TaxTMI 
TaxTMI 
2022 (8) TMI 243
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....4,983/- being proportionate disallowance of interest expenditure pertaining to borrowed funds used for nonbusiness purpose) On the basis of the circumstances and facts of the case, addition, if any, ought to be restricted to Rs.9,74,983/- 3. Without prejudice to ground 1 and 2 above, the Ld. CIT(A) has erred in confirming action of the 'AO in not allowing capitalization of interest disallowed u/s 36(1)(iii) along with the value of investments. On the basis of the circumstances and facts of the case, interest disallowed, ought to be allowed to be capitalized. 2. At the outset, we may like to mention that Registry has pointed out delay of 339 days in filing the appeal. As per Form No. 36 i.e. the form prescribed for filing the appeal, the order of the Ld. CIT(A) was served upon the assessee on 04/02/2020 and therefore appeal before the ITAT was due within 60 days i.e. 5/03/2020, whereas the appeal has been filed on 09/03/2021. We find that in view of the order dated 10/01/2022 of the Hon'ble Supreme Court in Miscellaneous Application No. 21 of 2022 in suo moto writ petition (C) No. 3 of 2020, wherein it is directed that period from 15/03/2020 till 28/02/2022 shall sta....
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..... 25,38,825/for fund invested for non-business purposes. The said working of interest for business purpose made by the Assessing Officer is reproduced as under: = amount of fund used for business purpose X gross interest debited in profit and loss account amount of fund borrowed = (2,80,40,460/5,16,58,492) X 55,53,061 =Rs.30,14,226/- 6. The Ld. Assessing Officer held that money was diverted for non-business purposes. In absence of link of said investment from own capital he, also rejected the contention of the assessee that investment in debt mutual funds was out of own capital. He relied on the decisions of the Hon'ble Madras High Court. The relevant finding of the Ld. Assessing Officer is reproduced as under: "In this case, the facts are sufficiently clear to warrant the finding that there has been a diversion. The deduction u/s.36(1)(iii) is an allowable expenditure as long as the amounts borrowed were used for the purpose assessee's business. Further, the capital borrowed should not only be invested in assessee's Own business but also that the amounts borrowed continues to remain in the business....
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....penditure is required to be done. It is also seen that in the assessment order the AO has taken an adverse view only on the proportion of interest which he had thought to be relatable to activities such as loans and advances and investment in mutual funds. It is further seen that out of total interest expenditure of Rs.55,53,061/- he has disallowed an amount of Rs.25,38,825/- However, as mentioned earlier, the appellant is in the business of giving loans and therefore, the activity of loans and advances cannot be described as being not related to the business of the appellant. 4.3 Thus the only issue to be decided now is whether investment in mutual funds amounting to Rs.70 lacs can be said to be for the purposes of business or as a measure of commercial expediency. The appellant is not an investment company and therefore investing Rs.1.70 lacs in mutual funds from borrowed fund does not make the case for either the purposes of business or commercial expediency. Considering the fact that the AO has himself given substantial relief to the appellant by not disallowing the entire amount of interest paid, I see no reason to interfere with the order of the AO. The grounds of ap....
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....g the A.Y 2015-16 has been increased by Rs. 5,25,172/- (i.e. Rs. 79.30,020/- as on 31.03.2015 minus Rs. 74,04,848/- as on 31.03.2014) and therefore, the amount on which interest disallowance to be made, ought to be computed as under: a) On Rs. 55,95,152/- as quantified by Hon'ble CIT(A) in order for AY 2015-16 plus b) On Rs. 34,74,828/- (being Rs. 40,00,000/- additional investment minus Rs. 5,25,172/- being the increase in internal accruals in A.Y 2015-16) 16. Based on the above, the amount of proportionate disallowance to be made comes to Rs.9,74,983/- (ie investment out of borrowed funds of Rs. 90,69,980/- divided by total borrowed funds of Rs. 5,16,58,492 multiplied by interest paid of Rs. 55,53,061/-). 17. In view of above, we request your Honour to restrict the disallowance to Rs. 9,74,983/ as against Rs. 25,38,825 made by the Assessing Officer." 7.4 Further, without prejudice to ground No.1 and 2, the Ld. counsel further submitted that while allowing the proportionate interest for fund utilized for business purpose, the Assessing Officer has not considered amount of Rs.51,00,000/- advanced to M/s Elder Healthcare Ltd., which was grou....
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.... irrespective of the fact that ideal funds have been invested. The funds have not been invested due to business or commercial expediency, and same have been invested for earning income on ideal funds. Therefore, interest corresponding to borrowed money utilized in said investment is disallowed. The ground No. 1 of the appeal of the assessee accordingly is dismissed. 9.2 As far as ground No. 2 of the appeal is concerned, the assessee failed before the lower authorities to justify as how the own funds were deployed in investment in debt mutual fund and in absence of which the claim of utilisation of own capital and reserves surplus towards investment in debt mutual fund of Rs.1.30 crores cannot be accepted. The ground No. 2 of the appeal of the assessee is accordingly dismissed. 9.3 The alternative plea made in ground No. 2 of the assessee, is however, convincing. While taking calculation of the funds utilised for business purpose, the Ld. Assessing Officer was required to consider the claim of the assessee of Rs.51 lakh representing under the doubtful debt and Rs.75,83,341/- lying in bank account. The amount of interest allowable was required to be considered after including a....