TaxTMI 
TaxTMI 
2013 (5) TMI 615
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.... of interest of Rs.1,22,10,166/- under section 36(1)(iii), without considering the supporting facts brought on record by the A.O." 3. Facts necessary for disposal of the issue before us are stated in brief. The assessee company is a manufacturer of petrochemical products. For the year under consideration it declared total income at Rs.3,90,04,129/-. Though the return was originally processed under section 143(1) of the Act it was later on selected for scrutiny and notice under section 143(2) was issued. In response to the notice issued by the AO the assessee's representative appeared and furnished necessary details. While examining the record the AO noticed that the assessee company obtained secured loans amounting to Rs.9,34,70,545/- an....
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.... whereas the investments in assets during the year are to the tune of Rs.7.98 crores. Hence the assessee cannot be stated to have borrowed any funds for investment in assets. Consequently the question of capitalisation of interest does not arise. 5. The AO rejected the contention of the assessee. He observed that the claim of availability of reserves to meet acquisition of capital assets is factually incorrect. In this regard he observed that the assessee company had opening reserves of Rs.25.50 crores but that was already invested in the form of fixed assets of Rs.27.05 crores (opening gross block) and therefore there was no free reserves available to meet the cost of fixed assets purchased during this year. He also highlighted that the....
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....nt assets of the assessee company were to the tune of Rs.44.20 crores. According to the learned counsel for the assessee the bank loans have been invested totally in working capital requirements and no funds were diverted towards acquisition of fixed assets. It was also contended that as on 31.03.2008 the assessee had reserves to the tune of Rs.28.30 crores and share capital of Rs.8 crores against borrowing of Rs.22.80 crores. According to the assessee the loan as well as own capital were circulated in its business activity. Circulating capital means capital employed in trading operations of the business and dealings with it comprise trade receipts and trade disbursements while fixed capital means capital not so employed in the business tho....
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....n out of cash profit generated during the year under consideration. 7. The learned CIT(A) observed that the crux of the issue is whether proviso to section 36(1)(iii) r.w.s. Explanation 8 to section 43(1) are applicable to the facts of the case. The assessee relied upon several case law, including the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 to submit that if interest free funds and over draft of the loan are available in the same account from which assessee made investments, then a presumption would arise that investments are out of interest free funds generated or available with the company. In this regard the learned CIT(A) observed that the assessee had cash profit....
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....or investment in such capital assets. Though there is no dispute that the principles enunciated by the courts are applicable, the plea of the learned Representative for the Deptt. is that the facts are not considered before coming to the conclusion that on the date of investment common funds are available out of which interest free funds available are more than the investments made by the assessee. 9. On the other hand, the learned counsel for the assessee submitted that opening share capital, reserves and surplus were to the tune of 33.56 crores whereas the investments in fixed assets were only to the tune of Rs.27.05 crores and hence Rs.6.45 crores should be deemed to be available as on the first day of the accounting year to which if ....