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TMI Blog2016 (2) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... eir own view point but that of a prudent businessman. Even the Hon'ble Supreme Court in assessee’s own case [2015 (11) TMI 1314 - SUPREME COURT OF INDIA] had held that applying the said ratio to the facts of the case that no such notional addition on account of lesser rate of interest charged can be made by the assessee. In view of this, the Assessing Officer is directed to delete the addition made by him. Capitalization of interest on the assets appearing under the head ‘capital work-in-progress by adopting the interest @ 7.75% - Held that:- No loan had been raised by the assessee company for the purchase of furnace or for the construction of building. The said finding of the CIT (Appeals) had not been controverted by the learned D.R. for the Revenue. Further the total investment made by the assessee during the year on capital work-in-progress was more as against the net profit of the assessee for the year. See DCIT Vs. Samrat Forgings Ltd. [2012 (5) TMI 760 - ITAT CHANDIGARH ] In view of the above said facts and circumstances, we find no merit in the disallowance made by the Assessing Officer. Addition under section 36(1)(iii) - Held that:- It is an undisputed fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had shown investments of ₹ 3,67,88,93,422/- and ₹ 3,87,34,93,407/- as on 31.3.2008 and 31.3.2009 respectively. The income from these investments were not included in the total income. The assessee had incurred interest expenditure of ₹ 22,40,02,183./-.The Assessing Officer asked the assessee to explain why the provisions of section 14A of the Act read with Rule 8D of the Rules may not be applied in this case. The assessee made detailed submissions. However, rejecting the same and invoking the provisions of Rule 8D, the Assessing Officer made disallowance of an amount of ₹ 6,77,38,889/-. 6. Before the learned CIT (Appeals), detailed submissions were made to defend the case of the assessee. After considering the same, the learned CIT (Appeals) held that the assessee s own case for assessment year 2008-09 was decided by him on the same issue by his order dated 28.12.2012 and the said appeal was decided in favour of the assessee. Relying on his own order for the earlier year in assessee s own case, the learned CIT (Appeals) dismissed the ground of appeal raised by the assessee. 7. The learned counsel for the assessee submitted before us that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on account of interest can be made. Though the learned counsel for the assessee has made alternative submissions on the computation made by the Assessing Officer under Rule 8D of the Income Tax Rules, in view of our finding that no disallowance on account of interest under section 14A an be made, we do not find any need to adjudicate these issues. 10. As regards administrative expenses, it is a fact on record that the assessee himself had disallowed an amount of ₹ 2,73,13,827/- on account of expenses incurred for earning tax free income and the Assessing Officer has nowhere recorded a finding as to why the disallowance so made by the assessee is not correct. Reliance is placed on the judgment of the Hon'ble Jurisdictional Punjab Haryana High Court in the case of CIT Vs. Deepak Mittal (2014) 361 ITR 131 to the effect that in the absence of any satisfaction recorded by the Assessing Officer as to why the calculation made by the assessee is not correct, the disallowance made by him on account of administrative expenses under Rule 8D of the Income Tax Rules is not as per law. In view of the above disallowance made by the Assessing Officer under section 14 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period is less than interest charged from the party i.e. varying from 3.99% to 5.56%. By assuming that the total amount has been used out of borrowed funds without establishing any such transaction is not called for disallowance under section 36(1)(iii) of the Act. After considering the submission of the assessee, the learned CIT (Appeals) held that the fact remains that the assessee had borrowed funds on which it had incurred interest expenditure. The fact also remains that the assessee had advanced loan of ₹ 10 crores to M/s Hero Motors Ltd. for non-business purposes at a subsidized rate of 6%. Relying on the judgment of Hon'ble Punjab Haryana High Court in the case of CIT Vs. Abhishek Indjustries Ltd., 286 ITR 1 (P H), the addition so made by the Assessing Officer was confirmed by the learned CIT (Appeals). 14. The learned counsel for the assessee at the time of hearing before us, submitted that the issue is covered in favour of the assessee by the judgment of the Hon'ble Supreme Court in its own case for assessment year 1988-89 in Civil Appeal No.514 of 2008 dated 5.11.2015. It was brought to our notice that it has been held in the said judgment that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had shown capital work-in-progress on which interest has not been capitalized. The submission of the assessee before the Assessing Officer was that it had been availing MIBOR for which rate of interest is less than 6%. Considering the rate of 6% the total disallowance of various items showing in capital work-in-progress works out to 63,683/-. The Assessing Officer noted that in addition to the items shown by the assessee there were certain other items under the head capital work-inprogress , on which the interest had not been capitalized. The Assessing Officer computed the average rate of interest on borrowings at 7.75% and made the disallowance of ₹ 6,77,388/-. 19. Before the learned CIT (Appeals) the assessee submitted that no funds were borrowed for this purpose, nor the capital work-in-progress outstanding as on 31.3.2009 was outstanding as on 31.3.2008. After considering the submission of the assessee the learned CIT (Appeals) found himself not in agreement with the same and stated that the assessee has itself worked out the total disallowance on items of work-in-progress @ 6% at ₹ 63,683/- and accordingly, the ground was dismissed. 20. The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/- in respect of expenses which have been capitalized in the earlier years and also on which depreciation was allowed in assessment year 2008-09. This ground was raised before the learned CIT (Appeals), however he observed that this issue does not arise from the order of the Assessing Officer and also the return of income shows that no such claim made by the assessee. In this view, he dismissed the ground as infructuous. 25. The learned counsel for the assessee before us made a prayer to direct the Assessing Officer to allow consequential claim of depreciation made during the assessment proceedings in respect of expenses, which had been capitalized in earlier year and also on which depreciation was allowed in assessment year 2008-09. 26. The learned D.R. relied on the order of the learned CIT (Appeals). 27. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. After hearing the learned counsel for the assessee, we are inclined to send this matter back to the file of the Assessing Officer since expenses whichever had been capitalized in earlier year as well in this year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the debit balance in the account of M/s Hero Exports was in the nature of providing interest free advance. The submission of the assessee was that M/s Hero Exports is a major buyer of cycles from the assessee and the amounts of sales during the year were to the tune of ₹ 68.55 crores, against which the substantial payments were received during the year and the closing balance was ₹ 29,18,92,058/-. It was also submitted that M/s Hero Exports also supplied imported cycle component for which the balance payable by the assessee to M/s Hero Exports as on 31.3.2009 is ₹ 2,79,63,545/-. Therefore, the net balance outstanding from M/s Hero Exports is ₹ 26,39,92,513/-. After considering the submissions of the assessee, the Assessing Officer held that the amounts not recovered by the assessee from M/s Hero Exports wre being utilized by M/s Hero Exports for its own business purposes. The Assessing Officer accordingly, disallowed the proportionate interest on the debit balance standing in the name of M/s Hero Exports under section 36(1)(iii) of the Act. 31. As regards M/s Hero Motors Ltd., the assessee submitted that balance due from this company was on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order, which reads as under : The issue which needs consideration is that given the aforesaid facts and circumstances of the case whether any interest needs to be disallowed out of the interest expenditure on the ground that the funds were diverted for non-business purposes. It has been decided by the Hon'ble Punjab and Haryana High Court in the case of M/s Abhishek Industries Ltd. that where the funds of the appellant had been diverted for non-business purposes then the proportionate interest needs to be disallowed. However the case of M/s Abhishek Industries Ltd. is applicable only where any amount was advanced as loan. In this regard reference may be made to the case of M/s Power Drugs Ltd. Vs. Additional CIT, Range-III, Chandigarh in ITA No.313/Chd/2011. In this order, the Hon'ble I.T.A.T., Chandigarh observed as under :- On hearing the rival contentions of the parties, we find that it is an admitted position that the amount was advanced for acquisition of new asset which was claimed to be for the furtherance of the business activity of the assessee before us. Admittedly, the amount was not advanced as a loan and we find no merit in the orders of authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to dictate the terms of the business and Revenue cannot impose its view on the businessman when to give any money and when to receive it back. The transactions are going on with the sister concerns on regular business. Steps are being made and even if some amount remains at the debit, the Assessing Officer cannot consider the same as loan and cannot make addition under section 36(1)(iii) of the Act on the same. 37. The appeal of the Revenue is dismissed. ITA No.821/2014 : 38. This appeal of the Revenue is against the order of the learned CIT (Appeals) deleting the penalty levied by the Assessing Officer under section 271(1)(c) amounting to ₹ 2,32,98,690/- on the additions and disallowances sustained after giving effect to the order of the CIT (Appeals) in quantum proceedings. The facts of the case are stated in appeal No.314/Chd/2013 and ITA No.493/Chd/2013. Since the additions sustained by the learned CIT (Appeals) have been deleted by us while adjudicating the appeal against the quantum order and the appeal against penalty under section 271(1)(c) also does not survive. 39. The appeal of the Revenue is dismissed. 40. In the result, the appeal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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