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TMI Blog2016 (5) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had shown sale/transfer of tools and dyes for an amount of Rs. 4,02,325/-. Since the debiting of sale/transfer consideration from opening balance was not justifiable and the assessee had claimed the amount of Rs. 4,02,305/- and had claimed depreciation of Rs. 1,40,813/- and now by reducing it from opening balance it was merely reducing depreciation claimed only upto an amount of Rs. 60,348/-. In view of this, the Assessing Officer disallowed an amount of additional depreciation on tools and dyes of Rs. 4,02,325/- @ 20% amounting to Rs. 80,465/-. 4. Before the learned CIT (Appeals), it was stated that the amount received back on account of tools and dyes was reduced from the opening balance of tools and dyes account standing in the Balance Sheet. The Assessing Officer reduced this amount from the addition made in the tools and dyes account during the year and also disallowed the additional depreciation claimed by the assessee on the additions made during the year. This action of the Assessing Officer is illegal and the assessee is rightly entitled to additional depreciation on the additions made during the year, which has no connection with the old claims recovered from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing 20% additional depreciation on tools and dies of Rs. 4,02,325/- @ 20% amounting to Rs. 80,465/- and adding it back to the income of the appellant on account of excess claim of depreciation u/s 32(1(2a) of the IT Act. This ground of appeal is accordingly dismissed." 7. On perusal of the same we do not find any infirmity in the finding given by the learned CIT (Appeals). From the facts it is quite clear that the assessee first adds the amount of tools and dyes to its capital assets and claims the depreciation on the same. At the time when it gets reimbursed for the same, the same is reduced from the opening balance. This way, the assessee is getting additional benefit on account of depreciation claimed on the tools and dyes which have been reimbursed by the clients to it by claiming additional depreciation on the same. The ground No.1 raised by the assessee is dismissed. 8. The ground No.2 raised by the assessee reads as under : "2. That the Learned CIT - I has erred in confirming the disallowance of interest of Rs. 1,72,376/- u/s 36(1)(iii) on loans raised for business purposes." 9. Briefly, the facts of the case are that the Assessing Officer applying the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Appeal in the appellant's case in allowing the interest paid to the specified persons u/s 40A(2)(b) of the Act @ 15%. Respectfully following the decision of the Hon'ble I.T.A.T., Chandigarh Bench in the appellant's case for the A.Y 07-08, on similar facts, the interest paid to the persons specified u/s 40A(2)(b) of the Act is restricted to 15% as against 18% claimed by the appellant and 12% allowed by the Assessing Officer. This ground of appeal is partly allowed." 13. On perusal of the same, we do not find any infirmity in the order of the learned CIT (Appeals). However, in consonance with the order of the I.T.A.T. in assessee's own case for the earlier assessment year and also taking into consideration the fact that the bank rate in this year is around 15.7%, we hereby hold 16% rate of interest to be reasonable, as these are unsecured loans and are always available at a rate higher than the bank rates. The ground No.2 raised by the assessee is partly allowed. 14. The ground No.3 raised by the assessee reads as under : "3. That the Learned CIT - I has erred in confirming disallowance of interest of Rs. 3,62,132/- 36(1)(iii) on alleged interest free advance ign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rips & Tubes Pvt. Ltd. was Rs. 30,00,000/- during the year, which was also received back in the year itself. These figures were shown to us in order to emphasize the fact that the assessee had enough owned funds to land it to the sister concern interest free. Since no interest expenses have been incurred for funds given to the sister concern, no disallowance under section 36(1)(iii) of the Act can be made. Reliance was placed on the judgment of Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. (supra) and CIT Vs. Kapsons Associates Investments (P.) Ltd. in ITA No.354 of 2013 (O&M) dated 4.8.2015. 18. The learned D.R. vehemently argued to defend the orders of the Assessing Officer and CIT (Appeals). He did not dispute the fact that the assessee was having sufficient owned funds, but heavy reliance was made on the argument that no business expediency to lend the money having been proved, the disallowance has to be made under section 36(1)(iii) of the Act. 19. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. This is undisputed that that the assessee is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition has also been held in the Landmark judgment of the Hon'ble Apex Court in the case of Mahavir Prasad Jatia Vs. CIT (1979), 118 ITR 200 (SC). 24. Usually, in a business, the assessee has two kinds of funds. Firstly, the interest free funds which mainly consists of its owned funds and secondly the borrowed funds. In first kind of funds, i.e. owned funds, there is no question of any interest expenditure. However, in second kind of funds, i.e. borrowed funds, there are interest expenditure, for which the onus is on the assessee to prove that since these funds were borrowed for business purposes, the interest expenditure is allowable. 25. Once, it is established that for a given situation, the assessee has not borrowed any money, for that matter, putting it reverse, the assessee has used his owned funds or interest free funds, there is no question of proving that the funds so taken from owned or interest free funds are used for business purposes. There being no claim of any interest expenditure, no question of deduction to be allowed under section 36(1)(iii) of the Act arises. 26. Once it is presumed that the lending as in the present case is made out of owned funds, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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