TaxTMI 
TaxTMI 
2013 (7) TMI 1198
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....is in the business of manufacturing/fabricating Engineering capital goods. The AO noted that during the year the assessee had made investment of Rs.3,54,61,930/- in purchases of land for construction of a factory building at village Prithla, District Faridabad. The payment for purchase of the said land were made from CC Account with State Bank of India, Faridabad. Schedule of fixed assets further revealed following amounts under the head work in progress: (1) Work in progress (building). Rs. 88,19,802/- (2) work in progress (Plant and machinery) Rs. 11,78,095/-. 4. The AO made disallowance of interest of Rs..8,57,330/-on account of investment of Rs.3.54 crores made in the purchase of land during the year out of interest bearing funds but not to be used; disallowance of Rs.64,877/- on account of work in progress of building and Rs.7,704/- on account of work-inprogress of plant and machinery not to be used aggregating to Rs.9,29,911/-. The Ld. CIT (A) has deleted this disallowance of Rs. 9,29,911/- against which the revenue is in appeal before the Tribunal on the issue. 5. In support of the grounds on the issue, the Ld. DR has basically placed reliance on the assessment order. ....
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....07 Manning Europe Ltd 224, 450 Euros Sales Recovery from Burgess Manning India Private Limited 41,99,983 10.01.07 12.01.07 As Above 3,50,34,930 8. It is apparent from the copy of bank account filed by the assessee that the payments of Rs.14 lac on 13/12/2006 and Rs.86 lac on 14/12/2006 were made from the CC Account with Bank of India in which there was an over draft leading to increase in debit balances on the dates of above payments. Similar these were debited balance payments on subsequent dates made for purchase of land and the said debit balances further increased. The AO has held that the interest referable to the payments made for purchase of land was not eligible expenditure as per proviso to Section 36 (1) (iii) of the Act. Hence, the claim of interest amounting to Rs.8,57,330/- and pertaining to capital borrowed for acquisition of land was disallowed as the said asset was not put to use for any business purposes. 9. On perusal of the provisions laid u/s 36 (1) (iii) of the Act we find that as per these provisions the expenditure incurred by way of interest on capital borrowed for the purpose of acquisition of an asset is to be allowed as revenue expenditure only af....
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....man 188(Calcutta) & of Hon'ble Bombay High Court in the case of Reliance Utilities & Powers Ltd, 221 CTR, 435 (Mum). 10. It is pertinent to note that in the case of Abhiseshek Industries Ltd (Supra) Hon'ble P &H High Court have followed its earlier decision in the case of S.A Builders Ltd. Vs. CIT 269 ITR 535 to arrive at a conclusion that theory of direct nexus of funds between borrowings of the funds and diversion thereof for not business purposes cannot be accepted. It was held that there could be nexus to use of funds for the purpose of business to claim deduction u/s 30 (1) (iii) of the Act. The judgment of Hon'ble P & H High Court in the case of S.A Builders was later on set aside by the Hon'ble Supreme Court as per order dated 14/12/2006. Thus, the decision of Hon'ble P & H High Court in the case of Abhishek Industries Ltd (Supra) relied upon by the Ld. DR is not helpful to the revenue. In its subsequent decision, the Hon'ble Supreme Court in the case of Manjal Sales Corporation Vs. CIT 298 ITR (SC) has been pleased to hold that no disallowance of interest on borrowed funds could be made when the interest free advances are established to be out of capital or profits of the ....
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....s regards, disallowance of interest on capital work-in-progress relating to building is concerned, the assessee had filed the details of amounts spent for work-in-progress and the sources of funds also made available at page no 114 of the paper book. The assessee had also furnished a copy of account of R.S.V Builders Pvt. Ltd who had undertaken the construction work of building made available at page no. 115 of the paper book. Taking assistance of the above details of amounts as well as copy of account of R.S.V Builders Pvt. Ltd. the assessee submitted that the amount of Rs.17.37 lacs was outstanding for payment against the total work in progress of building at Rs.898.19 lacs and the work-in-progress has been accounted for on the basis of bills raised but the actual payment of Rs. 60 lacs was made during the year. It was contended that the AO has failed to examine this aspect during the course of assessment proceedings and has considered the disallowance of interest on the amount of Rs.88.19 lac shown in work in progress instead of restricting the same to the extent of payments made. Besides, it was contended that it is evident from the sources of funds invested in the construction....