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TMI Blog2013 (5) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(1)(iii), without considering the supporting facts brought on record by the A.O." 3. Facts necessary for disposal of the issue before us are stated in brief. The assessee company is a manufacturer of petrochemical products. For the year under consideration it declared total income at Rs.3,90,04,129/-. Though the return was originally processed under section 143(1) of the Act it was later on selected for scrutiny and notice under section 143(2) was issued. In response to the notice issued by the AO the assessee's representative appeared and furnished necessary details. While examining the record the AO noticed that the assessee company obtained secured loans amounting to Rs.9,34,70,545/- and incurred finance cost to the tune of Rs.3,48,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to the tune of Rs.7.98 crores. Hence the assessee cannot be stated to have borrowed any funds for investment in assets. Consequently the question of capitalisation of interest does not arise. 5. The AO rejected the contention of the assessee. He observed that the claim of availability of reserves to meet acquisition of capital assets is factually incorrect. In this regard he observed that the assessee company had opening reserves of Rs.25.50 crores but that was already invested in the form of fixed assets of Rs.27.05 crores (opening gross block) and therefore there was no free reserves available to meet the cost of fixed assets purchased during this year. He also highlighted that the assessee company did not generate enough cash from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.44.20 crores. According to the learned counsel for the assessee the bank loans have been invested totally in working capital requirements and no funds were diverted towards acquisition of fixed assets. It was also contended that as on 31.03.2008 the assessee had reserves to the tune of Rs.28.30 crores and share capital of Rs.8 crores against borrowing of Rs.22.80 crores. According to the assessee the loan as well as own capital were circulated in its business activity. Circulating capital means capital employed in trading operations of the business and dealings with it comprise trade receipts and trade disbursements while fixed capital means capital not so employed in the business though it may be used for the purpose of manufacturing bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration. 7. The learned CIT(A) observed that the crux of the issue is whether proviso to section 36(1)(iii) r.w.s. Explanation 8 to section 43(1) are applicable to the facts of the case. The assessee relied upon several case law, including the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. 313 ITR 340 to submit that if interest free funds and over draft of the loan are available in the same account from which assessee made investments, then a presumption would arise that investments are out of interest free funds generated or available with the company. In this regard the learned CIT(A) observed that the assessee had cash profit of Rs.5,93,75,305/- (net profit + depreciation). These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that the principles enunciated by the courts are applicable, the plea of the learned Representative for the Deptt. is that the facts are not considered before coming to the conclusion that on the date of investment common funds are available out of which interest free funds available are more than the investments made by the assessee. 9. On the other hand, the learned counsel for the assessee submitted that opening share capital, reserves and surplus were to the tune of 33.56 crores whereas the investments in fixed assets were only to the tune of Rs.27.05 crores and hence Rs.6.45 crores should be deemed to be available as on the first day of the accounting year to which if current years profit is added the total would work out to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had received certain sums in the ordinary course of business, it cannot be inferred that the original investment was made out of the interest free funds available subsequently. Even at the end of the year current year's profit may not be available with the assessee since it would have been utilised for different purposes. In fact the learned CIT(A) mentioned that the assessee maintained cash credit accounts in the 'consortium of banks' which are required to be looked into as to whether in a particular bank account the assessee had deposited any money or not and whether common funds, i.e. interest free funds and interest bearing funds are available in that account and if the assessee is able to prove that from the said common fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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