TaxTMI 
TaxTMI 
2022 (1) TMI 785
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....3) read with section 147 of the Income-tax Act, 1961 (for short 'the Act') for the assessment year 2015-16. 2. The grounds of appeal raised by the Revenue read as under:- "1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in restricting the disallowance of interest expenses of Rs. 3,36,00,000/- made by the AO u/s 36(1)(iii) of the Income Tax Act ('the Act') to Rs. 40,75,121/-, not appreciating the fact that the borrowed funds were utilized by the assessee for purposes other than its business activity, having been invested in the form of zero percent debentures in a sister concern. a) Whether the Ld CIT(A), in restricting the disallowance of interest expenses to Rs. ....
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....proceedings observed that assessee has diverted interest bearing funds for making investment of Rs. 28 crores in M/s. Moderate Leasing & Capital Services Limited, a related company. Ld. AO observed that assessee has also debited an amount of Rs. 24,93,81,512/- as interest expenses in its profit & loss account. Facts which were gathered during the assessment proceedings u/s 143(3) of the Act for AY 2014-15 suggested that assessee has diverted interest bearing funds for making investment of Rs. 28 crores in the said company. Based on this premise, the assessee's case was reopened u/s 148 of the Act as per the reasons recorded in the assessment order. Accordingly, the ld. AO worked out the proportionate disallowance of Rs. 3,36,00,000/- by wor....
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.... company had earlier invested an amount of Rs. 28,00,00,000/- in zero percent debentures of M/s. Moderate Leasing of Capital Services Limited, a related company, on which no interest was earned during the year. These debentures got converted in equity shares on 25.03.2014. The AO has observed that the appellant company has debited an amount of Rs. 23,77,89,906/- towards interest on borrowings. The AO held that the interest expenses of Rs. 3,36,00,000/- @12% on the fund of Rs. 28,00,00,000/- is to be disallowed, the interest being disallowed for the entire financial year as the debentures got converted only at the fag end of the year i.e. on 25.03.2014. Accordingly, the AO disallowed the interest to the extent of Rs. 3,36,00,000/- u/s. 36(1)....
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....any had paid interest on certain loans which are always given for specific purpose, i.e vehicle loan & equipment loan, Bill discounting, cash credit loan, packing credit loan and all these loans were taken for specific purposes and they were utilized for that very purpose only. Further it has been stated that the appellant has also earned interest of Rs. 4.55 Crores during the year under reference and so the net interest outflow of non specific interest amounted to Rs. 8,78,17,193 -4,55,29,535 = Rs. 4,22,87,658/-. 4.3.3.3. During the appellate proceedings, the appellant company has submitted without prejudice to the main submission; if any disallowance is to be made then the same should be made in proportion to the interest bearing....
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.... there are interest bearing funds then there cannot be any presumption that any loan advanced in the earlier years is out of secured/unsecured loan on which interest has been paid :- (i) CIT vs. Ms. Sushma Kapoor 319 ITR 299 (Del.); (ii) CIT vs. Radico Khaitan Ltd. 274 ITR 354 (All.) (iii) CIT vs. Reliance Utilities Power Ltd. 313 ITR 340 (Bom.) (iv) CIT vs. Bharti Televenture Ltd. 200 Taxman 39 (Del.)(Mag.) (v) CIT vs. Prem Heavy Engineering Works Pvt. Ltd. (2006) 285 ITR (All.) (vi) S.A. Builders vs. CIT 288 ITR 1 (SC). Thus, he pleaded that no disallowance could be made. 6. Ld. DR for the Revenue strongly relied upon the order of the AO and submitted that when assessee has mixed....