opinion that the above investment is made out of borrowed funds available with the assessee company on which interest has been paid by the assessee company. He considering the total capital work in progress at Rs. 34.56 crores, total borrowed funds at Rs. 119.40 crores and the total interest paid during the year at Rs. 6,39,72,000/- the A.O. determined the interest disallowable u/s 36(1)(iii) at Rs 1,85,13,497 being the interest attributable to capital work in progress. 2.2 In appeal the ld. CIT(A) deleted the disallowance by holding as under:- "3.3. I have considered the issue. I find that the AO has wrongly allocated the total Interest of Rs.6,39,72,032 in proportion of capital work-in-progress to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34.56 crores and total fund (both own fund and borrowed fund) at Rs. 287.32 crores, the proportionate interest expenses which can be disallowed u/s 36(1)(iii) out of the total interest expenditure of Rs. 6.40 crores comes to Rs. 75.95 lacs. He submitted that although the interest calculated above is much less than the amount disallowed by the CIT(A), the assessee has not gone on appeal. He accordingly submitted that the ground raised by the Revenue should be dismissed. 2.5 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. At the outset we have to mention that although the assessee has filed a letter giving all the details on 16.11.2007 as certified in the paper book by the assessee, we find the A.O. has not considered the same and simply mentioned in the order that the assessee company failed to submit any explanation in this regard. Further when the assessee company is having own funds of Rs. 16,792.35 lakhs and borrowed funds of Rs. 11,940.48 lakhs the A.O., in our opinion, was not justified in calculating the interest attributable to capital work in progr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) DEPB benefit receivable 50.01 lacs iv) Sundry Deposits 12.64 lacs v) Advance payment of taxes 38.16 lacs 645.33 lacs. The break up of the above items show that except the sum of Rs.2,00,00.000 standing in the name of Mangalaya Trading & Investment and another sum of Rs.4,75,183 shown as staff advances, other items are not of the nature of loans and advances necessitating charging of interest. They are trade advances and prepaid taxes. Further the amount appearing in the name of Mangalaya Trading & Investment is found advanced during the accounting year 1994-95 and interest was received thereon in earlier years. A part of it, Rs. 46.03 lacs, is also reflected as interest receivable forming part of the above sum of Rs.645.33 shown under Current Assets, Loans & Advances. No interest was provided on this advance in the past few years in view of doubts on recovery. In any case, it cannot be said suddenly this year that the borrowed fund had been diverted for non business purposes entailing disallowance of interest u/s 30(1)(iii). No adverse view can be taken even in respect of staff advances. In sum, the AO has no justification to disallow (he impugned interest payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(A) in restricting the disallowance of interest u/s 43B to the amount of Rs. 1,39,86,215/- out of Rs. 2,19,15,545/- disallowed by the A.O. 4.1 Facts of the case in brief are that the A.O. during the course of assessment proceedings noted from the details furnished by the assessee that the assessee company has debited Rs. 1,83,00,000/- being the interest payable to Bank of Baroda and Dena Bank on term loans acquired from these banks. Since the amount was shown as current liability and were actually not paid, the A.O. asked the assessee to explain as to why the amount of Rs. 1,83,00,000/- should not be disallowed u/s 43B. It was explained by the assessee company that it was in BIFR and hence awaiting a final order from BIFR where the assessee company is expected to get relief on account of the interest which are payable to these banks against the term loan. Rejecting the explanation given by the assessee the A.O. held that the assessee company has contravened the provisions of section 43B. He therefore disallowed an amount of Rs. 1,83,00,000/-. 4.2 In appeal, the ld. CIT(A) deleted the addition by holding as under:- "I have considered the matter. It is seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo years no instalment is payable towards repayment of the principal but interest on the outstanding principal amount. Thereafter, the assessee is bound to pay in 32 quarterly instalments the outstanding sale consideration with interest on reducing balance with 16% rate of interest. The interest payable for the previous year relevant to AY 04- 05 has been quantified by GIDC at a sum of Rs. 99,97,477/- as per its letter dated 29.8.2001, a copy of which is at page 34 and 35 of the assessee's paper book. Thus it is clear that the sum of Rs.99,97,477 is interest pertaining to the previous year and is payable as interest on balance sale consideration payable for acquiring a capital asset. The assessee has already commenced its commercial production and there is no dispute on this aspect. In the given facts and circumstances of the case, the interest expenditure was clearly an allowable expenditure. The facts of the assessee's case are identical to the case before the Hon'ble Supreme Court in the case of Bombay Steam Navigation co. (1953) Pvt.Ltd. (supra). In the said case the facts were that pursuant to a scheme of amalgamation between two shipping companies, the assessee-company was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court as above also supports the plea of the Assessee that the provisions of Sec.43-B of the Act will not apply to the facts of the present case, since unpaid sale consideration cannot be said to be monies borrowed. We may also add that the provisions of Sec.43-B of the Act, were neither applied by the AO in this A.Y. or in AY 02-03, based on which the AO passed assessment order in the present A.Y 04-04. 7. For the reasons given above, we confirm the order of the CIT(A) and dismiss the appeal by the Revenue. 5.2 Respectfully following the order of the Tribunal in assessee's own case and in absence of any contrary material brought to our notice, this ground by the Revenue is dismissed. 6. In ground of appeal No. 5 the Revenue has challenged the order of the ld. CIT(A) in deleting the addition of Rs. 1,36,72,457/- made by the A.O. as accrued interest income. 6.1 Facts of the case in brief are that during the course of assessment proceedings the A.O. noted that the assessee has calculated the following income as receivable under the head loans and advances:- 1. Insurance claim receivables Rs. 1,25,567/- 2. Interest receivables Rs. 3,60,084/- 3. Interest recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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