TMI Blog2019 (11) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... increased during the year. We find that with regard to amounts advanced to all other parties except Neeta M Mehta, the closing balance had only reduced when compared to the opening balance and hence there cannot be any disallowance of interest on the opening balance of loans advanced to parties - See VIRENDRA R. GANDHI VERSUS A.C.I.T [ 2014 (11) TMI 1081 - GUJARAT HIGH COURT] With regard to loan given to Neeta M Mehta during the year, we find that during the year , the assessee had advanced only a sum to the said party and we find that assessee is having sufficient own funds during the year in the form of current year profits before depreciation to the tune of ₹ 4.24 crores. Hence it could be reasonably presumed that the amounts to Neeta M Mehta were advanced interest free out of own funds available with the assessee in the form of current year profits itself. Hence there cannot be any disallowance of interest u/s 36(1)(iii) on a proportionate basis even for the same. We direct the ld AO to delete the disallowance of interest u/s 36(1)(iii) - Decided in favour of assessee - ITA No.1013/Mum/2016 - - - Dated:- 4-10-2019 - Shri M. Balaganesh, AM And Shri Ram Lal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proportionate interest @ 12% Ajit G Mehta 9,87,589 9,87,589 - 1,18,511 Jitendra G Mehta 2,53,398 2,53,398 - 30,408 Mamta A Mehta 69,34,659 9,79,985 59,54,674 8,32,159 Mecords Leasing Finance Co. Ltd 1,96,737 1,96,737 - 23,608 Mehta Growell Holding 6,41,41,470 4,22,55,887 2,18,85,583 76,96,976 Neeta M Mehta 51,87,622 ' 67,39,895 15,52,273 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37,43,797/- 6) Share Capital Money ₹ 17,36,59,757/- Without prejudice, we state that in view of the above interest free funds available with the company, no disallowance can be made in hands of the company. 3.3. The assessee further replied that in connection with the advance given to M/s Mehta Growell Holding Ltd, the same was towards purchase of property at Maval Taluka District, Pune, having Survey No. 124/B, in support of which, a copy of Memorandum of Understanding between Mehta Growell Holding Ltd and assessee was furnished. It was submitted that the completion of the development was delayed abnormally by Mehta Growell Holding Ltd. The ld AO extracted the relevant portions of the said MOU in page 4 of his order. The ld AO rejected the contentions of the assessee that during the year the assessee had sufficient interest free funds at its disposal for making these interest free advances. The ld AO specifically pointed out that the share application money stated to be received during the year by the assessee was actually received in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the advance given for purchase of such shares was for strategic investment. The proportionate disallowance of interest made by the Assessing Officer in respect of this party is also confirmed. iii) As regards the advances given to Mehta Growell Holdings Ltd. and Neeta Nitin Mehta, the same have been explained to be for the purpose of purchase of land and flat respectively. The appellant is in the business of manufacturing and trading of Industrial Fabrics, Dipped Nylons ,Chafer Fabrics and other Fabrics. It is not in the real estate business. Given this fact, the appellant's submission that the advances given for purchase of these immoveable properties were for business purposes is not acceptable. The only business connection would be if these immoveable properties were to be used for extension of existing business in which case also the proviso to section 36(1)(iii) would apply which specifically provides that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onwards only. The advances already stood given before the receipt of share application money when the appellant had no interest free funds at its disposal. In view of these facts, the appellant's alternative submission also fails and the ground of appeal on the issue of proportionate disallowance of interest is dismissed. 5. Aggrieved, the assessee is in appeal before us. 6. We have heard the rival submissions and perused the materials available on record. We find that the preliminary argument made by the ld AR is that no disallowance of interest could be made on the funds borrowed in the earlier years and lying in opening balance as on 1.4.2009 when the said borrowings and utilization thereon were accepted as meant for business purposes in earlier years. Reliance in this regard has been rightly placed on the decision of Hon ble Karnataka High Court in the case of CIT vs Sridev Enterprises reported in 192 ITR 165 (Kar) wherein it was held as under:- 4. We are in agreement with the view expressed by the Tribunal. The status of the amount standing as outstanding due from Nalanda on the first day of the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon ble Karnataka High Court was rendered pertain to the periods where the ld AOs use to apply their mind even while processing the return u/s 143(1) of the Act and a provision for making prima facie adjustments and consequential levy of additional tax u/s 143(1A) of the Act were also present in the statute. The ld DR argued that hence under those circumstances, once a return is accepted u/s 143(1) of the Act , it tantamounts to acceptance of the claim of the assessee by the ld AO after due application of mind. We are not inclined to accept to this argument of the ld DR in as much as the basis of selection of case for scrutiny was and is always vested with the wisdom of the revenue and it was and is never under the control of the assessee. In the instant case, even after framing the assessment for the Asst Year 2010-11 wherein the interest was disallowed in respect of borrowings made in earlier years, the revenue had not resorted to reopen the earlier years or revise the assessments for the earlier years in the manner known to law. We are equally afraid as to whether the ld DR would advance the same argument in the issue of reopening of assessments for thos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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