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TMI Blog2018 (1) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... business of import, export and manufacturing of diamond. It also generates power through wind mills. For the assessment year under dispute, assessee filed its return of income on 23.10.2007 declaring income of Rs. 27,01,23,171/-. During the assessment proceedings, the Assessing Officer found that the assessee has advanced interest free loans to number of persons aggregating to Rs. 2,32,90,000/-. Further, the Assessing Officer observed, the assessee has availed loan from banks and financial institutions on which it is paying interest which has been claimed as deduction. He therefore, called upon the assessee to explain why interest expenditure should not be disallowed on account of advancement of interest free loans. 4. In reply to the quer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest cost on the borrowed funds utilized for setting up the factory, however, in the impugned assessment year he has not done so. Therefore, he called upon the assessee why the interest cost on the borrowings for construction of the factory premises should not be capitalized. 6. In response, the assessee submitted that since the assessee was having sufficient interest free funds available with it to utilize in the construction of the factory premises, there is no need to capitalize the interest cost.The Assessing Officer however, did not find merit in the submissions of the assessee and held that since, the assessee was having mixed funds, utilization of borrowed funds in construction of factory premises cannot be ruled out. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deleted the disallowance made by the Assessing Officer out of interest cost. As far as interest cost relating to construction of factory premises, the learned CIT(A) also observed that the borrowed funds were not availed specifically for the purpose of factory premises, rather, they were availed exclusively for export of diamonds as pre-shipment credit and packing credit. He therefore, held that the interest cost is allowable under section.36(1)(iii). 8. While the ld. Departmental Representative relied upon the observations of the Assessing Officer, learned Authorised Representative reiterated the stand taken before the Departmental authorities. 8. We have considered rival submissions and perused materials on record. As could be seen fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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