DCIT, Ludhiana V. M/s Oswal Knit India Ltd., Ludhiana

ITA 1043/CHANDI/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8397 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M L JOSHI
• Keywords: Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NOS. 1043 & 1044/CHD/2010 ASSESSMENT YEARS:2005-06 & 2006-07 THE DCIT, VS. M/S OSWAL KNIT INDIA LTD. CIRCLE-VII, LUDHIANA LUDHIANA PAN NO. AAACO1976A (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SARITA KUMARI RESPONDENT BY: SHRI M.L.JOSHI ORDER PER SUSHMA CHOWLA, JM THE APPEALS BY THE REVENUE ARE AGAINST THE SEPARATE ORDERS OF CIT(A)-II, LUDHIANA DATED 18.5.2010 AND 27.6.2010 R ELATING TO ASSESSMENT YEARS 2005-06 AND 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. BOTH THE APPEALS RAISED BY THE REVENUE INVOLVING THE SAME ISSUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE COMMON GROUND NO.1 RAISED IN BOTH THE APPEAL S ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) II LUDHIANA HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 56,48,840/- (ASSESSMENT YEAR 2005-06) AND RS.1,44,242/- (ASSESSMENT YEAR 2006- 2 07) MADE ON ACCOUNT OF INTEREST RELATABLE TO INVESTMENT IN CAPITAL WORK-IN-PROGRESS AT THE END O F THE YEAR UNDER CONSIDERATION. 4, THE BRIEF FACTS OF THE CASE RELATING THE ISSUE A RE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF HOSIERY GARMENTS. DURING THE ASSESSMENT YEAR 2005-06, THE ASSESSING OFFICER NOTED THE ASSE SSEE TO HAVE MADE ADDITION OF RS. 3,64,44,156/- TO THE CAPITAL WORK I N PROGRESS. THE ASSESSEE HAD MADE THE SAID INVESTMENTS IN THE ASSETS SHOWN U NDER HEAD CAPITAL WORK IN PROGRESS. THE EXPLANATION OF THE ASSESSEE IN RES PECT OF SOURCE OF INVESTMENT IN THE SAID CAPITAL WORK IN PROGRESS WAS THAT THE INVESTMENT WAS MADE IN THE EARLIER YEARS AND FURTHER DURING THE YE AR UNDER CONSIDERATION, NO AMOUNT WAS BORROWED FORM ANY BANK OR FINANCIAL I NSTITUTIONS FOR THE SAID INVESTMENT. THE PLEA OF THE ASSESSEE THAT IT HAD NOT PAID ANY INTEREST ON SUCH INVESTMENT AND EVEN THE OUTSTANDING BALANCE TAKEN EARLIER FROM BANK AND PSIDC WAS REDUCED TO NIL AS 31.3.2005, 31.3.2006 AND 31.3.2007, WAS REJECTED BY THE ASSESSING OFFICER. A PPLYING THE PROVISIONS TO PROVISO OF SECTION 36(1)(III) OF THE INCOME TAX ACT, THE ASSESSING OFFICER DISALLOWED INTEREST OF RS. 56,48,480/- BEIN G 15.5% OF RS. 3,64,44,156/- TREATING IT AS CAPITAL EXPENDITURE. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT THE OPENING OUTSTANDING BAL ANCE OF CAPITAL WORK IN PROGRESS AS ON 31.3.2005 WAS RS. 331.68 LACS AND RS . 32.76 LACS WAS ADDED DURING THE YEAR. THE LD. AR FURTHER POINTED OUT TH AT THE TRIBUNAL IN APPEAL RELATING TO ASSESSMENT YEAR 2004-05 HAD DELETED THE ADDITION HOLDING THAT NO INTEREST BEARING BORROWED CAPITAL WAS INVESTED I N THE WORK IN PROGRESS FOR EXPANSION OF THE EXISTING BUSINESS. IN RESPECT OF CAPITAL WORK IN PROGRESS OF RS. 32.76 LACS ADDED DURING THE YEAR IT WAS EXPLAINED THAT THE SAME WAS INVESTED OUT OF ITS OWN CASH ACCRUAL AND N O FRESH LOANS WERE TAKEN DURING THE YEAR. THE CIT(A) VIDE PARA 6 TO 6. 2 HELD AS UNDER:- 3 6. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE LD.COUNSEL FOR THE APPELLANT AND PERUSED THE RELEVA NT RECORD. I AGREE WITH THE ASSESSING OFFICER THAT IN VIEW OF THE PROVISIONS OF EXPLANATION 8 TO SECTION 43(1) OF THE ACT & THE PROVISO INSERTED BELOW SECTION 36(1)(III) BY THE FI NANCE ACT, 2003 W.E.F. A.Y. 2004-05, THE AMOUNT OF INTEREST PA ID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF NEW ASSETS FOR THE PERIOD FROM THE DATE ON WHICH THE CAPITAL WAS B ORROWED FOR THE ACQUISITION OF THE ASSET TILL THE DATE ON W HICH SUCH ASSET WAS FIRST PUT TO USE IS REQUIRED TO BE DISALL OWED. HOWEVER FOR MAKING THIS DISALLOWANCE IT IS TO BE DE MONSTRATED THAT CERTAIN INTEREST BEARING BORROWED CAPITAL WAS ACTUALLY INVESTED BY AN ASSESSEE IN THE ACQUISITION OF THESE ASSETS. IN THE CASE OF THE APPELLANT THE TOTAL CAPITAL WORK IN PROGRESS, AS EXPLAINED IN THE WRITTEN SUBMISSION OF THE LD.CO UNSEL, CAME TO RS.364.44 LACS AS ON 31.03.2005. OUT OF THIS A SUM OF RS.331.68 LACS WAS BROUGHT FORWARD FROM THE LAST YE AR AND ONLY THE BALANCE OF RS.32.76 LACS WAS ADDED DURING THIS YEAR. WITH REGARD TO THE BROUGHT FORWARD CAPITAL WORK IN PROGRESS OF RS.331.68 LACS, AS EXPLAINED IN THE WRITTEN SUBM ISSIONS OF THE LD.COUNSEL, FINDINGS HAD ALREADY BEEN GIVEN IN THE APPELLATE ORDER FOR THE A.Y. 2004-05 TO THE EFFECT THAT NO INTEREST BEARING BORROWED CAPITAL HAD BEEN INVESTED IN THE SAME. THESE FINDINGS IN THE APPELLATE ORDER DATED 21.07.2009 IN APPEAL NO.272/IT/CIT(A)-II/LDH/06-07 HAD BEEN CO NFIRMED BY THE HON'BLE ITAT, CHANDIGARH BENCH (A)(, VIDE TH EIR ORDER DATED 18.01.2010 IN ITA NO.965/CHD/2009. THEREFORE , IN VIEW OF THESE FINDINGS IT HAS TO BE HELD THAT FOR T HE ASSESSMENT YEAR UNDER CONSIDERATION ALSO NO INTEREST BEARING B ORROWED CAPITAL STOOD INVESTED IN CAPITAL WORK IN PROGRESS OF RS.331.68 LACS. 6.1 COMING TO THE BALANCE CAPITAL WORK IN PROGRES S OF RS.32.76 LACS IT IS THE CONTENTION OF THE LD.COUNSE L THAT THIS WAS INVESTED OUT OF APPELLANTS OWN CASH ACCRUALS F ROM BUSINESS IN THE YEAR AMOUNTING TO RS.72.73 LACS. T HE LD.COUNSEL HAS CATEGORICALLY MENTIONED IN THE WRITT EN SUBMISSIONS REPRODUCED ABOVE THAT NO FRESH LOANS WE RE TAKEN DURING THE YEAR. WHEN THE APPELLANT HAS NOT BORROW ED ANY FRESH LOANS DURING THE RELEVANT PERIOD, THERE IS NO QUESTION OF SUCH LOANS BEING UTILIZED FOR INVESTMENT IN CAPITAL WORK IN PROGRESS OF RS.32.76 LACS, DURING THE SAME PERIOD. IN VIEW OF THESE SUBMISSIONS OF THE LD.COUNSEL AND THE POSITIO N EXPLAINED BEING DULY VERIFIABLE FROM RECORD OF THE APPELLANT, IT HAS TO BE CONSIDERED THAT NO BORROWED FUNDS WERE USED BY THE APPELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION EVEN FO R INVESTMENT IN THE CAPITAL WORK IN PROGRESS AT RS.32 .76 LACS. 6.2 IN VIEW OF THE ABOVE DISCUSSION AS THE APPELL ANT HAD NOT UTILIZED ANY BORROWED FUNDS TO FINANCE THE CAPITAL WORK IN PROGRESS OF RS.364.44 LACS,, THERE IS NO JUSTIFICAT ION FOR MAKING DISALLOWANCE OF INTEREST OF RS.56,48,840/-. THE 4 DISALLOWANCE OF RS.56,48,840/- IS THEREFORE DELETED AND THIS GROUND OF APPEAL IS ALLOWED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. UNDER THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE INCOME TAX ACT INSERTED BY FINANCE ACT, 2003 W.E.F. 2004-05 IT IS PROVIDED THAT SUCH AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR ACQUISITION OF ASSETS FOR THE PERIOD FROM DATE ON WHICH THE SAID C APITAL WAS BORROWED FOR THE ACQUISITION OF ASSETS TILL THE DATE THE SAME AR E PUT TO USE, SUCH INTEREST IS REQUIRED TO DISALLOWED PRIOR TO MAKING ANY DISAL LOWANCE UNDER THE AFORESAID PROVISIONS OF THE INCOME TAX ACT. THE RE QUIREMENT IS TO ESTABLISH THAT CERTAIN INTEREST BEARING BORROWED C APITAL WAS UTILIZED BY THE ASSESSEE FOR THE ACQUISITION OF SUCH ASSETS. IN TH E FACTS OF THE PRESENT CASE THE TOTAL WORK IN PROGRESS AS ON 31.3.2005 WAS RS. 364.44 LACS. A SUM OF RS. 331.68 LACS WAS THE OPENING BALANCE IN THE ACCO UNT AND RS. 32.76 LACS WAS ADDED DURING THE YEAR. THE CLAIM OF THE ASSESS EE BEFORE US WAS THAT THE LOAN, IF ANY, WAS REPAID IN THE EARLIER YEAR AN D NO LOAN WAS OUTSTANDING AS ON 31.3.2004 AND 31.3.2005. IT WAS FURTHER POIN TED OUT THAT NONE OF THE INTEREST BEARING FUNDS WERE UTILIZED FOR THE INVEST MENT IN THE SAID OPENING WORK IN PROGRESS. WE FIND THAT SIMILAR ISSUE OF DI SALLOWANCE OF INTEREST ON ACCOUNT OF INVESTMENT IN THE CAPITAL WORK IN PROGRE SS AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSM ENT YEAR 2004-05. THE TRIBUNAL UPHOLDING THE ORDER OF CIT(A) DISMISSED TH E APPEAL FILED BY THE REVENUE HOLDING THAT NO INTEREST BEARING CAPITAL WA S INVESTED IN THE AFORESAID CAPITAL WORK IN PROGRESS, WHICH IS OPENIN G BALANCE FOR THE YEAR UNDER CONSIDERATION. IN VIEW OF THE RATIO LAID DO WN BY THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 200 4-05 IN ITA NO. 965/CHD/2009 VIDE ORDER DATED 18.1.2010, WE UPHOLD THE ORDER OF CIT(A) 5 THAT THERE IS NO MERIT IN DISALLOWING THE INTEREST ATTRIBUTABLE TO THE OPENING CAPITAL WORK IN PROGRESS OF RS. 331.68 LACS. 6. THE ASSESSEE DURING THE YEAR HAD MADE AN ADDITI ON OF RS. 36.27 LACS TO THE SAID CAPITAL WORK IN PROGRESS DURING THE YEA R AND CLAIMED NOT TO HAVE BORROWED ANY FRESH LOAN DURING THE RELEVANT PE RIOD. THE REVENUE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO THE CONTR ARY AND IN VIEW THEREOF, WE FIND NO MERIT IN DISALLOWING THE INTEREST ATTRIB UTABLE TO THE INVESTMENT MADE IN THE CAPITAL WORK IN PROGRESS AT RS. 32.76 L ACS DURING THE YEAR. WE UPHOLD THE ORDER OF CIT(A) IN THIS REGARD. 7. IN ASSESSMENT YEAR 2006-07, THE ASSESSEE BEFORE THE CIT(A) HAD CLARIFIED THAT THOUGH THERE WAS OPENING CAPITAL WOR K IN PROGRESS IN PROGRESS OUTSTANDING ON 31.3.2005 OF RS. 364.44 LAC S. HOWEVER, THE BALANCE AS ON 31.3.2006 WAS ONLY RS. 9,29,947/- WHI CH WAS PART OF THE OPENING BALANCE. THE SAID AMOUNT OF RS. 9.29 LACS WAS BROUGHT FORWARD FROM EARLIER YEAR AND NO FRESH INVESTMENT IN CAPITA L WORK IN PROGRESS WAS MADE DURING THE YEAR. IN VIEW OF OUR OBSERVATIONS IN THE PARA HEREIN ABOVE, WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A ) THAT THERE IS MERIT IN DISALLOWING ANY PART OF THE INTEREST BEING ATTRI BUTABLE TO SUCH INVESTMENT OF RS. 9,29,947/- IN CAPITAL WORK IN PRO GRESS WHICH WAS THE OPENING BALANCE FOR THE YEAR UNDER CONSIDERATION. IN VIEW THEREOF GROUND NO.1 RAISED BY THE REVENUE IN BOTH THE APPEALS IS D ISMISSED. 8. THE REVENUE IN ITA NO. 1044/CHD/2010 HAS RAISED THE GROUND NO.2 WHICH READS AS UNDER:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-II LUDHIANA HAS ERRED IN DELETING AN ADDITIO N 6 OF RS. 5,09,184/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF ESI & PF. 9. THE ASSESSING OFFICER NOTED FROM THE PERUSAL OF THE AUDIT REPORT THAT THERE WAS DELAY IN RESPECT OF EMPLOYEES CONTRIBUTIO N TO ESI AMOUNTING TO RS. 30,705/- AND PF AMOUNTING TO RS. 4,78,479/-. THE PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE ENTIRE PAYM ENT WAS PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AND THE RE WAS NO MERIT IN THE SAID DISALLOWANCE. THE CIT(A) FOLLOWED THE RATIO L AID DOWN BY THE HON'BLE SUPREME COURT IN CIT V VINAY CEMENT LTD 213 CTR (SC) 268 WHEREIN IT WAS HELD THAT EVEN IF THE EMPLOYER OF A S WELL AS THE EMPLOYEE SHARE OF CONTRIBUTION TO PF & ESI WAS PAID BEFORE T HE DUE DATE OF FILING THE RETURN OF INCOME, NO DISALLOWANCE WAS TO BE MAD E. THE CIT(A) FURTHER NOTED THAT AMOUNTS IN QUESTION WERE DEPOSITED ON OR BEFORE THE LAST DAY OF PREVIOUS YEAR ITSELF I.E. BEFORE 31 ST DAY OF MARCH 2006 AND IN VIEW THEREOF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETED. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE CIT(A). 10. WE FIND THAT THE ISSUE OF ALLOWABLILITY OF CONT RIBUTION MADE TO THE ESI AND PF ACCOUNT ON ACCOUNT OF EMPLOYEES SHARE PA ID BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AROSE BEFORE THE TRIBUNAL IN IN RAJA FORGINGS & GEARS LTD VS. ADDL. CIT IN ITA NO. 272/ CHD/2010 RELATING TO ASSESSMENT YEAR 2006-07, WHEREIN THE TRIBUNAL VIDE ORDER DATED 22.4.2010 RELYING ON THE RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN DCIT, VS. M/S NUCHEM LTD (ITA NO. 323 OF 2009 DATE OF DECISION 2.2.2010) HELD AS UNDER:- 14. WE FIND THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN DCIT VS M/S NUCHEM LTD (SUPRA) HAS HELD T HAT WHEREIN THE CONTRIBUTION TO PROVIDENT FUND AND ESI ACCOUNT 7 IN RESPECT OF EMPLOYEES CONTRIBUTION, ARE MADE BEFO RE THE DUE DATE OF FILING OF RETURN OF INCOME, THEN SUCH P AYMENTS ARE TO BE ALLOWED AS AN EXPENDITURE. RESPECTFULLY, FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COUR T, WE SET ASIDE THE ORDER OF CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E IN RESPECT OF THE AFORESAID CONTRIBUTION TO THE PROVID ENT FUND AND ESI AS IT IS APPARENT FROM THE PERUSAL OF THE ORDER OF THE ASSESSING OFFICER THAT THE AFORESAID AMOUNTS WERE P AID BY THE ASSESSEE BEFORE THE DUE DATE OF FILING THE RETU RN OF INCOME. GROUND NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. 11. FOLLOWING THE SAID RATIO, WE CONFIRM THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE. THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DISMISSED. 12. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF NOVEMBER, 2010. SD/- SD- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH NOVEMBER, 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR