TMI Blog2022 (8) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... HELD THAT:- The amount of interest allowable was required to be considered after including above two amounts. Accordingly, we accept this contention of the assessee. We set aside the order of the Ld. CIT(A) on the issue in dispute and restore the matter to the file of the AO for re-computation of the amount of the interest allowable in terms of section 36(1)(iii) in view of the plea of including the amount representing doubtful debt and representing as amount lying in bank account for funds utilized for business purposes. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. In the result, the ground No. 2 of the appeal is partly allowed for statistical purposes. Capitalization of the amount of interest disallowed u/s 36(1)(iii) - HELD THAT:- Here the assessee is claiming that if interest corresponding to investment in mutual funds is not allowed as revenue expenditure, then same should be treated as cost of acquisition of the said mutual fund. We are of the opinion that the issue of claim of the interest amount as cost of acquisition will arise at the time of the sale of the said mutual funds and therefore issue is premature at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any general or special laws in respect of all judicial or quasi judicial proceedings, the appeal filed by the assessee is within extended limitation period. Accordingly, the appeal is admitted for adjudication. 3. Briefly stated, facts of the case are that the assessee was engaged in the business of providing loans to corporate and bill discounting activity. For the year under consideration, the assessee filed return of income on 15/10/2016, declaring total income at Nil. The Ld. Assessing Officer scrutinized the return of income and in the assessment order dated 14/12/2018, passed under section 143(3) of the Income-Tax Act, 1961 (in short the Act ), out of the claim of the interest expenditure of Rs.55,53,061/-, he restricted claim of interest expenditure to Rs.30,14,226/-and disallowed balance amount of Rs.25,38,825/-. The Ld. CIT(A) also upheld the disallowance. Aggrieved, the assessee is an appeal before the Tribunal, raising the grounds as reproduced above. 4. Before us the Ld. counsel of the assessee filed a paperbook containing pages 1 to 49 and also filed copy of the decisions relied upon. 5. The ground No. 1 of the appeal relates to entire disallowance of Rs.25,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee's Own business but also that the amounts borrowed continues to remain in the business. It is further seen from the details submitted that assessee has not provided one to one nexus on the funds borrowed and funds utilized. Analysis of balance sheet clearly indicates the assessee kept entire funds available as a common pool of funds and in absence of any separate accounting entries in the books for funds borrowed and funds utilized the only conclusion is funds are utilized from common pool of funds. Hence proportionate interest is required to be disallowed in accordance with section 36(1)(iii). In this regard, reliance is placed on the decision of Madras High Court (2011 TIL 687-HC-MAD-IT) CIT Vs R Mohan where in it was held that the assessee is not entitled to claim interest expenditure on the borrowed funds which were diverted to non business objects. Further reliance is placed on CIT Vs M.S. Venkateswaran (Mad) 222 ITR 163 K. Somasundaram Brothers Vs CIT (Mad) 238 ITR 939 where in it was held that When Department established the fact of diversion of borrowed funds for non-business purposes, the presumption that assessee had sufficient capital and the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of interest paid, I see no reason to interfere with the order of the AO. The grounds of appeal no. 1,2 and 3 are accordingly dismissed and the addition of Rs.25,38,825/- is confirmed. 7. The assessee before us contended that since the fund of Rs.1,28,22,497/- was lying idle in current account as on 31/03/2015, no interest would be earned and therefore the assessee decided to invest the said ideal fund in mutual funds and therefore according to the assessee said investment was for the purpose of the business only. The Ld. counsel further submitted that the assessee only need to prove that funds have been borrowed for the purpose of the business or profession and not actual deployment. 7.1 The Ld. counsel submitted that decisions relied upon by the Assessing Officer are distinguishable as in those cases borrowed funds were advanced to/utilized by the assessee for relative party whereas in the case of the assessee, funds have been retained by the assessee in its own name and has been temporarily invested into mutual funds, instead of keeping it into current account, which does not give any income. 7.2 Without prejudice to the above, in ground No. 2 the assessee has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to ground No.1 and 2, the Ld. counsel further submitted that while allowing the proportionate interest for fund utilized for business purpose, the Assessing Officer has not considered amount of Rs.51,00,000/- advanced to M/s Elder Healthcare Ltd., which was grouped as doubtful debt and further ignored amount of Rs.75,83,341/- which was lying in the bank account. The Ld. counsel drawn over attention to audited financial statement available on page 14 of the paperbook. The Ld. counsel submitted that accordingly the funds utilised for business purpose works out to Rs.4,07,23,801/- instead of Rs.2,80,40,460/- taken by the Assessing Officer for computation of interest allowable to the assessee. The Ld. counsel submitted revised working of interest allowable to the assessee as under: =amount of fund used for business purpose X gross interest debited in profit and amount of fund borrowed loss account = (4,07,23,801/5,16,58,492) X 55,53,061 =Rs.43,77,630/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is accordingly dismissed. 9.3 The alternative plea made in ground No. 2 of the assessee, is however, convincing. While taking calculation of the funds utilised for business purpose, the Ld. Assessing Officer was required to consider the claim of the assessee of Rs.51 lakh representing under the doubtful debt and Rs.75,83,341/- lying in bank account. The amount of interest allowable was required to be considered after including above two amounts. Accordingly, we accept this contention of the assessee. We set aside the order of the Ld. CIT(A) on the issue in dispute and restore the matter to the file of the Ld. AO for re-computation of the amount of the interest allowable in terms of section 36(1)(iii) in view of the plea of including the amount of Rs. 51 lakh representing doubtful debt and Rs.75,83,341/representing as amount lying in bank account for funds utilized for business purposes. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. In the result, the ground No. 2 of the appeal is partly allowed for statistical purposes. 9.4 The ground no. 3 being raised as alternative remedy. The assessee is seeking capitaliz ..... X X X X Extracts X X X X X X X X Extracts X X X X
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