TaxTMI 
TaxTMI 
2018 (7) TMI 1082
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....nt of interest on Capital Work in Progress. 3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs. 59,13,664/-on assets which were received without any consideration. 4. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 6,30,720/- on account of profit on sale of assets which were acquired without any consideration. Grounds for A.Y. 2011-12: 1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs. 1,05,00,000/- made out of interest expenses being interest bearing funds given to sister concerns without interest. 2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs. 26,86,443/- made out of interest expenses on account of interest on Capital Work in Progress. 3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs. 50,68,167/-on assets wh....
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.... assessee out of his own funds. Therefore, the Assessing Officer applying section 36(1)(iii) on the opening balances of Rs. 1.80 crores, calculated the interest @ 12%, i.e., 21,60,000/- and the same was added back to the income of the assessee. 4. The Assessing Officer further observed that the assessee has shown capital work in progress including capital advances amounting to Rs. 1,00,61,241/-. In this regard, the assessee was asked to explain as to why interest proportionate to capital borrowings in assets not put to use, should not be disallowed. In response, the assessee made detailed submissions and relied on some case laws. The Assessing Officer, however, disallowed 12% interest and worked out the disallowable interest to the tune of Rs. 12,07,349/-, which was added to the income of the assessee, holding that the amount invested in the capital work in progress not put to use is not allowable. 5. The other issue raised in this appeal is against deletion of disallowance of depreciation amounting to Rs. 59,13,664/- on assets which were received without any consideration. The facts apropos this ground are that a society in the name of Escorts Heart Institute and Research Ce....
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....the impugned order. Aggrieved, the Revenue is in appeal before the Tribunal. 8. The learned DR relied on the order of the Assessing Officer and submitted that the ld. CIT(A) was not justified in deleting the impugned additions ignoring the facts considered by the Assessing Officer in his order. 9. On the other hand, the ld. AR relied on the order of the ld. CIT(A) and submitted that ground No. 1 & 3 are covered in favour of the assessee and against the Revenue by the order of Co-ordinate Bench in assessee's own case for the assessment year 2008-09, which has also been upheld by Hon'ble jurisdictional High Court. In respect of ground No. 4, the ld. AR further submitted that it is consequential to ground No. 3 because the assets sold was the part of block of assets held by the assessee and the block of assets did not exhaust by making sale of some of the assets therefrom. 10. After hearing the submissions of both the parties and perusing the entire material available on record, we find that the issues involved in ground No. 1 & 3 have been decided in favour of the assessee in its own case for the assessment year 2008-09 in the similar facts and circumstances of the case by t....
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....fore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In that case, the AO recorded a finding that a sum of Rs. 213 crore was invested by the assessee out of its own funds and Rs. 1.74 crore out of borrowed funds. Accordingly, disallowance of interest was made to the tune of Rs. 2.40 crore. It was argued on behalf of the assessee that no part of interest bearing funds had gone into investment in those two companies in respect of which the AO made disallowance of interest. It was also argued that income from operations of the company was Rs. 418.04 crore and the assessee had also raised capital of Rs. 7.90 crore, apart from receiving interest free deposit of Rs. 10.03 crore. It was, therefore, submitted before the first appellate authority that the balance-sheet of the assessee adequately depicted that there were enough interest free funds at its disposal for making investment. The ld. CIT(A) got convinced with the assessee's submissions and deleted the addition. Before the Tribunal, it was contended on behalf of the Revenue that the shareholders' funds were utilized for the purchase of its assets and hen....
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....nds at the disposal of the assessee. 5. Similar view has been taken by the Hon'ble jurisdictional High Court in CIT vs. Tin Box Company (2003) 260 ITR 637 (Del), holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. 6. Adverting to the facts of the instant case, we find that the assessee has its own share capital and reserves amounting to Rs. 188.89 crore. As against that, only sum of Rs. 24.19 crore was given as interest free loan to subsidiary companies. The amount of share capital and reserves is many times higher than the amount of interest free loan given to subsidiary companies. Guided by the ratio laid down by the Hon'ble jurisdictional High Court in Tin Box Company and that of the Hon'ble Bombay High Court in Reliance Utilities and Power Ltd., we hold that the ld. CIT(A) was justified in deleting this disallowance. 7. Reliance of the ld. DR on the decision of the Delhi tribunal in ACIT vs. Samrat Rice Mills (P) Ltd. (2012) 23 taxmann.com....
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....as been allowed as application of income u/s 11. 10. At this stage, it is relevant to note that sub-section (6) has been inserted to section 11 by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 which reads as under:- 'In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.' 11. A bare perusal of the above provision indicates that where any income has been applied for the purchase of assets on which exemption has been granted, then, no separate claim by way of depreciation in respect of such assets can be allowed in the same or any other year. In fact, this is the view point canvassed by the Assessing Officer in disallowing the claim of depreciation. However, it is important to note that sub-section (6) has been inserted to section 11 w.e.f. 01.04.2015. The Hon'ble Delhi High Court in DIT (E) vs. Indraprastha Cancer Society (2015) 53 taxmann.c....
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.... Hon'ble Jurisdictional High Court has also affirmed the above order of the Tribunal observing as under : "2. The first question relates to disallowance of Rs. 3,07,63,2237-on account of interest payment made to the extent of loan advance to the Assessee sister concern, under Section 36(l)(iii) and the second question relates to depreciation to the tune of Rs. 1,00,30,4727-towards assets received by the Assessee without consideration. 3. The Assessee provides Health Care Services; its return for the concerned Assessment Year were scrutinized by the Assessing Officer on the ground that the interest free advance given to the sister concern be disallowed under Section 36(1)(iii). 4. The Commissioner of Income Tax (Appeals) granted relief in this aspect; the Income Tax Appellate Tribunal (ITAT) confirmed those findings. 5. Both the said authorities noticed that the Company had adequate surplus and reserves-to the extent of Rs. 188 crores. 6. In the circumstances, disallowance was not warranted. On this' aspect, the question having been considered by the CIT(A) and I confirmed by the ITAT, the Court is of the opinion that no question/ of ....
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....1/- shown against capital work in progress (CWIP) is deleted. This ground of appeal is allowed." Further, on perusal of the balance sheet filed before us, we find that the assessee has not taken any fresh loan during this year and has earned profit of Rs. 34.00 crores approx. Therefore, no adverse inference can be drawn that these capital work in progress incurred by the assessee amounting to Rs. 1,00,61,241/- has been expended out of borrowed funds. The Revenue could not adduce any evidence that this amount has been incurred out of any borrowed funds. In view of the above, ground No. 2 raised by the Revenue is dismissed. 14. In respect of ground No. 4, we observe that the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer holding it as consequential to the claim of depreciation on sale proceeds of the assets. Once, the asset has been taken in the block of assets, and if any sale value of the asset is realized or credited into the fixed asset account, it is reduced from the block of assets and it cannot be treated as a profit on sale of asset until and unless whole of the block does not exhaust. Therefore, ground No. 4 for the assessment years 2010-11 a....
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....440 34,02,51,268 Total Schedule- 1 & 2: 2,82,23,59,915 2,48,92,62475 From the above schedules of balance sheet, it is noticed that the capital reserves is of Rs. 1,06,83,74,405/- which being a designated reserve, in our opinion, could not be utilized for the purpose of loans given, whereas the assessee, however, is also including this capital reserve as own distributable funds. After excluding this much of capital reserve, the balance amount of own funds now remains of Rs. 1,75,39,85,510/- During the course of hearing, the Bench asked the ld. AR to produce complete balance sheet along with its schedules so as to verify the inflow and outflow of funds. However, the ld. AR did not agree to produce the requisite balance sheet, only stating that the issue is covered by the decision of Tribunal and Hon'ble High Court. We are, therefore, unable to ascertain whether the loans given by the assessee during the year under consideration were out of owns funds or from borrowed funds. Therefore, we deem it expedient in the interest of justice that this matter should go back to the file of the AO to decide the issue afresh after due verification, as observed ab....