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Facts
The assessee is in appeal against the order of CIT(A) upholding an addition of Rs. 64,15,446/-. The addition was made by the AO due to the assessee allegedly mixing interest-bearing funds with own funds for acquiring fixed assets and capital work-in-progress.
Held
The Tribunal held that the assessee had sufficient interest-free surplus funds (Rs. 695.56 Cr) compared to the total investment in assets and work-in-progress (Rs. 97.39 Cr). Therefore, the use of interest-bearing funds could be covered by the surplus interest-free funds, and no disallowance was warranted.
Key Issues
Whether disallowance of interest expenses is justified when the assessee has sufficient interest-free funds to cover investments in fixed assets and capital work-in-progress?
Sections Cited
143(3), 147, 148
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
O R D E R PER RAJPAL YADAV, VP The assessee is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 04.07.2024 passed for assessment year 2010-11. 2. The solitary grievance of the assessee is that ld. CIT(A) has erred in upholding the addition of Rs.64,15,446/-. A.Y.2010-11 2
With the assistance of ld. Representative, we have gone through the record carefully. This disallowance has been made by the AO for the reason that assessee has mixed funds and it has used interest bearing funds for purchase of fixed assets as well as for capital work-in-progress. The ld. Counsel for the assessee has placed on record the details in tabulator form and submitted that assessee has Rs.695.56 Cr surplus funds which is the interest free funds. As against this, total investment for purchase of assets as well as expenditure incurred towards work-in-progress is only Rs.97.39 Cr. The ld. Counsel for the assessee has placed on record a series of judgements propounding therein that if assessee has more interest free funds, then user of interest bearing funds for non business purpose can be taken care from those surplus funds and no disallowance is to be made.
In the present case, we find that assessee has sufficient interest free funds which can take care of purchase of fixed assets as well as incurrence of expenditure towards capital field. For fortifying our view, we put reliance upon the judgement of Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities 313 ITR Page 340, CIT Vs Max India Ltd. A.Y.2010-11 3 388 ITR 81 (P&H) and Bright Enterprises Vs CIT 381 ITR
4. In view of the above, the disallowance made by the AO and upheld by the CIT(A) is deleted.
In result, the appeal of the assessee is allowed.