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TMI Blog2016 (6) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... Capitalization of interest towards machinery under installation account - Held that:- There were certain machinery & building under construction during the year. The assessee had capitalized certain interest on acquisition of the same claiming that to an extent the amount was borrowed for acquisition of these. We are of the considered view that in case the assessee has given a plausible explanation with regard to the extent of interest being capitalized by it suo-moto, the Assessing Officer cannot make further addition without bringing on record any material to show the nexus between the amount borrowed and utilized for acquisition or construction of such asset. Nowhere in his order the Assessing Officer had been able to substantiate that the amount of interest capitalized by the assessee itself is not correct. Further, the explanation given by the assessee that it has huge owned funds to acquire such assets also has a bearing on the issue. In view of this, we direct the Assessing Officer to delete the disallowance.- Decided in favour of assessee Disallowance of interest on advances given to two parties - Held that:- No evidence to show the business expediency for these advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that too in group concerns only. No borrowing were made to invest as during the year share capital of the assessee was ₹ 1.74 crores and reserves and surplus were ₹ 61.42 crores, making the owned funds to the extent of ₹ 63.16 crores. The position of investments held by the assessee company in different years was explained. The main argument of the assessee was that in the presence of enough owned fund, no disallowance of interest can be made, since the presumption is that in such a scenario the investments are presumed to be made out of owned funds. After making a detailed analysis on the submissions of the assessee after giving relief of computational error, the CIT (Appeals) confirmed the disallowance made by the Assessing Officer. 5. Aggrieved by this, the assessee has come in appeal before us. The learned counsel for the assessee had drawn our attention to the Paper Book to show that the assessee had owned funds to the tune of ₹ 63,16,41,169/- while the investments were ₹ 2,39,90,799/-, which were also the same as at the end of the earlier year. In view of this, the submissions were made that the disallowance on account of interest cannot be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en used for making investments, income from which are exempt. The reliance placed by the learned counsel for the assessee on the decision of the I.T.A.T., Chandigarh Bench in the case of Hero Cycles Ltd. (supra) was vehemently objected to. Reliance was placed by the I.T.A.T. on the judgment of Punjab Haryana High Court in the case of Bright Enterprises Pvt. Ltd., in ITA No.624 of 2013 (O M), dated 24.7.2015. Certain infirmities in the order of the Tribunal in the case of Hero Cycles Ltd. (supra) were listed thereafter. At the end, it was stated that the Tribunal has erred in not following the established rule of binding nature of judicial precedents by not following the Punjab Haryana High Court in the case of Avon Cycles Ltd. (supra). The judgments in the case of Bright Enterprises Pvt. Ltd. (supra) and CIT Vs, Kapsons Associates, 381 ITR 204 (P H) are stated to be out of place, as the same were rendered in the context of section 36(1)(iii) and not in the context of section 14A of the Act. 9. Though we are not inclined to comment on the infirmity pointed out by the learned D.R. on the order of the Coordinate Bench of the Tribunal in the case of Avon Cycles Ltd. (supra), how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble High Court held that no substantial question of law arisen out of the order of the I.T.A.T. (in the case of Avon Cycles Ltd.). From the reading of the said finding of fact given by the I.T.A.T., as reproduced in para 5 of the judgment, we see that in view of the fact that as per the working of the assessee itself, the interest expenditure for earning exempt income is to the tune of ₹ 10,49,851/-, the Assessing Officer was directed to disallow the same. 13. From the above analysis, it is quite clear that the Hon'ble Punjab Haryana High Court in the judgment of Avon Cycles Ltd. (supra), which is dated 20.8.2014, nowhere a proposition has been laid out with regard to the quantum of interest expenditure in case of mixed funds. We are aware of the rules of binding precedents and bow before the judgment of the Hon'ble Jurisdictional Punjab Haryana High Court. In this background, we would like to rely on a later judgment of the Punjab Haryana High Court in the case of Bright Enterprises Pvt. Ltd. (supra), which is dated 24.7.2015, whereby a clear mandate has been given as regards the issue in question, at para 6 which reads as under : 16. As we noted ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r disallowance was called for and even otherwise the investment was out of own income of the year. 19. Briefly, the facts are tht the assessee had shown in its Balance Sheet an amount of ₹ 3,08,22,637/- and ₹ 1,06,16,141/- being machinery under installation and building under construction. The Assessing Officer noted that the assessee had taken secured loan of ₹ 23,11,33,892/- on which interest expenditure of ₹ 2,75,14,294/-/- was incurred. The assessee explained that out of the machinery of ₹ 3,08,22,637/- on machinery worth ₹ 2,54,24,957/- has been capitalized at ₹ 3,34,477/-. Regarding building, it was stated that an amount of ₹ 4,64,968/- has been capitalized. Further, there were two flats purchased by the assessee at Haridwar for ₹ 59,42,698/-. These were completed during the year and the final payments were made for the same, therefore, no interest was capitalized. Since flats were not used, the same were shown as capital work in progress. After considering the assessee's reply, the Assessing Officer further capitalized the interest on machinery at ₹ 1,14,096/- and on building under construction at ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use. The assessee itself has admitted that these flats were not used during the year, therefore, the Assessing Officer was justified in capitalizing the interest pertaining to these flats. 22. Aggrieved by this, the assessee has come up in appeal before us. The learned counsel for the asseeess reiterated the submissions made before the lower authorities, while the learned D.R. relied on the order of the CIT(Appeals). 23. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts are that there were certain machinery building under construction during the year. The assessee had capitalized certain interest on acquisition of the same claiming that to an extent the amount was borrowed for acquisition of these. We are of the considered view that in case the assessee has given a plausible explanation with regard to the extent of interest being capitalized by it suo-moto, the Assessing Officer cannot make further addition without bringing on record any material to show the nexus between the amount borrowed and utilized for acquisition or construction of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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