TMI Blog2012 (12) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... by an application for condonation of delay, duly supported by an affidavit. Its stands averred therein that the concerned executive, handling the matters, proceeded on leave, and subsequently left the organization. Hence, the delay. The Revenue did not seriously dispute the same or raise any objection as to the veracity of the reasons stated in the affidavits, which we find to be signed by the same Director, Shri Prashant Babulal Panday, who has verified the appeal memo. The period of delay does not raise any serious question in our minds as to the assessee s bona fides in the matter, or an inference as to laches. The delay was accordingly condoned, and the hearing of assessee s appeals proceeded with, after admitting the same. 3. The only issue in the assessee s appeal is in respect of disallowance of interest expenditure on borrowed capital, claimed in the sum of ₹ 259.26 lakhs and ₹ 202.82 lakhs for the two consecutive years respectively u/s. 36 (1)(iii) of the Act, on the basis that the borrowed capital had not been utilized for the purpose/s of its business by the assessee. The Assessing Officer (AO); the matter being essentially factual, drew his fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beginning of the year) to ₹ 34.24 crores as at its end, so that borrowings from BCCL were primarily utilized toward the same. The interest to MIB was again only the penal implication of a contract and, in any case, arose out of the inability to abide by the terms of the contract. The debit of such interest to the operating statement for the year was only a device by the assessee to reduce its tax liability. Accordingly, the AO effected a disallowance for the entire interest claimed, i.e., ₹ 259,25,610/-. In appeal, it was explained that the long term borrowing had been utilized for paying One Time Entrance Fee (OTEF) and acquiring assets, i.e., setting up of broad-casting towers, and had been, rather, to that extent (₹ 44.93 lakhs), capitalized as a part of the capital cost of the assets. The ICD funds had been taken as temporary loans to finance the working capital requirements. The need has arisen as there arose certain disputes as to the effective date of commencement of operations for the purpose of license fee to be paid to the MIB, with the assessee-company approaching the hon ble High Court of Delhi under writ jurisdiction. The hon ble Court directed it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been allowed relief to a substantial extent thereof by the first appellate authority. 4.2 On merits, we may, to begin with, examine the assessee s cash flow statement for the year. The total cash inflow is at ₹ 49,666.15 lakhs. Excluding the shortterm borrowings and its repayment (₹ 177 lakhs) from both the sides; the same having been re-paid during the year itself in full, as well as netting the movement of funds in investments (on their purchase and sale during the year), as well as the financing cost, the same would be as under:- A. Source of funds: (Rs in lakhs) Remarks a. Cash in flow from operating activities 2,283.55 b. Proceeds from fresh issue of shares 20,025.87 c. Proceeds from long term borrowings 3,500.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance, i.e., assuming so, to around 10% of the interest thereon (₹ 67.86 lakhs). We state so only to emphasize the un-tenability of the Revenue s case on the very face of the cash flow statement, even as there is no case for disallowance inasmuch as there can be no presumption that the borrowed interest bearing funds are utilized for which purpose. The only exception would be in case of dedicated funds or borrowings, which have to be or are required to be expended toward the stated purpose, so that where not for the purpose of business, disallowance to the proportionate extent would follow. Further, the investment, as it appears to us, is only in business assets, perhaps held to provide a liquidity reserve. Where some income therefrom is tax-exempt, a disallowance u/s. 14A, rather than u/s. 36(1)(iii), would arise, for which there is no case by the Revenue. The loan to subsidiary, as afore-stated, is interest bearing, yielding an interest of ₹ 2.05 lacs for the year. No case for disallowance, even where financed or considered as financed out of borrowed funds, in the facts and circumstances of the case, thus, arises. 4.4 With regard to deduction in res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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