Annapurna Polymers Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1065/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85811 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Capital asset; Capital expenditure
• Section: 32

Judgement Text

, D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ./ ITA NO.1065/AHD/2011 / ASSTT. YEAR: 2007-08 ANNAPURNA POLYMERS P. LTD. 103, AAKANKSHA, SHRIMALI SOCIETY NAVRANGPURA, AHMEDABAD. PAN : AABCA 8452 A VS DCIT, CIR.1 AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE(S) BY : SHRI PARIN SHAH REVENUE BY : SHRI B.L. YADAV, SR.DR / DATE OF HEARING : 10/03/2015 / DATE OF PRONOUNCEMENT: 13/03/2015 $%/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS AN APPEAL FILED BY THE ASSESSEE AGAINST ORDER OF THE CIT(A)-VI, AHMEDA BAD DATED 01/03/2011 FOR ASSTT.YEAR 2007-08. 2. THE SOLE GROUND OF THE ASSESSEE READS AS UNDER: 1. THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON F ACTS IN CONFIRMING DISALLOWANCE OF RS.20,97,961/- MADE BY A O OUT OF INTEREST EXPENSES CLAIMED BY THE APPELLANT U/S,.36( 1)(III) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT APPRECIATING THE CONTENTION OF THE APPELLANT THAT THE FUNDS BORROWED WERE UTILIZED FOR THE PURPOSE OF BUSINESS THAT DID NOT WARRANT AN Y DISALLOWANCE. THE LD.CIT(A) OUGHT TO HAVE ALLOWED THE INTEREST CL AIMED ON THE BORROWED FUNDS AND QUASHED THE ORDER OF THE AO. 3. BRIEF FACTS OF THE CASE ARE THAT FROM A PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE AO OBSERVED THAT THE ASSESSEE HAS DEBI TED INTEREST OF RS.48,35,653/-. THE AO FURTHER OBSERVED THAT THE A SSESSEE HAD TAKEN UNSECURED LOAN OF RS.7,70,01,033/- AS ON 31.3.2007. FURTHER, IT WAS OBSERVED THAT THE ASSESSEE HAD GIVEN LOAN OF RS.18, 63,013/- AND ITA NO.1065/AHD/2011 2 ADVANCE OF RS.5,10,00,000/-. THE AO NOTED THAT THE ADVANCE OF RS.5.10 CRORES WAS GIVEN FOR PURCHASE OF MAFATLAL INDUSTRIE S LTD., BUT THE DEAL HAD NOT MATERIALIZED AS THE ASSESSEE HAD NOT TAKEN LEGAL POSSESSION OF THE SAID PROPERTY TILL DATE. SINCE THE ASSESSEE WA S NOT OWNER OF THE MILL, THE ACCORDING TO THE AO, RS.5.10 CRORES PAID COULD NOT BE SAID TO HAVE BEEN FOR THE BUSINESS PURPOSE OF THE ASSESSEE. ACCORDING TO THE AO AS PER THE PROVISO TO SECTION 36(1)(III) INTERES T PAID ON LOAN FOR ACQUISITION OF CAPITAL ASSET IS ALLOWABLE DEDUCTION ONLY WHEN THE ASSET IS PUT TO USE. AS THE ACQUISITION OF MILL FROM MAFATL AL INDUSTRIES LTD. HAD NOT FINALIZED, THEREFORE, THE CONCERNED CAPITAL ASS ET HAS NOT BEEN PUT TO USE, AND THEREFORE, HE MADE DISALLOWANCE OF PROPORT IONATE INTEREST EXPENDITURE OF RS.20,97,961/-. 4. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF TH E AO. 5. THE AR OF THE ASSESSEE FILED BEFORE US A COPY OF THE ORDER OF THIS TRIBUNAL PASSED IN THE CASE OF THE ASSESSEE ITSELF IN THE ASSTT.YEAR 2005-06, 2006-07 AND 2009-10 IN ITA NO.548/AHD/2011 AND 1598 & 1599/AHD/2012 VIDE CONSOLIDATED ORDER DATED 1/10/20 14 AND SUBMITTED THAT BY THIS ORDER THE TRIBUNAL HAD DECIDED A VERY SAME ISSUE AGAINST THE ASSESSEE. THEREFORE, THE APPEAL OF THE ASSESSE E IS LIABLE TO DISMISSED. 6. WE FIND THAT THE TRIBUNAL VIDE ITS ORDER DATED 1 .10.2014 AT PAGE NO.8, PARA-9 HELD AS UNDER: 9. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE SIDE S AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BEL OW IN THE LIGHT OF COMPILATION FILED BEFORE US. WE HAVE CAREFULLY PERU SED THE CASE LAW CITED. A PROVISO HAS BEEN INSERTED IN SECTION 3 6(1)(III) W.E.F. 1.4.2004 FINANCE ACT 2003 WHICH READS AS UNDER: PROVIDED THAT NAY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EX TENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZE D IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE ITA NO.1065/AHD/2011 3 DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISIT ION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIR ST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTIONS. 9.1 THE PURPOSE OF THE BORROWING HAS TO BE DETERMIN ED ON THE FACTS OF EACH CASE. THEN THE USE OF THE CAPITAL BOR ROWED IS REQUIRED TO BE EXAMINED. FROM A.Y. 2004-05 THE BORR OWING IS SHOWN SPECIFICALLY FOR THE PURPOSE OF ACQUIRING A C APITAL ASSET. SO, THE OUTCOME OF THIS PROVISO IS THAT THE INTEREST WO ULD NOT BE ADMISSIBLE FOR DEDUCTION TILL DATE THE NEW ASSET IS BROUGHT TO USE. AN OPTION IS AVAILABLE TO THE ASSSEE TO CAPITALIZED THE INTEREST AMOUNT. THE EFFECT OF THE PROVISO TO SECTION 36(1) (III) INSERTED WITH THE FACT OF 2004-05 IS TO DISALLOW INTEREST ON MONEY BORROWED FOR ACQUIRING CAPITAL ASSET TILL THE DATE ON WHICH THE ASSET IS BROUGHT TO USE; EVEN IF IT IS FOR EXPANSION OF EXIS TING BUSINESS. AS PER OUR HUMBLE UNDERSTANDING, THE LAW HAD ALWAYS MA DE A DIFFERENCE BETWEEN MONEY BORROWED FOR EXISTING BUSI NESS, WHETHER IT IS FOR EXPANSION OR OTHERWISE, WITH THAT THE MONEY BORROWED FOR SETTING UP AN ALTOGETHER NEW BUSINESS. HOWEVER, NOW AS PER THIS INSERTION OF THE PROVISO THE REVENU E DEPARTMENT FELT THAT THE EXPANSION OF BUSINESS SHOULD BE PUT O N PAR WITH A NEW BUSINESS AND THAT INTEREST ON BORROWING FOR CAP ITAL ASSET FOR THE PURPOSES OF EXPANSION SHOULD ALSO BE TREATED AS PART OF CAPITAL EXPENDITURE IN THE CASE OF HINDUSTAN ZINC L IMITED, 269 ITR 369, IT WAS HELD AS UNDER: (CAPTION REPRODUCED) THE PROVISO INSERTED TO CLAUSE (III) OF SUB-SECTIO N (1) OF SECTION 36 OF THE INCOME-TAX ACT, 1961, THAT THE IN TEREST PAID ON THE BORROWINGS FOR EXPANSION OF BUSINESS SH OULD NOT BE ALLOWED UNLESS THE NEW ASSETS ARE PUT TO USE HAS BEEN MADE EFFECTIVE FROM APRIL 1, 2004. THE ASSESSEE CLAIMED DEDUCTION OF THE INTEREST ON T HE AMOUNT BORROWED BY IT FOR EXPANSION OF ITS BUSINESS FOR THE ASSESSMENT YEAR 1991-92. THE PRAYER WAS REJECTED, H OLDING THAT AS THE ASSETS WERE NOT PUT IN USE, THE AMOUNT OF INTEREST COULD NOT BE ALLOWED AS REVENUE EXPENDITUR E. THE TRIBUNAL ALLOWED THE CLAIM HOLDING THAT WHEN THERE IS EXPANSION OF BUSINESS, WHETHER THE ASSETS ARE PUT T O USE IS IRRELEVANT. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL THAT ONCE A LOAN HAS BE EN TAKEN FOR THE PURPOSE OF EXPANSION OF BUSINESS, THE INTER EST SO PAID IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE A CT. SINCE THE PROVISO WAS INSERTED UNDER CLAUSE (III) OF SUB SECTION (1) OF SECTION 36 OF THE ACT ONLY WITH EFFECT FROM APRI L, 2004, THE ASSESSEE WAS ENTITLED TO THE DEDUCTION FOR THE ASSESSMENT YEAR 1991-92. ITA NO.1065/AHD/2011 4 9.2 THE UNDISPUTED FACT IS THAT IN TERMS OF THE AGR EEMENTS, WHICH ARE PLACED ON RECORD; THE ASSESSEE APPL HAS AGREE D TO PURCHASE THE SAID UNIT. THE AGREEMENT DATED 21ST DAY OF MAY, 2003 HAS CLEARLY MENTIONED THAT MIL DESIRED TO TRANSFER AND APPL HAD DESIRED TO PURCHASE THE SAID UNIT WITH A CLEAR AND MARKETABLE TITLE. FROM THIS AGREEMENT, IT IS ALSO EVIDENT THAT MIL HAD ONLY PERMITTED APPL AS LICENSEE TO ENTER UPON THE SAID U NIT TILL THE COMPLETION OF SALE. WHICH MEANS THAT THE PROCESS OF TRANSFER OF THE PROPERTY WAS GOING ON AT THE TIME WHEN THOSE AG REEMENTS WERE SIGNED, THE ASSESSEE WAS IN THE PROCESS OF ACQ UIRING THE SAID UNITS, (AN ASSET) DURING THE RELEVANT PERIOD. THERE FORE, THE AO WAS OF THE VIEW THAT AN EXPENDITURE INCURRED, SUCH AS INTEREST EXPENDITURE, WAS REQUIRED TO BE CAPITALIZED FOR THE PERIOD DURING WHICH THE CAPITAL ASSET HAS NOT BEEN TRANSFERRED IN THE NAME OF THE ASSESSEE. A SERIOUS OPTION HAS BEEN RAISED BY T HE AO THAT HAD THIS PROPERTY WAS OWNED BY THE ASSESSEE APPL, THE N IT SHOULD HAVE BEEN DISCLOSED IN THE BALANCE SHEET UNDER THE SCHEDULE OF ASSETS, BUT IT WAS NOT SO. REASONS GIVEN BY THE AO FOR THE IMPUGNED DISALLOWANCE APPEARS TO BE SUSTAINABLE IN THE EYES OF LAW. 9.3 AS FAR AS THE DECISION OF CORE HEALTH CARE LTD. 298 ITR 194 (SC) IS CONCERNED THE ACTION OF THE AO FOR DISALLOW ANCE OF INTEREST IN RESPECT OF BORROWINGS UTILIZED FOR PURPOSE OF AC QUIRING MACHINERY ACCORDING TO US WAS JUSTIFIABLE. ON CAREF UL PERUSAL OF THE SAID WE HAVE NOTED THAT THE HONBLE COURT HAS S PECIFICALLY OBSERVED THAT THE PROVISO INSERTED IN SECTION 36(I) (III) BY THE FINANCE ACT 2003 W.E.F. 1.04.2004, WILL OPERATE PRO SPECTIVELY. THEREFORE THE LAW LAID DOWN IS SQUARELY APPLICABLE FOR THE YEARS UNDER APPEAL. FEW OTHER DECISIONS ARE RELIED UPON B Y LEARNED AR IN MYSORE MINERALS (SUPRA); BUT IN THAT CASE THE CO RE ISSUE WAS ABOUT THE MEANING OF THE TERM OWNER FOR THE PURPO SE OF APPLICABILITY OF SECTION 32 OF THE ACT. ON THE OTHE R HAND, WE HAVE TO SEE THE APPLICABILITY OF THE PROVISO ANNEXED TO SECTION 36(I)(II) THAT WHETHER INTEREST IS ALLOWABLE IN RESPECT OF MO NEY BORROWED FOR ACQUISITION OF AN ASSET. THEN, THE APPELLANT HAS CITED THE CASE LAW OF BRIGHT AUTOMOBILES AND PLASTICS LTD. (S UPRA) TO EXPLAIN THE DEFINITION OF TERM ACQUIRING IS FOR THE PURPO SE OF SEC.35AB AND HELD THAT ASSESSEE NEED NOT BECOME ABSOLUTE OWN ER OF KNOW- HOW. WE ARE OF THE VIEW THAT THERE IN POINT IN MIXI NG UP THE ISSUE WITH THE OTHER PROVISIONS OF IT ACT AND TO BE STRIC TLY DECIDED IN THE LIGHT OF THE LANGUAGE OF SECTION 36(I)(III) TO BE R EAD ALONGWITH THE PROVISO INSERTED BY THE STATUTE. EXACTLY THIS WAS O PINED BY THE HONBLE SUPREME COURT IN THE CASE OF CORE HEALTH CA RE LTD. (SUPRA) THAT SECTION 36(I)(III) HAS TO BE READ ON I TS OWN TERMS BECAUSE IT IS A CODE BY ITSELF. THEREFORE; FINALLY WE HEREBY CONCLUDE THAT THE DISALLOWANCE WAS RIGHTLY MADE BY THE REVENUE ITA NO.1065/AHD/2011 5 DEPARTMENT IN ALL THE YEARS HENCE CONFIRMED. RESULT ANTLY GROUNDS ARE DISMISSED. 7. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, THE GROUND OF THE APPEAL OF THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 13 TH MARCH, 2015 AT AHMEDABAD. SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER