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TMI Blog2018 (6) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... 856 - GUJARAT HIGH COURT] - Decided against revenue Addition made on account of capitalization of interest expenses - Held that:- As the owned fund of the assessee exceeds the amount of capital work in progress, we hold that it has been made out of the owned funds of the assessee and therefore there is no question of making any disallowance on account of money invested in the capital work in progress. Hence, we do not find any reason to interfere in the order of learned CIT(A). - Decided against revenue - I.T.A. No. 584/Ahd/2014 - - - Dated:- 20-6-2018 - Shri Rajpal Yadav, Judicial Member And Shri Waseem Ahmed, Accountant Member Appellant by : Shri Saurabh Singh, Sr. D.R. Respondent by : Shri T. P. Hemani, A.R. ORDER Per Waseem Ahmed, Accountant Member The captioned appeal has been filed at the instance of the Revenue against the appellate order of the Commissioner of Income Tax(Appeals)-IV, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)- IV/AHD/300A/13-14 dated 03/12/2013 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) dated 25/11/2011 relevant to Assessment Year (AY) 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the query raised by the AO. Therefore, the AO worked out the amount of interest for ₹ 44,44,962/- (12% on ₹ 2,46,38,544 + 1,24,02,806) and made the disallowance u/s 36(1)(iii) of the Act. The amount disallowed was added back to the total income of the assessee. 5. Aggrieved, assessee preferred an appeal to learned CIT(A). The assessee before the learned CIT(A) submitted that it has advanced money to its sister concern in connection with its business transactions. As such the assessee during the year has shown sales of goods to its sister concern worth of ₹ 1339.64 lacs ₹ 2083.79 lacs respectively. This fact was duly disclosed in the tax audit report in the column of related party transactions. Thus, the debit balance as observed by the AO is representing the business transactions of the assessee with its sister concern. 6. The assessee in case of the advance made to Gujarat Dying and Printing Mills Ltd has recovered the amount of interest for ₹ 11.81 lacs on account of late payment made by it against the supply of goods. This fact was also reported in tax audit report in the column of related party transactions. 7. The assessee has show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis. (iii) The appellant was having sufficient paid-up capital and interest free unsecured loans at its disposal to cover the debit balance of the two sister concerns. (iv) The contention of the appellant that the date of order i.e. 25-11- 2011 is before the date of show-cause entry dtd.28-11-2011 is also correct which proves that appellant was not given any opportunity to submit its explanation on this issue. (v) Similar disallowances in earlier AY 2008-09 and subsequent AY 2010-11 have been deleted by ld. CIT (Appeal) after considering the above factors which were also present in above stated two years. 5.2.2 In view of above, the addition made by the AO of ₹ 44,44,962/- on account of disallowance u/s 36(1)(iii) of the Act cannot be sustained and the same is deleted. This ground is allowed. Being aggrieved by order of learned CIT(A) Revenue is in second appeal before us. The Ld. DR before us vehemently supported the order of the AO whereas, the learned AR before us filed a paper book comprising pages from 1 to 31 and reiterated the submission made before the learned CIT(A). 8. We have heard the rival contentions and perused the material availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owned fund of the assessee exceeds the amount of advances given to its sister concern, we hold that the advances have been made out of the owned funds of the assessee, and therefore there is no question of making any disallowance on account of diversion of fund u/s 36(1)(iii) of the Act. Hence, we do not find any reason to interfere in the order of learned CIT(A). 9. The second issue raised by the Revenue in the ground no. 2 is that learned CIT(A) erred in deleting the addition made by the AO for ₹ 17,760/- under the provision of Section 14A of the Act. The assessee in its balance sheet has shown investment in shares but failed to justify the source of money utilized in such investments. The AO accordingly assumed that the borrowed funds had been utilized in investing in shares. Therefore, the disallowance is required to be made under the provisions of Section 14A r.w.r. 8D of Income Tax Rules. Accordingly, the AO made the disallowances for ₹ 17,760/- only and added to the total income of the assessee. 10. Aggrieved, assessee preferred an appeal to learned CIT(A). The assessee before the learned CIT(A) submitted that it has not earned any dividend/ tax-free i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Corrtech Energy Pvt. Ltd (supra) is squarely applicable to the facts of the case on hand. Therefore, we do not find any reason to interfere in the findings of the learned CIT(A), and hence ground of appeal filed by the Revenue is dismissed. 12. The next issue raised by the Revenue in the ground no. 3 is that the learned CIT(A) erred in deleting the addition made by the AO for ₹ 23,508/- on account of capitalization of interest expenses. The assessee during the year has shown capital work-in-progress for ₹ 1,95,900/- only. The AO was of the view that the borrowed funds had been utilized in the capital work-in-progress as shown in the balance sheet but the assessee has failed to do so. Therefore, the corresponding interest expenses claimed by the assessee should be disallowed and allocated to the capital work-in-progress. Accordingly, the AO worked out the interest expenses about the capital work-in-progress @12% of ₹ 1,95,900/- and accordingly, worked out the element of interest expense of ₹ 23,508/-, which needs to be capitalized. Accordingly, the AO disallowed the same and added to the total income of the assessee. 13. Aggrieved, assessee prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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