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TMI Blog2020 (5) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the action of Assessing Officer in disallowing proportionate expenses of interest without appreciating the facts of the case. For this, assessee has raised following ground no. 1 :- "1. On the facts and in the circumstances of the case and in law, the learned C.I.T.(A) erred in confirming the action of the A.O. in disallowing proportionate interest expense amounting to Rs. 94,23,665/- and that too without appreciating the facts and circumstances of the case fully and properly." 3. The brief facts are that the assessee is engaged in the business of manufacture and trading of industrial fabrics, dipped nylon, chafer fabrics and other fabrics. The Assessing Officer, on verification of account of assessee as on 31.03.2011, noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 491 7,72,89,582 Rs. 94,23,665/- 4. Assessee produced complete books of account and details of loans given and loans taken from various parties including financial institutions and banks before the Assessing Officer. Assessee was also asked to prove the nexus between the availability of interest free funds and funds given to above parties noted in the chart. After going through the reply of assessee, the Assessing Officer noted that interest bearing funds were diverted towards non-interest bearing advances given by assessee to other parties. He also noted that interest bearing funds utilized for such investments on which interest is paid or payable should have been capitalized. Hence, he disallowed proportionate interest on such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard the rival submissions and perused the materials available on record. We find that the preliminary argument made by the ld AR is that no disallowance of interest could be made on the funds borrowed in the earlier years and lying in opening balance as on 1.4.2009 when the said borrowings and utilization thereon were accepted as meant for business purposes in earlier years. Reliance in this regard has been rightly placed on the decision of Hon'ble Karnataka High Court in the case of CIT vs Sridev Enterprises reported in 192 ITR 165 (Kar) wherein it was held as under:- "4. We are in agreement with the view expressed by the Tribunal. The status of the amount standing as outstanding due from Nalanda on the first day of the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n earlier years and its utilization thereon in earlier years has been accepted as genuine and meant for business purposes in the earlier years. It is not in dispute that no disallowance of interest has been made in earlier years with regard to the said borrowings and utilization thereon. The ld AR stated that the assessments for the Asst Years 2007-08 to 2009-10 were completed u/s 143(1) of the Act and no proceedings were either initiated by the ld AO u/s 147 of the Act or by the ld CIT u/s 263 of the Act even after passing of the impugned assessment order for any of those years i.e Asst Years 2007-08 to 2009-10 to disturb the returns thereon. Hence the issue had become final for those asst years with regard to the allowability of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court and Hon'ble High Courts in the context of reopening would get completely defeated. Hence we are not inclined to accept the arguments of the ld DR in this regard. We find that the ld AR submitted that the amounts advanced to Neeta M Mehta alone had increased during the year. We find that with regard to amounts advanced to all other parties except Neeta M Mehta, the closing balance had only reduced when compared to the opening balance and hence there cannot be any disallowance of interest on the opening balance of loans advanced to parties as per the ratio laid down by the Hon'ble Karnataka High Court referred to supra. 6.2. We also find that similar decision was rendered by the Hon'ble Gujarat High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of interest expense has been made in the earlier years with regard to opening balance of said borrowings and utilisation thereof. We also noted that in this year also the position does not change and assessee is having sufficient own funds in the form of current year's profit before depreciation. Even otherwise, assessee also contended that assessee had at its disposal corresponding interest free advances received from various parties mainly comprising of share application money amounting to Rs. 18.80 crores in aggregate, which exceeds the above interest free advances made by assessee. Hence, in terms of the above facts of the present case and the precedent in the immediately preceding year, no disallowance is to be made, as made by CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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