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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 ..... erest 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. The amount in question is allowable u/s.37(1) of the Act. The 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. Dismiss the appeal by the Revenue. The interest receivable shown against Mangalaya was the outstanding interest of earlier year. As no portion of the impugned sum has accrued during the year, the addition made of is deleted. The ground raised by the Revenue is dismissed. The appeal filed by the Revenue dismissed. - ITA No. 3042/Mum/2010 - - - Dated:- 27-1-2012 - SHRI N.V. VASUDEVAN AND SHRI R.K. PANDA, JJ. Appellant by Shri Subachan Ram Respondent by Shri Vijay Mehta/Shri Mahesh O. Rajora ORDER PER R K PANDA, AM This appeal filed by the Revenue is directed against the order dated 02.02.2010 of the CIT(A) 20, Mumbai relating to A.Y. 2005-06. 2. In ground of appeal No. 1 the Revenue has challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributable to capital work-inprogress for the year under consideration works out to only Rs.79,29,330 (2,19,15,545x34,56,29,329/ 95,52,70,502) and not Rs.1.85,13.497 as arrived at by the AO. The disallowance of interest u/s 36(1)(iii) is, therefore, restricted to Rs.79,29,330 as relatable to capital work-in-progress in view of the amended provisions of section 36(1)(iii) of the Act which apply to the year under consideration. It will be seen from discussion later that even the balance sum of interest stands disallowed under section 43B. In the result, the ground is partly allowed here. Aggrieved with such order of the ld. CIT(A) the Revenue is in appeal before us. 2.3 The ld. D.R. submitted that the assessee did not file any details before the A.O. Therefore the ld. CIT(A) was not justified in deleting the disallowance. In his alternate contention, he submitted that the matter may be set aside to the file of the A.O. for fresh adjudication. 2.4 The ld. Counsel for the assessee, on the other hand, referred to page 19 of the paper book and submitted that the assessee vide letter dtd. 16.11.2007 has filed the details of interest paid/payable during the year 2004-05 as per copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed by the ld. CIT(A) therefore we uphold the order of the ld. CIT(A) on this issue and dismiss the ground raised by the Revenue. 3. In ground of appeal No. 2 by the Revenue has challenged the order of the ld. CIT(A) in deleting the proportionate disallowance of interest u/s 36(1)(iii) of Rs. 34,54,480/-. 3.1 Facts of the case in brief are that during the course of assessment proceedings the A.O. observed that the assessee company has made loans and advances out of interest bearing borrowed funds on which no interest has been charged during the previous year. He therefore asked the assessee to furnish the details of disallowance u/s 36(1)(iii) out of the interest paid on the borrowed funds. In absence of any reply given by the assessee, the A.O. determined such interest at Rs. 34,54,488/- and added to the total income. 3.2 Before the ld. CIT(A) it was submitted that the loans and advances mainly comprised advances, receivables, DEPB, TDS, deposits etc. given in the ordinary course of carrying on its business and cannot be considered as interest free loans and advances. It was submitted that the A.O. without establishing the nexus between interest bearing borrowed fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication. 3.6 The ld. Counsel for the assessee, on the other hand, referring to the letter addressed to the A.O. on 16.11.2007 (copy of which is placed at paper book page No. 19) submitted that the assessee had given the details of loans and advances received in cash or kind (a copy of which is placed at page No. 21 of the paper book). Referring to the details of loans and advances he submitted that only an amount of Rs. 2 crores has been given for nonbusiness purposes and the balance amount is given for business purposes such as advance for capital expenses, advance for goods, advance for expenses, insurance claim receivables, interest receivables, pre-paid expenses staff advances etc. Therefore, no adverse inference can be taken against the order of ld. CIT(A) and the ground raised by the Revenue should be dismissed. 3.7 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. We find the assessee in its letter dtd. 16.11.2007 has given full details of loans and advances as on 31.3.2005. We find an amount of Rs. 1.01 crores has been given as advance against s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 by the A.O. The ground is partly allowed. Aggrieved with such order of the ld. CIT(A) the Revenue is in appeal before us. 4.3 The ld. D.R. supported the order of the A.O. On the other hand, the ld. Counsel for the assessee supported the order of the ld. CIT(A). 4.4 After hearing both the sides we find there is no infirmity in the order of the ld. CIT(A). The ld. D.R. could not point out any infirmity or error in the order of the ld. CIT(A). We therefore uphold the order of the ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed. 5. Ground of appeal No. 4 reads as under:- On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of interest of Rs. 39,00,000/- is payable to GIDC by holding that the similar disallowance has been disallowed by the ld. CIT(A) for A.Y. 2004- 05 and thus not appreciating the fact that the said amount of Rs. 39,41,352/- being interest on borrowings from GIDC remained unpaid during the previous year relevant to the assessment year under consideration and also the fact that the department has not accepted the decision of ld. CIT(A) in A.Y. 2004-05 and the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance remaining unpaid from time to time was to carry simple interest at 6 per cent. By a supplemental agreement the original agreement was modified to the effect that the balance shall be paid by the assessee-company and until it was paid in full the assessee-company shall pay simple interest at 6 per cent. per annum on so much of the balance as remained due. The balance was also to be secured by hypothecation of all the movable properties of the assessee company. During the relevant accounting years the assessee paid interest on the balance outstanding and the question was whether the interest paid was allowable as a deduction under section 10(2)(iii)) or (xv) of the Indian Incometax Act, 1922, in computing its profits. The above sections of the 1922 Act are equivalent to equivalent to Sec.36(1)(iii) or Sec.37(1) of the Income Tax Act, 1961. The Hon ble Supreme Court held that the expression "capital " used in section 10(2)(iii), in the context in which it occurred, meant money and not any other asset: there was in truth no capital borrowed by the assessee in this case. An agreement to pay the balance of consideration due by the purchaser did not in truth give rise to a loan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year. In absence of any reply from the assessee company, the A.O. made an addition of Rs. 1,36,72,457/-. 6.2 Before the ld. CIT(A) the assessee submitted that the above items are carried forward from earlier years or claims shown as receivables not amounting to income. Based on the arguments advanced by the assessee the ld. CIT(A) deleted the addition by holding as under:- I have considered the matter. It is seen from the details filed before the A.O. that the items listed above represent insurance claim and interest receivables pertaining to earlier years which were carried forward year after year as they could not be realised. For instance interest receivable of Rs. 3,60,054/- is the closing balance of accumulated interest receivable account. Further, I have already mentioned in an earlier paragraph that the interest receivable shown against Mangalaya was the outstanding interest of earlier year. As no portion of the impugned sum has accrued during the year, the addition made of Rs. 1,36,72,457/- is deleted. The ground is allowed. Aggrieved with such order of the ld. CIT(A) the Revenue is in appeal before us. 6.3 After hearing both the sides we do not find a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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