TMI Blog2018 (1) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... amonds. Therefore, when the assessee was having sufficient interest free funds available with it to take care of the interest free loans and construction of factory premises, no disallowance out of interest expenditure can be made in view of the ratio laid down in case of Reliance Utilities And Power Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT]- Decided in favour of assessee - ITA No. 3996/Mum/2012 - - - Dated:- 15-12-2017 - Shri Saktijit Dey, Judicial Member And Shri N. K. Pradhan, Accountant Member Appellant by : Ms. Aarju Garodia Respondent by : Shri Anuj Kisnadwala ORDER Persaktijit Dey, J. M. This is an appeal filed by the Department against order dated 01/03/2012 of Ld. Commissioner of Income Tax (Appeals) 39, Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not for business purpose as the assessee could not justify how it is relevant for his business. 5. Further, the Assessing Officer observed, in respect of other interest free loans and advances also the assessee could not furnish necessary details to show that they were advanced for business purpose of the assessee. The Assessing Officer therefore, held that the interest paid on the capital borrowed cannot be allowed fully under section.36(1)(iii) as the assessee advanced interest free loans.However, considering the fact that the assessee was having mixed funds comprising of borrowed and interest free fund,the Assessing Officer concluded that the average interest cost will work out to 5.75% per annum. Applying the said interest rate to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble with it. He found that in the relevant financial year, the assessee was having an amount of ₹ 198.09 crores in the capital account of the partners as on 01.04.1996 and closingbalance of ₹ 224.61 crores. Further he found that in the relevant financial year itself, there is an increase of ₹ 26 crores in the partner s capital account, whereas, interest free loan advanced during the year was only ₹ 10 lakhs. He noticed that out of the credit balance of ₹ 224.61 crores an amount of ₹ 2,50,00,000/ is towards fixed capital and remaining ₹ 222.11 croreswas in current account and the partners were not paid any interest. He noticed that compared to huge interest free fund available with the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of factory premises. It is relevant to note, the Assessing Officer has not disputed the fact that the assessee was having interest free funds available with it as he has recorded that the assessee was having mixed funds. However, presuming that a part of interest bearing fund was utilizedfor interest free loans and construction of factory premises he has made the impugned disallowance. Notably, major part of the interest free loans are continuing from the preceding assessment years and only an amount of ₹ 10,00,000/ has been advanced to one person in the impugned assessment year. It is also established on record that the assessee was having huge interest free fund available with it not only take care of the interest free loans bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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