TMI Blog2013 (5) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 funds investments were made, then certainly the decision of CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] can be applied in principle. Since these facts were not properly brought on record, in the interest of justice it reasonable to set aside the matter to the file of the AO with a direction to call for details and after analysing the consortium of accounts as well as daily cash flow statements decide the issue in accordance of law - appeal filed by the Revenue is treated allowed for statistical purpose. - ITA No.2322/Mum/2012 - - - Dated:- 26-4-2013 - D Manmohan and Sanjay Arora, JJ. For the Appellant : Shri Rajneesh K Arvind For the Respondent : Shri Shekhar Gupta ORDER:- Per: D Manmohan: This appeal, filed at the instance of the Revenue, is directed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. To substantiate the claim it was shown that as on 31.03.2008 the reserves are to the tune of Rs.28.30 crores whereas the investments in assets during the year 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 its operations to meet the cost of fixed assets. As per the cash flow statement, the assessee utilised most of its borrowings for acquisition of fixed assets apart from meeting the negative flow from the operating activities of the year. Therefore he concluded that the borrowings we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the depreciation which was reduced from the profit is not an actual outgo from the profit and if that is also taken into consideration the availability of profit works out to Rs.5,93,75,305/-. Form this it can be stated that the profits were utilised for investment in fixed assets. It was also contended that opening share capital and reserves are sufficient for making investment in fixed assets. In fact, the addition to the fixed assets in the year is some of the replacement items such as computers, scanners, etc. and major investment was made in purchase of building and machinery. Reliance was placed upon number of judgements in support of its contention that so long was the entire profit of the current year are deposited by the assessee in the same cash credit account with the same bank and investments as well business expenditure was incurred from out of the same account, it cannot be stated that the investment in fixed assets was out of borrowed funds but should be treated to have been given out of cash profit generated during the year under consideration. 7. The learned CIT(A) observed that the crux of the issue is whether proviso to section 36(1)(iii) r.w.s. Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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.12.38 crores whereas the assessee invested to the tune of Rs.7.98 crores only in fixed assets. Therefore an inference must be drawn that interest free funds are sufficient to cover the investments made in fixed assets. 10. We have carefully considered the rival submissions and perused the record. We have also carefully gone through the case law relied upon by the learned counsel for the assessee. The issue as to whether the interest bearing funds were used for making investments or interest free funds were available at the time of making investments is a pure question of facts which can be analysed by taking into consideration the day-to-day cash flow statement. For example, the assessee s share capital, reserves and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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