TMI Blog2019 (1) TMI 2005X X X X Extracts X X X X X X X X Extracts X X X X ..... - GUJARAT HIGH COURT] and Reliance Utilities Power Ltd ( 2009 (1) TMI 4 - BOMBAY HIGH COURT ), the presumption has to be that the investments are made out of interest free funds. That is the approach consistently taken by various coordinate benches of this Tribunal. Clearly therefore, whichever way one looks at it, there is no legally sustainable foundation for the presumption that borrowed funds were used in the capital work in progress. CIT(A) himself admits that the funds are mixed and that the only basis is the nature of loan i.e. secured loan vs unsecured loan. In view of these discussions, as also bearing in mind entirety of the case, we uphold the plea of the assessee and delete the impugned disallowance on the admitted presumption that the secured loans were used in the capital work in progress. The assessee succeeds on this point. Disallowance being repairs and maintenance expenses of Plant and Machinery,repairs and maintenance expenses to factory building AND vehicle expenses, telephone expenses and office expenses - HELD THAT:- We are of the considered view that the impugned disallowance, which are purely adhoc in nature, are simply based on surmises and conj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e President : 1. These two appeals pertain to the same assessee, are interconnected and were heard together. As a matter of convenience, therefore, both of theses appeals are being disposed of by way of this consolidated order. ITA No. 278/Ahd/ 2009 2. By way of this appeal, the assessee appellant has challenged correctness of the order dated 18th November 2008 passed by the CIT(A) in the matter of assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2004-05. 3. In the first ground of appeal, the assessee has raised the following grievance: That the learned Commissioner of income-tax (Appeals) III, Baroda has grievously erred in law and on facts in confirming the disallowance of Rs.40,65,595 out of interest expense. 4. The assessee before us is engaged in the business of manufacturing and production of ossein gelatine and dicalcium phosphate, apart from being engaged in processing and export of processed marine products. During the course of scrutiny assessment proceedings, it was noticed that the capitalized the work in progress in respect of new plant and building as Vasad, aggregating to Rs 11,51,83,344, on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered interest on secured loans as business expenses and allowed the same. He considered Rs 40,65,595 interest paid on unsecured loan as deployment on capital work in progress. Since appellant has not maintained any records or details for use of borrowed funds, it cannot be said that borrowed funds were not used for CWIP. Out of total interest of more than Rs 2.06 crores, the Assessing Officer has considered Rs 40.65 lakhs as interest on capital borrowed for the purpose of CWIP. Further, this interest is treated as part of CWIP on which appellant will be eligible for depreciation from the year in which the CWIP will become business assets and will be used for the purpose of business. The disallowance of interest cannot be restricted to the current year s borrowing or current year s CWIP since interest is paid on funds borrowed earlier and utilized as CWIP. I, therefore, hold that the interest to the extent of Rs 40.65 lakhs were relating to CWIP and, hence, as per newly introduced proviso to Section 36(1)(iii), the same is disallowable. The addition made by the Assessing Officer is confirmed. 5. The assessee is aggrieved and is in further appeal before us. 6. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Rs.7,11,926/- being repairs and maintenance expenses of Plant and Machinery. 3. That the learned CIT(A) has grievously erred in law and on facts in confirming the disallowance of Rs.1,16,396/- being repairs and maintenance expenses to factory building. 4. That the learned CIT(A) has grievously erred in law and on facts in confirming the disallowance of Rs.1,50,000/- out of vehicle expenses, Rs.50,000/- out of telephone expenses and Rs.25,000/- out of office expenses. 10. All the above disallowances are purely on adhoc basis and on the ground that despite specific requisitions, all the bills and vouchers were not produced, that complete examination of these expenses by the AO was not possible, and that element of personal expenses cannot be ruled out. In appeal, having noted the contentions of the assessee that all the details were duly produced, the CIT(A) confirmed, rather summarily, stand of the Assessing Officer. The assessee is not satisfied and is in further appeal before us. 11. Having heard the rival contentions and having perused the material on record, we are of the considered view that the impugned disallowance, which are purely adhoc in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have been deleted in the earlier years as well. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and delete the impugned disallowance in entirety. 17. Ground no. 5 is also thus allowed. 18. In ground no. 6, the grievance raised by the assessee is as follows: 6. That the learned CIT (A) has grievously erred in law and on facts in restricting the claim of deduction u/s. 80HHC of the Act by confirming the reduction of 90% of interest income and misc. income from the profit of eligible business income and by rejecting the claim of deduction in respect of export incentives. 19. So far as this grievance of the assessee is concerned, learned representatives fairly agree that this issue is required to be restored to the file of the Assessing Officer for fresh adjudication with the benefit of direct decisions from Hon ble Supreme Court in the case of ACG Associated Capsules Ltd Vs CIT (343 ITR 89) and Topman Exports Vs CIT (342 ITR 49). That is precisely what was done by the Tribunal in the earlier assessment years. We accept the plea and remit the matter to the file of the Assessing Officer for fresh adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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