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Before: Shri Amit Shukla & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: These two appeal at the instance of Revenue are directed against the orders dated 31.07.2015 of ld. CIT(A)-14, New Delhi for the assessment years 2010-11 and 2011-12 respectively. Following grounds have been raised by Revenue in both the appeals :
Grounds for A.Y. 2010-11:
1. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs. 21,60,000/- made out of interest expenses being interest bearing funds given to sister concerns without interest.
2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs. 12,07,349/- made out of interest expenses on account of interest on Capital Work in Progress.
3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs.59,13,664/-on assets which were received without any consideration.
4. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.6,30,720/- on account of profit on sale of assets which were acquired without any consideration.
Grounds for A.Y. 2011-12:
Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs.1,05,00,000/- made out of interest expenses being interest bearing funds given to sister concerns without interest.
2. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of Rs. 26,86,443/- made out of interest expenses on account of interest on Capital Work in Progress.
3. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs.50,68,167/-on assets which were received without any consideration.
4. Whether on the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs.4,20,415/- on account of profit on sale of assets which were acquired without any consideration.
The issues involved in both the appeals are common. We, therefore, take up the appeal for A.Y. 2010-11 first for the sake of convenience and brevity.
The brief facts of the case are that the assessee filed its return of income on 12.10.2010, which was subsequently revised on 05.04.2011 & 30.01.2012, declaring total income at Rs.41,71,52748/-. In the assessment proceedings, the AO observed that the assessee has advanced to its subsidiary/fellow subsidiary, a sum of Rs.102.69 crores & odds. These loans include the following loans : (i) Loan to subsidiary Rs.14,55,00,000/- (ii) Loans to fellow subsidiary Rs.6,41,69,218/- Total : Rs.20,96,69,218 The Assessing Officer observed from schedule-21 of financial expenses that the assessee company had paid huge interest amounting toRs.1,40,54,902/-. In view of this, the Assessing Officer asked the assessee to show cause why the provisions of section 36(1)(iii) of the Act should not be invoked as the assessee on one hand was paying huge interest on loan and on the other hand has made advances to subsidiary and fellow subsidiary without charging any interest. The assessee submitted the details of loans given to subsidiaries as under : Subsidiary’s name Opening Balance Loan given during the year Amritsar - 12,75,00,000 Kanpur 1,80,00,000 - Jaipur 6,41,69,219 Total 8,21,69,219 12,75,00,000 The assessee also submitted that it has not taken any loan during the year under consideration and fresh loan has been given only to Amritsar subsidiary to the tune of Rs.12,75,00,000/- out of his own funds. The Assessing Officer observed that out of total loans amounting to Rs.20,96,69,218, a sum of Rs.6,41,69,218/- is interest bearing and the company has received interest income on the same. The balance loan of Rs.14,55,00,000/- (12,75,00,000 +1,80,00,000) as interest free loan. Out of loan of Rs.14,55,00,000/-, a sum of Rs.1,80,00,000/- was outstanding since 31.03.2009. The Assessing Officer observed that Rs.12.75 crores of loan has been given by the assessee out of his own funds. Therefore, the Assessing Officer applying section 36(1)(iii) on the opening balances of Rs.1.80 crores, calculated the interest @ 12%, i.e., 21,60,000/- and the same was added back to the income of the assessee.
4. The Assessing Officer further observed that the assessee has shown capital work in progress including capital advances amounting to Rs.1,00,61,241/-. In this regard, the assessee was asked to explain as to why interest proportionate to capital borrowings in assets not put to use, should not be disallowed. In response, the assessee made detailed submissions and relied on some case laws. The Assessing Officer, however, disallowed 12% interest and worked out the disallowable interest to the tune of Rs.12,07,349/-, which was added to the income of the assessee, holding that the amount invested in the capital work in progress not put to use is not allowable.
5. The other issue raised in this appeal is against deletion of disallowance of depreciation amounting to Rs.59,13,664/- on assets which were received without any consideration. The facts apropos this ground are that a society in the name of Escorts Heart Institute and Research Centre was formed at Delhi on 21.10.1981. Another society with the same name was formed at Chandigarh on 11.11.1999. Whereas the Delhi society had charitable objects and its income was exempt u/s 10(21), the Chandigarh society did not have the object of relief to the poor. Both the societies merged on 01.04.2000. On 30.05.2000 Chandigarh society was registered as a company, namely, Escorts Heart Institute and Research Centre Ltd. Upon such conversion, the assets of the erstwhile Chandigarh and Delhi societies came to be considered as the assets of the assessee company. The assessee claimed depreciation, inter alia, on the assets acquired from Delhi Society. The Assessing Officer opined that since full deduction of the cost of these assets was allowed as application of income u/s 11 of the Act, the written down value of this asset in the hands of the society was only a notional book value. The Assessing Officer canvassed a view that by taking over of the assets and liabilities of the Society on the book value of these assets, an artificial enhanced value of these assets was shown by the assessee company on which the depreciation could not be allowed. The Assessing Officer, therefore, disallowed the depreciation on such assets amounting to Rs.59,13,664/- by applying the Explanation 4A and 6 to section 43 and section 43(1) of the IT Act.
The Assessing Officer also observed that the assessee had sold assets of Rs.6,30,720/- which were received from above society and no cash was paid by the assessee. The assessee had reduced the sale price from the assets whereas the Assessing Officer observed that since no cost was incurred by the assessee, it was profit on sale of the assets. He, therefore, added Rs.6,30,720/- to the income of the assessee company.
7. Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A), where he made detailed written submissions and relied on various case laws. He further submitted that before the ld. CIT(A) that similar issues raised by the AO in preceding assessment year 2008-09 have been decided by the first appellate authority in favour of the assessee vide order dated 03.09.2013 in appeal No. 91/2012-12. The ld. CIT(A) after considering the submissions of the assessee and following the decision of his predecessor, as noted above, deleted the additions made by the Assessing Officer vide the impugned order. Aggrieved, the Revenue is in appeal before the Tribunal.
8. The learned DR relied on the order of the Assessing Officer and submitted that the ld. CIT(A) was not justified in deleting the impugned additions ignoring the facts considered by the Assessing Officer in his order.
9. On the other hand, the ld. AR relied on the order of the ld. CIT(A) and submitted that ground No. 1 & 3 are covered in favour of the assessee and against the Revenue by the order of Co-ordinate Bench in assessee’s own case for the assessment year 2008-09, which has also been upheld by Hon’ble jurisdictional High Court. In respect of ground No. 4, the ld. AR further submitted that it is consequential to ground No. 3 because the assets sold was the part of block of assets held by the assessee and the block of assets did not exhaust by making sale of some of the assets therefrom.
10. After hearing the submissions of both the parties and perusing the entire material available on record, we find that the issues involved in ground No. 1 & 3 have been decided in favour of the assessee in its own case for the assessment year 2008-09 in the similar facts and circumstances of the case by the Co-ordinate Bench in ITA No. 6674/Del./2013 vide order dated 18.04.2017. The findings reached by the Tribunal read as under :
“4. We have heard both the sides and perused the relevant material on record. There is no dispute on the fact that a sum of Rs.2.84 crore was given as share application money. This amount was given in an earlier year and for this year, it was an opening brought forward balance. It is a matter of record that no disallowance of interest has been made in any of the earlier years on such money given to subsidiary companies. Once it has been accepted in the earlier years that this money was not given out of any interest free funds, a new case cannot be set up in the instant year, as it would impliedly reverse the settled position in earlier years in this regard. Going by the rule of consistency, we hold that no disallowance is warranted to this extent. As regards the major amount of interest free loan of Rs.24.19 crore, we find that the assessee obtained fresh loan amounting to Rs.32.78 crore during the year which was utilised for specific business purpose, namely, acquisition of fixed assets. As against the interest free loans amounting to Rs.24.19 crore given by the assessee to its subsidiary companies without charging any interest, the assessee had its own share capital with reserves standing at a whopping sum of Rs.188.89 crore. Section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital borrowed, on which such interest is paid, is used for the purpose of business or profession. If, however, an assessee is having its own interest free surplus funds and such funds are utilised as interest free advances even for a non-business purpose, there cannot be any disallowance of interest paid on interest bearing loans. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2001) 313 ITR 340 (Bom), has held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders’ funds, presumption stands established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In that case, the AO recorded a finding that a sum of Rs.213 crore was invested by the assessee out of its own funds and Rs.1.74 crore out of borrowed funds. Accordingly, disallowance of interest was made to the tune of Rs.2.40 crore. It was argued on behalf of the assessee that no part of interest bearing funds had gone into investment in those two companies in respect of which the AO made disallowance of interest. It was also argued that income from operations of the company was Rs.418.04 crore and the assessee had also raised capital of Rs.7.90 crore, apart from receiving interest free deposit of Rs.10.03 crore. It was, therefore, submitted before the first appellate authority that the balance-sheet of the assessee adequately depicted that there were enough interest free funds at its disposal for making investment. The ld. CIT(A) got convinced with the assessee’s submissions and deleted the addition. Before the Tribunal, it was contended on behalf of the Revenue that the shareholders’ funds were utilized for the purchase of its assets and hence the assessee was left with no reserve or own funds for making investment in the sister concern. Thus, it was argued that the borrowed funds had been utilized for the purpose of making investment in the sister concern and the disallowance of interest was rightly called for. The Tribunal, on appreciation of facts, recorded a finding that the assessee had sufficient funds of its own for making investment without using the interest bearing funds. Accordingly, the order of CIT(A) was upheld. When the matter came up before the Hon’ble High Court, it was contended by the Department that the shareholders’ funds stood utilized in the purchase of fixed assets and hence could not be construed as available for investment in sister concern. Repelling this contention, the Hon’ble High Court observed that : “In our opinion, the very basis on which the Revenue had sought to contend or argue their case that the shareholders’ fund to the tune of over Rs.172 crore was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious.” In upholding the order of the Tribunal, the Hon’ble High Court held that : “If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available”. Thereafter, the judgment of the Hon’ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC) and also the judgment of the Hon’ble Calcutta High Court in Woolcombers of India Ltd. Vs. CIT (1981) 134 ITR 219 (Cal) were considered. It was finally concluded that : “The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment”. Consequently the interest was held to be deductible in full. From the above judgment, it is manifest that there can be no presumption that the shareholders’ fund of a company was utilized for the purchase of fixed assets. If the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds at the disposal of the assessee.
5. Similar view has been taken by the Hon'ble jurisdictional High Court in CIT vs. Tin Box Company (2003) 260 ITR 637 (Del), holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified.
6. Adverting to the facts of the instant case, we find that the assessee has its own share capital and reserves amounting to Rs.188.89 crore. As against that, only sum of Rs.24.19 crore was given as interest free loan to subsidiary companies. The amount of share capital and reserves is many times higher than the amount of interest free loan given to subsidiary companies. Guided by the ratio laid down by the Hon'ble jurisdictional High Court in Tin Box Company and that of the Hon'ble Bombay High Court in Reliance Utilities and Power Ltd., we hold that the ld. CIT(A) was justified in deleting this disallowance.
Reliance of the ld. DR on the decision of the Delhi tribunal in ACIT vs. Samrat Rice Mills (P) Ltd. (2012) 23 taxmann.com 350 (Dehi) is not relevant in view of the fact the addition has been instantly deleted because of the availability of surplus interest free funds available with the assessee and not on account of the user of funds for business or nonbusiness purpose.
8. The only other ground raised in this appeal is against the deletion of disallowance of depreciation amounting to Rs.1,00,30,472/- on assets which were received without any consideration. The facts apropos this ground are that a society in the name of Escorts Heart Institute and Research Centre was formed at Delhi on 21.10.1981. Another society with the same name was formed at Chandigarh on 11.11.1999. Whereas the Delhi society had charitable objects and its income was exempt u/s 10(21), the Chandigarh society did not have the object of relief to the poor. Both the societies merged on 01.04.2000. On 30.05.2000 Chandigarh society was registered as a company, namely, Escorts Heart Institute and Research Centre Ltd. Upon such conversion, the assets of the erstwhile Chandigarh and Delhi societies came to be considered as the assets of the assessee company. The assessee claimed depreciation, inter alia, on the assets acquired from Delhi Society. The Assessing Officer opined that since full deduction of the cost of these assets was allowed as application of income u/s 11 of the Act, the written down value of this asset in the hands of the society was only a notional book value. The Assessing Officer canvassed a view that by taking over of the assets and liabilities of the Society on the book value of these assets, an artificial enhanced value of these assets was shown by the assessee company on which the depreciation could not be allowed. The ld. CIT(A) overturned the assessment order on this point. The Revenue is in appeal on this issue.
We have heard the rival submissions and perused the relevant material on record. The view point of the Assessing Officer is that the actual written down value of the assets in the hands of the Society was not the book value assigned to it. The book value was only a notional or artificial value and the real cost was actually Nil because the cost of those assets had been allowed as deduction to the Society as application of income u/s 11 of the Act. Thus, the short controversy before us is to decide if depreciation can be allowed on assets for which deduction has been allowed as application of income u/s 11.
At this stage, it is relevant to note that sub-section (6) has been inserted to section 11 by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 which reads as under:- `In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year.’
11. A bare perusal of the above provision indicates that where any income has been applied for the purchase of assets on which exemption has been granted, then, no separate claim by way of depreciation in respect of such assets can be allowed in the same or any other year. In fact, this is the view point canvassed by the Assessing Officer in disallowing the claim of depreciation. However, it is important to note that sub-section (6) has been inserted to section 11 w.e.f. 01.04.2015. The Hon'ble Delhi High Court in DIT (E) vs. Indraprastha Cancer Society (2015) 53 taxmann.com 463 (Del), has held that insertion of subsection (6) to section 11 is prospective and, hence, no disallowance on account of depreciation can be made in years prior to the assessment year 2015-16.
It is noticed that the Hon’ble Delhi High Court in an earlier case in DIT (Exemption) vs. Charanjiv Charitable Trust (2014) 267 CTR 305 (Del) vide its judgment dated 18th March, 2014 has held that depreciation is not allowable in respect of assets, cost of which was earlier allowed as deduction as application of income of trust. However, the Hon’ble Delhi High Court vide its later judgment dated 18th November, 2014 in Indraprastha Cancer Society (supra) has held that Capital assets purchased by charitable institution and treated amount spent on purchase of capital asset as application of income, were entitled to claim depreciation on same capital asset utilised for business. Thus, the judgment in Indraprastha Cancer Society (supra), being latest in the point of time and also considering amendment to section 11(6), has more binding force. As the assessment year before us is 2008-09, the ratio of the decision in the Indraprastha Cancer Society (supra) would apply enabling the assessee to claim depreciation on such assets.
13. It has also been brought to our notice that though the assets were acquired by the assessee company in an earlier year, but, the disallowance on account of depreciation was never made in the past. It was also stated that the assessments for the assessment years 2004-05 to 2007-08 were reopened but the ld. CIT(A) quashed the reopening. The ld. AR submitted that the quashing of reassessment by the ld. CIT(A) has been accepted by the Revenue and no further appeal was filed to the Tribunal. This contention has not been controverted by the ld. DR. This shows that such depreciation has been allowed to the assessee in all earlier years.
14. The ld. DR relied on certain orders of the Chennai and Cochin tribunal to buttress his point of view of not allowing depreciation on assets whose cost was allowed u/s 11. These decisions will not support the case of the Revenue in view of the direct judgment of the Hon’ble jurisdictional High Court on the point, granting depreciation in such circumstances. In view of the foregoing discussion, we are satisfied that the ld. CIT(A) was justified in deleting the disallowance.”
The Hon’ble Jurisdictional High Court has also affirmed the above order of the Tribunal observing as under : “2. The first question relates to disallowance of Rs.3,07,63,2237-on account of interest payment made to the extent of loan advance to the Assessee sister concern, under Section 36(l)(iii) and the second question relates to depreciation to the tune of Rs. 1,00,30,4727-towards assets received by the Assessee without consideration.
3. The Assessee provides Health Care Services; its return for the concerned Assessment Year were scrutinized by the Assessing Officer on the ground that the interest free advance given to the sister concern be disallowed under Section 36(1)(iii).
The Commissioner of Income Tax (Appeals) granted relief in this aspect; the Income Tax Appellate Tribunal (ITAT) confirmed those findings.
Both the said authorities noticed that the Company had adequate surplus and reserves-to the extent of Rs. 188 crores.
6. In the circumstances, disallowance was not warranted. On this' aspect, the question having been considered by the CIT(A) and I confirmed by the ITAT, the Court is of the opinion that no question/ of law arises.
7. So far as the question on account of depreciation rule is concerned, the Court notices that firstly, similar disallowances were not permitted - when re-assessment was sought to be made.
Furthermore, such depreciation is also permissible in accordance with the principles enunciated in CIT versus Sheth Manilal Ranchhoddas Vishram Bhavan Trust, 198 ITR 598(Guj.) and other subsequent decisions.
9. In the light of the foregoing discussions, this Court is of the opinion that no substantial question of law arises.”
12. Respectfully following the above decisions, Grounds Nos. 1 & 3 for A.Y. 2010-11 and ground No. 3 of A.Y. 2011-12 of the Revenue are dismissed.
Adverting to ground No. 2, We find that the ld. CIT(A) has discussed and examined this issue in detail. The findings reached by the ld. CIT(A) in the impugned order read as under : “I have considered the submissions of the appellant as well as the findings of the Ld. A.O. Keeping into consideration the various case laws of the higher appellate authorities and the Hon'ble Courts, I found that the Ld. AO is not justified for making the disallowance of Rs.12,07,349/- out of interest corresponding to the sum of Rs.1,00,61,241/- shown against capital work in progress (CWIP) in view of the following facts and circumstances of the case :- i. The submissions and arguments of the Ld. AR in brief are as under :- (a) There is a substantial increase in the Reserves & Surplus as compared to the preceding year being an accretion of Rs.3400 crores approx. on account of profits earned. (b) No fresh loans have been raised during the year and in fact these have been substantially repaid back if one were to peruse Schedule 3 & 4 of the Balance-sheet under the heading Secured Loan and Unsecured Loans respectively.
(c) There is no evidence of any interest bearing funds finding there way to the CWIP. In my opinion and on the basis of the facts and circumstances of the case the appellant has explained that it had sufficient funds during the year under consideration for making investments adequately backed by interest free funds and it is also admitted that no borrowed funds were used to make the said investments .Accordingly, the disallowance of Rs. 12,07,349/- out of interest corresponding to the sum of Rs.1,00,61,241/- shown against capital work in progress (CWIP) is deleted. This ground of appeal is allowed.”
Further, on perusal of the balance sheet filed before us, we find that the assessee has not taken any fresh loan during this year and has earned profit of Rs.34.00 crores approx. Therefore, no adverse inference can be drawn that these capital work in progress incurred by the assessee amounting to Rs.1,00,61,241/- has been expended out of borrowed funds. The Revenue could not adduce any evidence that this amount has been incurred out of any borrowed funds. In view of the above, ground No. 2 raised by the Revenue is dismissed.
In respect of ground No. 4, we observe that the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer holding it as consequential to the claim of depreciation on sale proceeds of the assets. Once, the asset has been taken in the block of assets, and if any sale value of the asset is realized or credited into the fixed asset account, it is reduced from the block of assets and it cannot be treated as a profit on sale of asset until and unless whole of the block does not exhaust. Therefore, ground No. 4 for the assessment years 2010-11 and 2011-12 are dismissed.
Coming to ground No. 1 & 2 in appeal for the assessment year 2011-12, we observe that the Assessing Officer has calculated the interest of Rs.1,05,00,000/- on the loans outstanding as on 31.03.2011 of Rs.8,75,00,000/-, which was given to Amritsar Subsidiary. From the perusal of assessment order for A.Y. 2010-11, we observe that the Assessing Officer has himself accepted that the loan of Rs.12,75,00,000/- was given out of assesee’s own funds to Amritsar Subsidiary and was outstanding as on 31.03.2010. The Assessing Officer had not applied the provisions of section 36(1)(iii) in A.Y. 2010-11. However, on perusal of the details of loans given to Subsidiaries, submitted at page 9 of the paper book, we find that there was opening balance of Rs.12,75,00,000/- of Amritsar subsidiary and the assessee has given fresh loan during the year to the tune of Rs.3,50,00,000/-. The assessee is also shown to have received the loans back during the year to the extent of Rs.7,50,00,000/-. As such there was a closing balance as on 31.03.2011 of Rs.8,75,00,000/-. In view of these facts, the Assessing Officer has invoked the provisions of section 36(1)(iii) on the excess amount of Rs.5,25,00,000/- (8,75,00,000 – 3,50,00,000), which was accepted by the Assessing Officer in the previous year to be the loan given out of his own funds. Accordingly, the Assessing Officer has calculated the interest in excess Rs.63,00,000/-.
Further on perusal of the balance sheet, we find that the assessee has obtained fresh loans from bank and short term loans from holding company. The contention of the assessee has been that the loan of Rs.3.50 crores was given by the assessee out of own funds during the year under consideration. We, however, find that the details of own funds appearing in the balance sheet are as under : Schedule- 1 : Share Capital As on 31.03.2011 As on 31.03.2010 Share Capital issued & Subscribed 2,00,03,100 2,00,03,100 Schedule- 2: Reserves and Surplus Securities Premium Account 32,400 32,400 Capital reserve 1,06,83,74,405 1,06,83,74,405 General reserve 8,48,20,483 8,48,20,483 Profit & Loss A/c Balance as per last Account 1,31,60,32,087 97,57,80,819 Add: Profits earned during the year 33,30,97,440 34,02,51,268 Total Schedule- 1 & 2: 2,82,23,59,915 2,48,92,62475 From the above schedules of balance sheet, it is noticed that the capital reserves is of Rs.1,06,83,74,405/- which being a designated reserve, in our opinion, could not be utilized for the purpose of loans given, whereas the assessee, however, is also including this capital reserve as own distributable funds. After excluding this much of capital reserve, the balance amount of own funds now remains of Rs.1,75,39,85,510/- During the course of hearing, the Bench asked the ld. AR to produce complete balance sheet along with its schedules so as to verify the inflow and outflow of funds. However, the ld. AR did not agree to produce the requisite balance sheet, only stating that the issue is covered by the decision of Tribunal and Hon’ble High Court. We are, therefore, unable to ascertain whether the loans given by the assessee during the year under consideration were out of owns funds or from borrowed funds. Therefore, we deem it expedient in the interest of justice that this matter should go back to the file of the AO to decide the issue afresh after due verification, as observed above from the books of assessee. Similar is the position with respect to the disallowance of interest made by A.O. of Rs.26,86,443/- on the expenditure incurred by assessee as capital work in progress of Rs.2,23,87,021/-. This expenditure also needs verification to the extent whether this amount was expended by the assessee out of own funds or out of borrowed funds. Therefore, this issue is also sent back to the Assessing Officer for deciding the same afresh after due verification. Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, grounds Nos. 1 & 2 of appeal for A.Y. 2011-12 deserve to be allowed for statistical purposes.
Before parting with the mater, we note that both these issues have been decided by us in favour of the assessee for the assessment year 2010-11 keeping in view the fact that in that year, the assessee had no borrowed fund taken, whereas in the present year, 2011-12, the assessee itself has shown to have raised substantial loans on interest. Hence, it is necessary to verify whether the loans advanced or expenditure incurred were from borrowed funds or from own funds.