M/S GENERAL AERODYNAMICS P. LTD.,MUMBAI vs. ITO - 2(1)(2), MUMBAI

PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 04/02/2020 passed by the Ld. Commissioner of Income- tax(Appeals)-4, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds:

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of Rs 25,38,825/ of Rs 25,38,825/- u/s 36(1) iii) of the Act, on the assum u/s 36(1) iii) of the Act, on the assumption that the borrowed funds have been utilized for non the borrowed funds have been utilized for non-business purpose of business purpose of the appellant. On the basis of the circumstances and facts of the the appellant. On the basis of the circumstances and facts of the the appellant. On the basis of the circumstances and facts of the case, this addition ought to be deleted. case, this addition ought to be deleted. 2. Without prejudice to ground no 1, the Ld. CIT (A) erred in Without prejudice to ground no 1, the Ld. CIT (A) erred in Without prejudice to ground no 1, the Ld. CIT (A) erred in confirming th confirming the disallowance u/s 36(1) (iii) at e disallowance u/s 36(1) (iii) at ₹25,38,825/- instead of instead of ₹9,74,983/- being proportionate disallowance of being proportionate disallowance of interest expenditure pertaining to borrowed funds used for non- interest expenditure pertaining to borrowed funds used for non interest expenditure pertaining to borrowed funds used for non business purpose) On the basis of the circumstances and facts of business purpose) On the basis of the circumstances and facts of business purpose) On the basis of the circumstances and facts of ₹9,74,983/- the case, addition, if the case, addition, if any, ought to be restricted to ₹9,74,983/ 3. Without prejudice to ground 1 and 2 above, the Ld. CIT(A) has Without prejudice to ground 1 and 2 above, the Ld. CIT(A) has Without prejudice to ground 1 and 2 above, the Ld. CIT(A) has erred in confirming action of the 'AO in not allowing erred in confirming action of the 'AO in not allowing erred in confirming action of the 'AO in not allowing capitalization of interest disallowed u/s 36(1)(iii) along with the capitalization of interest disallowed u/s 36(1)(iii) along with the capitalization of interest disallowed u/s 36(1)(iii) along with the value of investments. On the value of investments. On the basis of the circumstances and facts basis of the circumstances and facts of the case, interest disallowed, ought to be allowed to be of the case, interest disallowed, ought to be allowed to be of the case, interest disallowed, ought to be allowed to be capitalized. capitalized. 2. At the outset, we may like to mention that the outset, we may like to mention that Registry Registry has pointed out delay of 339 days in filing the appeal. As out delay of 339 days in filing the appeal. As per Form Form No. 36 i.e. the form prescribed for filing the appeal, the order of the Ld. CIT(A) was form prescribed for filing the appeal, the order of the Ld. CIT(A) was form prescribed for filing the appeal, the order of the Ld. CIT(A) was served upon the assessee on 04/02/2020 and therefore appeal served upon the assessee on 04/02/2020 and therefore appeal served upon the assessee on 04/02/2020 and therefore appeal before the ITAT was due within 60 days i.e. 5/03/2020, whereas the before the ITAT was due within 60 days i.e. 5/03/2020, whereas the before the ITAT was due within 60 days i.e. 5/03/2020, whereas the appeal has been filed on 09/03/2021. We f appeal has been filed on 09/03/2021. We find that in view of the ind that in view of the

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order dated 10/01/2022 of the Hon’ble Supreme Court in order dated 10/01/2022 of the Hon’ble Supreme Court in order dated 10/01/2022 of the Hon’ble Supreme Court in Miscellaneous Application Miscellaneous Application No. 21 of 2022 in suo moto moto writ petition (C) No. 3 of 2020, wherein it is directed that period from No. 3 of 2020, wherein it is directed that period from No. 3 of 2020, wherein it is directed that period from 15/03/2020 till 28/02/2022 shall stand excluded for 15/03/2020 till 28/02/2022 shall stand excluded for 15/03/2020 till 28/02/2022 shall stand excluded for the purpose of limitation as may be prescribed under any general or special laws in limitation as may be prescribed under any general or special laws in limitation as may be prescribed under any general or special laws in respect of all judicial or respect of all judicial or quasi judicial proceedings, the appeal filed judicial proceedings, the appeal filed by the assessee is wi by the assessee is within extended limitation period. thin extended limitation period. Accordingly, the appeal is admitted for adjudication. the appeal is admitted for adjudication.

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the interest expenditure of he interest expenditure of ₹55,53,061/-, he restricted claim of , he restricted claim of interest expenditure to interest expenditure to ₹30,14,226/-and disallowed balance amount and disallowed balance amount of ₹25,38,825/-. The Ld. CIT(A) also upheld the disallowance. . The Ld. CIT(A) also upheld the disallowance. . The Ld. CIT(A) also upheld the disallowance. Aggrieved, the assessee is an appeal before the assessee is an appeal before the Tribunal Tribunal, raising the grounds as reproduced above. s reproduced above.

5.1 The facts qua th The facts qua the issue in dispute are that assessee e issue in dispute are that assessee was engaged in business of giving loans to corporate. The assessee engaged in business of giving loans to corporate. The assessee engaged in business of giving loans to corporate. The assessee borrowed money and durin and during the year under consideration incurred g the year under consideration incurred interest of ₹55,53,061/ 61/-. The assessee further given advances out of . The assessee further given advances out of

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the money borrowed and the money borrowed and during the year under consideration during the year under consideration earned interest income interest income ₹46,73,102/-. The Assessing Officer Assessing Officer observed that assessee had a opening investment of observed that assessee had a opening investment of observed that assessee had a opening investment of ₹1,30,00,000/- in debt oriented mutual fund and made a further investment of in debt oriented mutual fund and made a further investment of in debt oriented mutual fund and made a further investment of ₹40,00,000/- during the year under consideration and thus during the year under consideration and thus during the year under consideration and thus made total investment in debt oriented mutual fund as on 31/03/2016 total investment in debt oriented mutual fund as on 31/03/2016 total investment in debt oriented mutual fund as on 31/03/2016 at ₹1,70,00,000/-. The . The Ld. Assessing Officer held that interest held that interest corresponding to money invested in debt mutual fund, being for money invested in debt mutual fund, being for money invested in debt mutual fund, being for non-business purposes business purposes, is not allowable and accordingly is not allowable and accordingly, he allowed out of the interest incurred, interest of out of the interest incurred, interest of ₹30,14,226/ 30,14,226/- for the fund utilized for business purposes ed for business purposes (i.e. advancing loans) advancing loans) and made proportionate disallowance of interest proportionate disallowance of interest amounting to amounting to ₹ 25,38,825/- for fund invested for non for non-business purposes. The said working of The said working of interest for business purpose made by the interest for business purpose made by the Assessing Office Assessing Officer is reproduced as under: reproduced as under:

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= amount of fund used for business purpose fund used for business purpose X gross interest debited in profit and loss gross interest debited in profit and loss amount of fund borrowed amount of fund borrowed account = (2,80,40,460/5,16,58,492) ) X 55,53,061 =₹30,14,226/-

“In this case, the facts are sufficiently clear to warrant the finding In this case, the facts are sufficiently clear to warrant the finding In this case, the facts are sufficiently clear to warrant the finding that there has been a diversion. The deduction u/s.36(1)(iii) is an that there has been a diversion. The deduction u/s.36(1)(iii) is an that there has been a diversion. The deduction u/s.36(1)(iii) is an allowable expenditure as long as the amounts borrowed were used allowable expenditure as long as the amounts borrowed were used allowable expenditure as long as the amounts borrowed were used for the purpose assessee's business. Further, the capi for the purpose assessee's business. Further, the capital borrowed tal borrowed should not only be invested in assessee's Own business but also should not only be invested in assessee's Own business but also should not only be invested in assessee's Own business but also that the amounts borrowed continues to remain in the business. It that the amounts borrowed continues to remain in the business. It that the amounts borrowed continues to remain in the business. It is further seen from the details submitted that assessee has not is further seen from the details submitted that assessee has not is further seen from the details submitted that assessee has not provided one to one nexus on the funds borrowed provided one to one nexus on the funds borrowed and funds and funds utilized. Analysis of balance sheet clearly indicates the assessee utilized. Analysis of balance sheet clearly indicates the assessee utilized. Analysis of balance sheet clearly indicates the assessee kept entire funds available as a common pool of funds and in kept entire funds available as a common pool of funds and in kept entire funds available as a common pool of funds and in absence of any separate accounting entries in the books for funds absence of any separate accounting entries in the books for funds absence of any separate accounting entries in the books for funds

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borrowed and funds utilized the only conclusion is f borrowed and funds utilized the only conclusion is funds are borrowed and funds utilized the only conclusion is funds are utilized from common pool of funds. Hence proportionate interest utilized from common pool of funds. Hence proportionate interest utilized from common pool of funds. Hence proportionate interest is required to be disallowed in accordance with section 36(1)(iii). is required to be disallowed in accordance with section 36(1)(iii). is required to be disallowed in accordance with section 36(1)(iii). In this regard, reliance is placed on the decision of In this regard, reliance is placed on the decision of Madras High Madras High Court (2011 TIL 687 Court (2011 TIL 687-HC-MAD-IT) CIT Vs R Mohan wh where in it was held that the assessee is not entitled to claim interest was held that the assessee is not entitled to claim interest was held that the assessee is not entitled to claim interest expenditure on the borrowed funds which were diverted to non expenditure on the borrowed funds which were diverted to non expenditure on the borrowed funds which were diverted to non business objects. Further reliance is placed on business objects. Further reliance is placed on CIT Vs M.S. CIT Vs M.S. Venkateswaran (Mad) 222 ITR 163 K. Somasundaram & Venkateswaran (Mad) 222 ITR 163 K. Somasundaram & Venkateswaran (Mad) 222 ITR 163 K. Somasundaram & Brothers Vs CI Brothers Vs CIT (Mad) 238 ITR 939 where in it was held that in it was held that When Department established the fact of diversion of borrowed When Department established the fact of diversion of borrowed When Department established the fact of diversion of borrowed funds for non funds for non-business purposes, the presumption that assessee business purposes, the presumption that assessee had sufficient capital and the diversion is out of such funds cannot had sufficient capital and the diversion is out of such funds cannot had sufficient capital and the diversion is out of such funds cannot exist - Disallow Disallowance justified.” 6.1 The Ld. CIT(A) upheld the disallowance observing as under : Ld. CIT(A) upheld the disallowance observing as under : Ld. CIT(A) upheld the disallowance observing as under :

“4.2 I have carefully gone through the assessment order as well as I have carefully gone through the assessment order as well as I have carefully gone through the assessment order as well as submission of the appellant. The appellant is engaged in the business of submission of the appellant. The appellant is engaged in the business of submission of the appellant. The appellant is engaged in the business of giving loans. The sources of funds available with the appellant as per the giving loans. The sources of funds available with the appellant as per the giving loans. The sources of funds available with the appellant as per the balance sheet is share capital of 22.95 lacs a balance sheet is share capital of 22.95 lacs and reserve and surplus of nd reserve and surplus of 213.77 lacs. As against this the appellant has a long term borrowings of 213.77 lacs. As against this the appellant has a long term borrowings of 213.77 lacs. As against this the appellant has a long term borrowings of R5.16 crore. Thus the borrowed fund of the appellant is more than 30 R5.16 crore. Thus the borrowed fund of the appellant is more than 30 R5.16 crore. Thus the borrowed fund of the appellant is more than 30 times that of its own funds. In this situation it is incorrect on the part of times that of its own funds. In this situation it is incorrect on the part of times that of its own funds. In this situation it is incorrect on the part of the appellant to say that investment in mutual fund amounting to ant to say that investment in mutual fund amounting to ant to say that investment in mutual fund amounting to R1,70,00,000 has been made by using its own non interest being fund. R1,70,00,000 has been made by using its own non interest being fund. R1,70,00,000 has been made by using its own non interest being fund. From the facts of the case it is clear that the appellant has hardly any From the facts of the case it is clear that the appellant has hardly any From the facts of the case it is clear that the appellant has hardly any

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own funds to its credit and it is managing its entire busin own funds to its credit and it is managing its entire business activities as ess activities as well as its investment and asset from borrowed funds only. It has been well as its investment and asset from borrowed funds only. It has been well as its investment and asset from borrowed funds only. It has been held by the Hon'ble Supreme Court in the case of S A Builders Ltd. 158 held by the Hon'ble Supreme Court in the case of S A Builders Ltd. 158 held by the Hon'ble Supreme Court in the case of S A Builders Ltd. 158 taxman 74 that the allowability of interest on borrowed loan will taxman 74 that the allowability of interest on borrowed loan will taxman 74 that the allowability of interest on borrowed loan will depend on facts of a particula depend on facts of a particular case. In this case, the AO himself has r case. In this case, the AO himself has stated in the assessment order that only proportionate disallowance of stated in the assessment order that only proportionate disallowance of stated in the assessment order that only proportionate disallowance of interest expenditure is required to be done. It is also seen that in the interest expenditure is required to be done. It is also seen that in the interest expenditure is required to be done. It is also seen that in the assessment order the AO has taken an adverse view only on the assessment order the AO has taken an adverse view only on the assessment order the AO has taken an adverse view only on the proportion of interest which he had thought to be relatable to activities n of interest which he had thought to be relatable to activities n of interest which he had thought to be relatable to activities such as loans and advances and investment in mutual funds. It is further such as loans and advances and investment in mutual funds. It is further such as loans and advances and investment in mutual funds. It is further seen that out of total interest expenditure of seen that out of total interest expenditure of ₹55,53,061/ ₹55,53,061/- he has disallowed an amount of disallowed an amount of ₹25,38,825/- However, as mentioned earlier, ntioned earlier, the appellant is in the business of giving loans and therefore, the activity the appellant is in the business of giving loans and therefore, the activity the appellant is in the business of giving loans and therefore, the activity of loans and advances cannot be described as being not related to the of loans and advances cannot be described as being not related to the of loans and advances cannot be described as being not related to the business of the appellant. business of the appellant. 4.3 Thus the only issue to be decided now is whether investment in Thus the only issue to be decided now is whether investment i Thus the only issue to be decided now is whether investment i mutual funds amounting to mutual funds amounting to ₹70 lacs can be said to be for the purposes of ₹70 lacs can be said to be for the purposes of business or as a measure of commercial expediency. The appellant is not business or as a measure of commercial expediency. The appellant is not business or as a measure of commercial expediency. The appellant is not an investment company and therefore investing an investment company and therefore investing ₹1.70 lacs in mutual ₹1.70 lacs in mutual funds from borrowed fund does not make the funds from borrowed fund does not make the case for either the case for either the purposes of business or commercial expediency. Considering the fact purposes of business or commercial expediency. Considering the fact purposes of business or commercial expediency. Considering the fact that the AO has himself given substantial relief to the appellant by not that the AO has himself given substantial relief to the appellant by not that the AO has himself given substantial relief to the appellant by not disallowing the entire amount of interest paid, I see no reason to disallowing the entire amount of interest paid, I see no reason to disallowing the entire amount of interest paid, I see no reason to interfere with the order of interfere with the order of the AO. The grounds of appeal no. 1,2 and 3 the AO. The grounds of appeal no. 1,2 and 3 are accordingly dismissed and the addition of are accordingly dismissed and the addition of ₹25,38,825/ ₹25,38,825/- is confirmed.”

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7.1 The Ld. counsel Ld. counsel submitted that decisions relied upon by the submitted that decisions relied upon by the Assessing Officer are distinguishable as in those cases borrowed are distinguishable as in those cases borrowed are distinguishable as in those cases borrowed funds were advanced to/utili funds were advanced to/utilized by the assessee for for relative party whereas in the case of the assessee whereas in the case of the assessee, funds have been retained funds have been retained by the assessee in its own name and has in its own name and has been temporarily invested into temporarily invested into mutual funds, instead of keeping it into current account, which does instead of keeping it into current account, which does instead of keeping it into current account, which does not give any income. not give any income.

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7.2 Without prejudice to the above, Without prejudice to the above, in ground No. ground No. 2 the assessee has requested for restricting the disallowance to has requested for restricting the disallowance to ₹ ₹9,74,983/-. The Ld. counsel drawn our attention to position of availability of own drawn our attention to position of availability of own drawn our attention to position of availability of own fund. The said chart reproduced in fund. The said chart reproduced in para 9 of his written submission of his written submission is extracted as under : is extracted as under :

Particulars As on 31.03.2015 As on 31.03.2014 As on 31.03.2014 Share Capital 2,95,000/- 2,95,000/- Reserves and Surplus 76,35,020/- 71,09,848/- Total Investment in Mutual Fund Total Investment in Mutual Fund 79,30,020/- 74,04,848/- 7.3 He further submitted that submitted that Ld. CIT(A) in assessment year 2015 Ld. CIT(A) in assessment year 2015- 16 has held that firstly, own funds of the assessee need to be held that firstly, own funds of the assessee need to be held that firstly, own funds of the assessee need to be adjusted against investment and adjusted against investment and excess investment over own funds, investment over own funds, can only be liable to disallowance under section 36(1)(iii) of the can only be liable to disallowance under section 36(1)(iii) of the can only be liable to disallowance under section 36(1)(iii) of the Act. He submitted that Ld. CIT(A) in assessment year 2015 He submitted that Ld. CIT(A) in assessment year 2015 He submitted that Ld. CIT(A) in assessment year 2015-16 has quantified ₹55,95,152/ 55,95,152/- out of ₹1,30,00,000/- investment, interest investment, interest on which was held to be liable for disallowance. The which was held to be liable for disallowance. The which was held to be liable for disallowance. The Ld. counsel submitted that following the finding of the Ld. CIT(A) following the finding of the Ld. CIT(A) following the finding of the Ld. CIT(A) in assessment

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year 2015-16, in the case of the assessee disallowance of 16, in the case of the assessee disallowance of 16, in the case of the assessee disallowance of ₹9,74,983/- could only be made. The relevant submission of the Ld. could only be made. The relevant submission of the Ld. could only be made. The relevant submission of the Ld. counsel are reproduced as under: are reproduced as under:

“15. During the year under consideration, the appellant has made an further During the year under consideration, the appellant has made an further During the year under consideration, the appellant has made an further investment in mutual funds of Rs. 40,00,000/ investment in mutual funds of Rs. 40,00,000/- and its shareholders funds during and its shareholders funds during the A.Y 2015-16 has been increased by Rs. 5,25,172/ 16 has been increased by Rs. 5,25,172/- (i.e. Rs. 79. (i.e. Rs. 79.30,020/- as on 31.03.2015 minus Rs. 74,04,848/ 31.03.2015 minus Rs. 74,04,848/- as on 31.03.2014) and therefore, the amount on as on 31.03.2014) and therefore, the amount on which interest disallowance to be made, ought to be computed as under: which interest disallowance to be made, ought to be computed as under: which interest disallowance to be made, ought to be computed as under: a) On Rs. 55,95,152/ a) On Rs. 55,95,152/- as quantified by Hon'ble CIT(A) in order for AY 2015 as quantified by Hon'ble CIT(A) in order for AY 2015- 16 plus b) On Rs. 34,74,828/ Rs. 34,74,828/- (being Rs. 40,00,000/- additional investment minus additional investment minus Rs. 5,25,172/- being the increase in internal accruals in A.Y 2015 being the increase in internal accruals in A.Y 2015-16) 16. Based on the above, the amount of proportionate disallowance to be made 16. Based on the above, the amount of proportionate disallowance to be made 16. Based on the above, the amount of proportionate disallowance to be made comes to Rs.9,74,983/ comes to Rs.9,74,983/- (ie investment out of borrowed funds of Rs. 90,69,980/ of borrowed funds of Rs. 90,69,980/- divided by total borrowed funds of Rs. 5,16,58,492 multiplied by interest paid of divided by total borrowed funds of Rs. 5,16,58,492 multiplied by interest paid of divided by total borrowed funds of Rs. 5,16,58,492 multiplied by interest paid of Rs. 55,53,061/-). 17. In view of above, we request your Honour to restrict the disallowance to Rs. 17. In view of above, we request your Honour to restrict the disallowance to Rs. 17. In view of above, we request your Honour to restrict the disallowance to Rs. 9,74,983/ as against Rs. 25,38,825 mad 9,74,983/ as against Rs. 25,38,825 made by the Assessing Officer.” ” 7.4 Further, without prejudice to ground No. without prejudice to ground No.1 and 2, the 1 and 2, the Ld. counsel further submitted that while allowing the proportionate further submitted that while allowing the proportionate further submitted that while allowing the proportionate

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interest for fund utili interest for fund utilized for business purpose, the Assessing Officer Assessing Officer has not considered amount of has not considered amount of ₹51,00,000/- advanced to M/s Elder advanced to M/s Elder Healthcare Ltd., which was grouped as doubtful debt and further , which was grouped as doubtful debt and further , which was grouped as doubtful debt and further ignored amount of ignored amount of ₹75,83,341/- which was lying in the bank which was lying in the bank account. The Ld. counsel Ld. counsel drawn over attention to audited financial drawn over attention to audited financial statement available on page 14 of the paperbook. The statement available on page 14 of the paperbook. The statement available on page 14 of the paperbook. The Ld. counsel submitted that accordingly the funds utilised for business purpose submitted that accordingly the funds utilised for business purpose submitted that accordingly the funds utilised for business purpose works out to ₹4,07,23,801/ ,07,23,801/- instead of ₹2,80,40,460/ 2,80,40,460/- taken by the Assessing Officer for computation of interest allowable to the for computation of interest allowable to the for computation of interest allowable to the assessee. The Ld. counsel Ld. counsel submitted revised working of interest submitted revised working of interest allowable to the assessee as under: allowable to the assessee as under:

=amount of fund used for business purpose fund used for business purpose gross interest debited in profit and gross interest debited in profit and amount of fund borrowed amount of fund borrowed X loss account

= (4,07,23,801/5,16,58,492) ) X 55,53,061 =₹43,77,630/-

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7.5 The Ld. counsel Ld. counsel accordingly submitted that in that case accordingly submitted that in that case disallowance would be restricted to disallowance would be restricted to ₹11,75,431 /- - (₹55,53,061 – ₹43,77,630/-)

7.6 Without prejudice prejudice to ground one and two of the appeal, to ground one and two of the appeal, supporting the ground No. three, the supporting the ground No. three, the Ld. counsel submitted that proportionate disallowance disallowance under section 36(1)(iii) should be 1)(iii) should be allowed to capitalize along with the value of the investment. In e along with the value of the investment. In e along with the value of the investment. In support, he relied on the decision of the Hon’ble Madras High Court e relied on the decision of the Hon’ble Madras High Court e relied on the decision of the Hon’ble Madras High Court in the case of Trishul Investment 305 ITR 434 Trishul Investment 305 ITR 434 and decision of the and decision of the Tribunal Mumbai bench Mumbai bench in the case of DCIT vs. Sh Fritz D Silva in Sh Fritz D Silva in ITA No. 236/Mum/2010 ITA No. 236/Mum/2010.

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of advancing loan and therefore disallowance has been of advancing loan and therefore disallowance has been of advancing loan and therefore disallowance has been made in accordance with law. accordance with law.

9.1 As far as ground r as ground No. 1 of the appeal of the assessee of the appeal of the assessee is concerned i.e. the investment investment made in debt mutual fund in debt mutual fund was part of business activity because funds being ideal for invested for earning business activity because funds being ideal for invested for earning business activity because funds being ideal for invested for earning income, the argument of argument of the Ld. counsel does not in any manner not in any manner establish that investment in mutual fund is part of the business establish that investment in mutual fund is part of the business establish that investment in mutual fund is part of the business activity of the assessee. The assessee has cle activity of the assessee. The assessee has clearly admitted that it was arly admitted that it was engaged in advancing loan to corporate and bill discounting advancing loan to corporate and bill discounting advancing loan to corporate and bill discounting. In the profit loss account, the assessee the assessee has shown interest income from interest income from advancing loan only and and this activity of investment in mutual fund is investment in mutual fund is not the business activity i not the business activity irrespective of the fact that ideal fund rrespective of the fact that ideal funds have been invested. The funds have not been invested due to business or been invested. The funds have not been invested due to business or been invested. The funds have not been invested due to business or

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commercial expediency, and commercial expediency, and same have been invested for earning invested for earning income on ideal funds income on ideal funds. Therefore, interest corresponding to Therefore, interest corresponding to borrowed money utilized in said investment is disallowed. borrowed money utilized in said investment is disallowed. borrowed money utilized in said investment is disallowed. The ground No. 1 of the appeal of the assessee accordingly of the appeal of the assessee accordingly of the appeal of the assessee accordingly is dismissed.

9.2 As far as ground No. As far as ground No. 2 of the appeal is concerned, of the appeal is concerned, the assessee failed before the lower ower authorities to justify as how the own funds authorities to justify as how the own funds were deployed in investment were deployed in investment in debt mutual fund and in absence of in debt mutual fund and in absence of which the claim of utilisation of own capital and reserves surplus which the claim of utilisation of own capital and reserves surplus which the claim of utilisation of own capital and reserves surplus towards investment in debt mutual fund of investment in debt mutual fund of ₹1.30 crores 1.30 crores cannot be accepted. The ground No. The ground No. 2 of the appeal of the assessee of the appeal of the assessee is accordingly dismissed. accordingly dismissed.

9.3 The alternative plea made in ground The alternative plea made in ground No. 2 of the assessee of the assessee, is however, convincing. While taking calculation of the funds utilised convincing. While taking calculation of the funds utilised convincing. While taking calculation of the funds utilised for business purpose business purpose, the Ld. Assessing Officer was required to was required to consider the claim of the assessee of consider the claim of the assessee of ₹51 lakh representing under 51 lakh representing under

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the doubtful debt and the doubtful debt and ₹75,83,341/- lying in bank account. lying in bank account. The amount of interest allowable was required to be considered after amount of interest allowable was required to be considered after amount of interest allowable was required to be considered after including above two amounts. Accordingly, we a including above two amounts. Accordingly, we a including above two amounts. Accordingly, we accept this contention of the assessee. We set aside the order of the Ld. CIT(A) f the assessee. We set aside the order of the Ld. CIT(A) f 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. on the issue in dispute and restore the matter to the file of the Ld. 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 computation of the amount of the interest allowable in computation of the amount of the interest allowable in terms of section 36(1)(iii) in view of th terms of section 36(1)(iii) in view of the plea of including the e plea of including the amount of ₹ 51 lakh representing doubtful debt and 51 lakh representing doubtful debt and 51 lakh representing doubtful debt and ₹75,83,341/- representing as amount lying in bank account representing as amount lying in bank account for funds utilized for for funds utilized for business purposes. It is needless to mention that the assessee shall . It is needless to mention that the assessee shall . It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. In the result, the be afforded adequate opportunity of being heard. In the result, the be afforded adequate opportunity of being heard. In the result, the ground No. 2 of the appeal is partly allowed for statistical purposes. of the appeal is partly allowed for statistical purposes. of the appeal is partly allowed for statistical purposes.

9.4 The ground no. The ground no. 3 being raised as alternative remedy being raised as alternative remedy. The assessee is seeking seeking capitalization of the amount of interest of the amount of interest disallowed under section 36(1)(iii) under section 36(1)(iii) of the Act. Here the assessee is Here the assessee is

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claiming that if interest corresponding to investment in mutual claiming that if interest corresponding to investment in mutual claiming that if interest corresponding to investment in mutual funds is not allowed as revenue expenditure, then same should be funds is not allowed as revenue expenditure, then same should be 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 treated as cost of acquisition of the said mutual fund. We are of the 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 he issue of claim of the interest amount as cost of he issue of claim of the interest amount as cost of acquisition will arise at the time of the sale of the said mutual funds acquisition will arise at the time of the sale of the said mutual funds acquisition will arise at the time of the sale of the said mutual funds and therefore issue is premature at this stage, and therefore issue is premature at this stage, therefore therefore, we are not adjudicating upon the said issue upon the said issue. The ground No. 3 No. 3 of the appeal is accordingly dismissed. accordingly dismissed.

Order pronounced in the Court on 05 ounced in the Court on 05/07/2022. Sd/- Sd/- (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 05/07/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent.

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