TaxTMI 
TaxTMI 
2019 (11) TMI 354
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....ial fabrics, dipped nylons chafer fabrics and other fabrics. The ld AO observed that assessee had shown secured loan of Rs. 13,43,00,000/- , working capital loan from banks at Rs. 16,82,59,808/- and unsecured loans at Rs. 5,28,28,541/- as on 31.3.2010 as against the opening balances of Rs. 13,38,70,416/- , Rs. 15,84,22,076/- and Rs. 5,20,46,296/- as on 1.4.2009 respectively. The assessee had debited total finance cost in its profit and loss account amounting to Rs. 4,91,91,557/- which includes interest paid to banks at Rs. 3,66,24,468/- and interest paid to others at Rs. 1,25,67,089/-. The ld AO on verification of schedule of loans and advances given by the assessee , observed that the assessee had shown other advances at Rs. 5,79,37,770/- as on 31.3.2010 as against Rs. 8,19,38,063/- as on 1.4.2009. Accordingly, he came to the prima facie conclusion that the interest bearing funds were diverted by the assessee for non business purposes by giving interest free loans / advances to the following parties and resorted to make proportionate disallowance of interest :- Name of party Balance as on 31/03/2009 Balance as on 31/03/2010 Amt. Received/ given during the year Disal....
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.... Growell Holding Ltd, the same was towards purchase of property at Maval Taluka District, Pune, having Survey No. 124/B, in support of which, a copy of Memorandum of Understanding between Mehta Growell Holding Ltd and assessee was furnished. It was submitted that the completion of the development was delayed abnormally by Mehta Growell Holding Ltd. The ld AO extracted the relevant portions of the said MOU in page 4 of his order. The ld AO rejected the contentions of the assessee that during the year the assessee had sufficient interest free funds at its disposal for making these interest free advances. The ld AO specifically pointed out that the share application money stated to be received during the year by the assessee was actually received in the sum of Rs. 17,40,76,032/- during the financial year 2010-11. Hence assessee could not have used the said sum for making interest free advances to the aforesaid parties. The ld AO also observed that the advances given to Mehta Growell Holding Ltd towards purchase of immovable assets are capital in nature and held that the proportionate interest paid on borrowed funds should have been capitalized by the assessee to the cost of investment....
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....er Fabrics and other Fabrics. It is not in the real estate business. Given this fact, the appellant's submission that the advances given for purchase of these immoveable properties were for business purposes is not acceptable. The only business connection would be if these immoveable properties were to be used for extension of existing business in which case also the proviso to section 36(1)(iii) would apply which specifically provides that" any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." In the instant case also, the assets were yet to be put to use. Considering all these facts and provisions of law, the action of the Assessing Officer in making proportionate disallowance of interest in respect of the advances to these two parties is upheld. iv) In respect of advance given to Mecords Leasing & Finance, it has simply been stated that ....
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....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 year is the amount that stood outstanding on the last day of the previous accounting year; therefore, its nature and status cannot be different on the 1st day of the current accounting year, from its nature and status as on the last day of the previous accounting year. Regarding the past years, the assessee claims for deductions were allowed in respect of the sums advanced during those years; this could be, only on the assumption that those advances were not out of borrowed funds of the assessee. This finding during the previous years is the very basis of the deductions permitted during the past ye....
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....as and is always vested with the wisdom of the revenue and it was and is never under the control of the assessee. In the instant case, even after framing the assessment for the Asst Year 2010-11 wherein the interest was disallowed in respect of borrowings made in earlier years, the revenue had not resorted to reopen the earlier years or revise the assessments for the earlier years in the manner known to law. We are equally afraid as to whether the ld DR would advance the same argument in the issue of reopening of assessments for those earlier years where return has been processed u/s 143(1) of the Act after due application of mind by the ld AOs' at that relevant point of time. If it be so, then the entire judicial decisions rendered by the 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....