Case Law Details
Brief of the case: In case of JCIT vs. Riddhi Siddhi Gluco Biols Ltd. The Ahmedabad tribunal has held that Interest free funds available with assessee was much more than the interest free loan given by the assessee. A.O made proportionate disallowance merely on the presumption that the proportionate borrowed money must have been utilized for investment in capital work-in-progress. Relying on decision, in case of CIT vs. Raghuvir Synthetics Ltd, reported in 354 ITR 222 (Guj.), but ITAT deleted disallowance.
Facts of the case: The assessee- company is manufacturing and trading of starch, tapioca, chemicals, maize grain and allied products. The assessee incurred certain expenditure for capital work-in progress. It paid interest of Rs.6.09 crores on its borrowing. The Assessing Officer opined that the part of the interest payment was attributable to the funds utilized for creation of capital work-in-Progress. Further, the assessee also advanced money to others, without charging interest. He, therefore, made proportionate disallowance of interest. The same is deleted by the CIT(A).
Contention of Assessee: That capital work-in-progress is only Rs.26.01 crores and the advance to others is only Rs.12 lacs. Thus, the interest free fund available with the assessee is several times more than the fund invested in capital work-in-progress and also interest free advance to others. He further stated that the Revenue has not pointed out that any borrowed money has been utilized for the purpose of investment in capital work-in-progress and also advance to others. He, therefore, submitted that the CIT(A) was fully justified in deleting the disallowance out of interest.
Contention of Revenue: There was the utilization of huge money for capital work-in-progress and also giving interest free advance to others. The assessee has borrowed the money and has paid interest of more than Rs. 6 crores thereon. Therefore, the Assessing Officer was fully justified in disallowing the proportionate interest.
HELD by ITAT: Admittedly, the Assessing Officer had not pointed out that any borrowed money has been utilized for the purpose of investment in capital work-in-progress or for advance to others. He made proportionate disallowance merely on the presumption that the proportionate borrowed money must have been utilized for investment in capital work-in-progress, etc. The court find that under the similar circumstances, Hon’ble Gujarat High Court in the case of CIT vs. Raghuvir Synthetics Ltd, reported in 354 ITR 222 (Guj.) upheld the decision of ITAT. In that case also the interest free fund available with the assessee was much more than the interest free loan given by the assessee. The Assessing Officer has not proved that the borrowed money has been utilized for giving of interest free advances. The Assessing Officer disallowed the interest on proportionate basis. The CIT(A) deleted the addition which was upheld by the ITAT. The facts of the assessee’s case are identical to the facts before the Hon’ble jurisdictional High Court in the case of Raghuvir Synthetics Ltd(supra); the court, therefore, respectfully following the above decision of Hon’ble jurisdictional High Court, uphold the order of the CIT(A).
