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TMI Blog2013 (7) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacturing/fabricating Engineering capital goods. The AO noted that during the year the assessee had made investment of Rs.3,54,61,930/- in purchases of land for construction of a factory building at village Prithla, District Faridabad. The payment for purchase of the said land were made from CC Account with State Bank of India, Faridabad. Schedule of fixed assets further revealed following amounts under the head work in progress: (1) Work in progress (building). Rs. 88,19,802/- (2) work in progress (Plant and machinery) Rs. 11,78,095/-. 4. The AO made disallowance of interest of Rs..8,57,330/-on account of investment of Rs.3.54 crores made in the purchase of land during the year out of interest bearing funds but not to be used; disallowance of Rs.64,877/- on account of work in progress of building and Rs.7,704/- on account of work-inprogress of plant and machinery not to be used aggregating to Rs.9,29,911/-. The Ld. CIT (A) has deleted this disallowance of Rs. 9,29,911/- against which the revenue is in appeal before the Tribunal on the issue. 5. In support of the grounds on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Bank Source of funds Amount Date of receipt in Account 14,00,000 13.12.06 Sales recovery from GAIL India Ltd. 36,53,283 07.12.06 86,00,000 14.12.06 Sales recovery from Jord. Intl USA $42,135 47,61,837 07.12.06 19,86,930 12.01.07 Sales Recovery from Burgess Manning Europe Ltd 238,550 Euros Sales Recovery from Burgess 18,77,580 07.12.06 1,41,31,414 12.12.06 30,10,500 13.01.07 1,27,63,248 2,00,37,500 15.01.07 Manning Europe Ltd 224, 450 Euros Sales Recovery from Burgess Manning India Private Limited 41,99,983 10.01.07 12.01.07 As Above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of depositing profits as much recovered from the debtors during the year. The adverse finding of the AO in this regard that the profits of the business during the year were also invested in some other assets as against the total income of Rs.2.21 crores declared during the year and the realization of about Rs. 4.13 crores from the debtors is without any basis whereas, the investment made in the purchase of land was much less at Rs.3.54 crores. Thus, now the question arises is as to whether in view of the substantial profits generated during the year, the investment in plot of land can still be said to have been made out of borrowed funds when the said payments for purchase of land were made from CC Account directly wherein the profits of business were also deposited and the nature of account was that of mixed account. In this regard, we find that the Ld. CIT(A) has referred the decisions of Hon ble Punjab Haryana High Court in the case of Abhishek Industries Ltd 288 ITR 1 (P H) a Builders Ltd vs. CIT, 269 ITR 535 (P H), the Hon ble Delhi High Court in the case of CIT Vs. Dalmia Cement (Bharat) Ltd 2541 ITR 377 (Delhi), of Hon ble Calcutta High Court in the case of Combers Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business. The impugned interest was, therefore, not relatable payment of advance tax and hence could not be disallowed in computation of the assessee s business income, held the Hon ble High Court. Respectfully following the ratio laid down in these decisions, the Ld. CIT(A) in our view has rightly come to the conclusion that when the sale proceeds and internal accruals etc are deposited by the asssessee in cash credit account or over draft account and the investment in assets is made which are not put to use in business, the disallowance of interest cannot be made only on the ground that the payments have been made from cash credit or over draft account, provided the profits generated during the year are sufficient to meet the investment so made in the asssets. It has not been disputed by the revenue that in the CC Account operated by the assessee from which the payment have been made for the purchase of land, the funds more than the payments had substantiated deposits out of internal accruals prior to the dates of payments made for the purchases of land. The Ld. CIT(A) has thus rightly held that there was no justification for disallowance of interest of Rs. 8,57,330/- on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. The revenue has not been able to rebut these material findings of the Ld. CIT (A) on facts. Hence, we are not inclined to interfere therewith. The Ld. CIT(A) has thus rightly deleted the disallowance of interest of Rs. 9,29,911/- made by the AO. The Ground Nos. 1 2 involving the issue No-1 are thus rejected. ISSUE NO. 2 13. An issue of disallowance of interest of Rs.24,261/- by invoking the provisions of Section 14A of the Act has been raised. The assessee had made investment of Rs. 5 lac in SBI Mutual Find. It was explained before the AO that no dividend was received during the year and subsequent years but the sale proceeds of the fund are subjected to capital gains. The AO held that on one hand, the assessee has incurred expenditure on interest, whereas on the other hand it has made investment in mutual funds from which the dividend income is exempted. The Ld. CIT(A) following its decision on Issue No-1 upheld hereinabove held that the establishment of nexus of borrowed funds with the funds invested in assets generating income which does not form part of total income was and remains a condition precedent to disallow interest paid on borrowed funds. He thus fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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