2016 (6) TMI 484

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....appeal is disallowance of a claim for deduction of Rs. 46,19,154/- being interest expenses claimed by the assessee on the ground that, the interest bearing funds were utilised for making investment in capital assets. 2.2. The assessee is a company and is engaged in the business of Mall cum Multiplex Activities, running of departmental stores, Food Court, retail chain, Cinemas, Club etc. under the name and style of M/s SRS Ltd. 2.3. The Assessing Officer (A.O.) during the course of assessment proceedings has observed that the assessee has shown advance for projects of Rs. 84,46,70,506/- to M/s SRS Real Estate Ltd. The opening balance of the same as on 01.04.2008 was for Rs. 78,20,73,079/- while the closing balance as on 31.3.2009 was R....

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.... utilized for earning interest income. 3. The assessee carried the matter in appeal. The First Appellate Authority observed that similar disallowance for the A.Y. 2008-09 was accepted by the assessee. It was further observed that the assessee had withdrawn the appeal filed before the Ld.CIT(Appeals) in the earlier A.Y. The Ld.CIT(A) relied on the following judgements : (i) Nahar Polyfilm Ltd. vs. CIT (P&H) 201 taxman 304; (ii) CIT vs. Vardhman Polytex Ltd. (P&H) 299 ITR 152 wherein it was held that even in the case of same business, interest on capital borrowed for extension of the same business is not allowed as a revenue expenditure. He dismissed this ground of the assessee by upholding the findings of the A.O. 3.1. Further aggrieve....

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....M/s SRS Ltd. The advance given was for the acquisition of a commercial complex to be constructed. The transaction ultimately did not take place and the assessee got back the advances. On these facts and circumstances, we are of the considered view that the advances were given for the purpose of business of the assessee. 7.1. S.36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') reads as follows. "" S.36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in s.28: (iii) the amount of the interest paid in respect of capital borrowed for the purposes of business or profession: (Provided ....

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....ixed funds were utilised for making these advances. The Hon'ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Mum), has laid down a proposition that, when interest-bearing funds and interestfree funds are available with the assessee, the presumption would be that, interest-free funds were utilised for giving interest-free advances. The assessee is right in relying on the decision of Calcutta High Court in the case India Explosion Ltd. (supra). 7.4. Applying the propositions laid down by the Honble'Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) to the facts of this case we have to necessarily hold that the A.O. should presume that interest free funds have been ....