DCIT, Panchkula V. M/s Haryana State Electronics Development Corporation Ltd., Chandigarh

ITA 1105/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5045 (ITAT-CHANDIGARH)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 22-02-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 28-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI SARANGA L
• Assessee Lawyers: B K NAHARIA
• Keywords: Capital asset; Earning of tax free income; Proportionate interest; Tangible material
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.1056/CHD/2016 ASSESSMENT YEARS: 2013-14 HARYANA STATE ELECTRONICS VS. ACIT DEVELOPMENT CORPORATION LTD. PANCHKULA CIRCLE SCO 111-13 SECTOR 17-B SECTOR-2 , PANCHKULA CHANDIGARH PAN NO. AABCH1532Q ITA NO.1105/CHD/2016 ASSESSMENT YEARS: 2013-14 DCIT, VS. M/S HARYANA STATE ELECTRONICS PANCHKULA CIRCLE DEVELOPMENT CORPORATION LTD. PANCHKULA SCO, 111-113, SECTOR-17B, CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. B. K. NAHARIA DEPARTMENT BY : : SHRI. RAVI SARANGAL DATE OF HEARING : 04/07/2017 DATE OF PRONOUNCEMENT : 26/07/2017 ORDER PER DR. B.R.R. KUMAR, AM THE PRESENT APPEAL FILED BY THE ASSESSEE AND CROSS APPEAL FILED BY THE REVENUE ARE AGAINST THE COMMON ORDER OF LD. CIT(A), PANCHKULA DT. 14/09/2016. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUND: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING THE ADDITION OF RS. 1,24,98,454/- OUT OF TOTAL DISALLOWANCE OF RS. 1,26,12,258/- UNDER SECTION 41 OF THE INCOME TAX ACT, 1961 AS UNEXPLAINED LIABILITY WITHOUT ANY VERIFICATION FOR CESSATION OF THE SAID LIABILITY THOUGH THE APPELLANT CLAIMS IT IS STILL PAYABLE. 2 BRIEF FACTS: 3. DURING ASSESSMENT PROCEEDINGS, THE AO NOTED FROM PARA 6(IV) OF THE AUDITOR'S REPORT THAT LIABILITY UNDER THE HEAD 'OTH ER CURRENT LIABILITIES' ON ACCOUNT OF FOLLOWING PAYMENTS WERE ACTUALLY NOT PAY ABLE. I). SOLAR SYSTEM IN HARYANA (DNES, DST) R S.L 1,63,174/- II) AMOUNT RECEIVED FROM ALLOTTEES RS.1,13,804/- III) PENDING FOR ADJUSTMENT ON A/C OF HTVL RS.9,95, 246/- IV) 11 TH NATIONAL CONFERENCE RS.93,71,034/- V) IAG HARYANA RS.9,69,000/- 4. BASED ON THE OBSERVATION OF THE AUDITOR OF ACCOUNTS IN THE NOTES, THE ABOVE LIABILITIES AS BEING NON PAYABLE T HE A.O. TREATED THE ENTIRE AMOUNT OF RS.L 26,12,258 AS INCOME U/S 41 OF THE ACT AND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. 5. AGGRIEVED THE ASSESSEE APPEALED BEFORE THE LD.CIT(A )CIT(A)WHO HELD THAT, ON PERUSAL OF THE REPLY SUBMITTED BEFORE THE AO, IT IS NOTED THAT THE APPELLANT PROVIDED REASONS FOR OUTSTANDING LIABILIT IES. I) REGARDING THE LIABILITY OF RS.L 1,63,174/-, IT W AS SUBMITTED THAT THE AMOUNT WAS WITHHELD DUE TO DISPUTE OF SUPPLY AND IT IS PAYABLE AS THE, MATTER HAS STILL NOT BEEN SETTLED. II) REGARDING THE AMOUNT OF RS.L, 13,840/- RECEIVED FROM AN ALLOTTEE OF MODULE HAS BEEN REFUNDED IN SUBSEQUENT YEAR. III) REGARDING THE AMOUNT OF RS.9,95,246/- PENDING FOR ADJUSTMENT WITH HTVL, THE ACCOUNTS ARE YET TO BE SETTLED WITH THE P ARTY. IV) REGARDING THE AMOUNT OF RS. 93,71,034/- RECEIV ED ON ACCOUNT OF 11 TH NATIONAL CONFERENCE FROM STATE GOVERNMENT WILL BE E ITHER SPEND IN SUBSEQUENT YEAR OR WILL BE REFUNDED TO THE STATE GO VERNMENT. V) REGARDING THE AMOUNT OF RS. 9,69,000/- PAYABLE T O INDUSTRIAL ASSISTANT GROUP HARYANA, THE LIABILITY IS PENDING FOR SETTLEM ENT OF ACCOUNT. 3 7. LD. CIT(A) AFTER CONSIDERING THE FACTS AND APPEL LANT SUBMISSION MADE BEFORE THE AO AS WELL AS DURING THE APPELLATE PROCE EDINGS HELD THAT THE AUDITOR HAS MADE A CATEGORICAL OBSERVATION ON THE B ASIS OF AUDIT OF ACCOUNT THAT SUCH LIABILITIES UNDER THE HEAD 'CURRENT LIABI LITIES' WERE ACTUALLY NOT PAYABLE. SUCH AUDIT ACCOUNT IS ALSO SIGNED BY THE C HAIRMAN, MD AND DGM(F&A) OF THE CORPORATION ON BEHALF OF THE BOARD OF DIRECTORS ACCEPTING THE CORRECTNESS OF THE AUDITED ACCOUNT. HAD THERE B EEN ANY MISTAKE ON THE PART OF THE AUDITOR, THE SAME WOULD HAVE BEEN RECTI FIED BY THE MANAGEMENT OF THE CORPORATION. THE AUDITOR IN HIS WISDOM HAS O BSERVED ABOUT SUCH LIABILITIES NOT FOUND TO BE PAYABLE ON THE BASIS OF INTERNAL DOCUMENTS. THE COUNSEL FOR THE APPELLANT NEITHER DURING THE ASSESS MENT PROCEEDING NOR DURING THE APPELLATE PROCEEDINGS HAVE PROVIDED ANY EVIDENC E IN SUPPORT OF ITS CONTENTION THAT THE AMOUNTS WERE PAYABLE SUBJECT TO ADJUSTMENTS AFTER RESOLUTION OF DISPUTE IF ANY. THE ONLY EVIDENCE REG ARDING THE REFUND OF AMOUNT MADE TO MS. SUSHMA CHAWLA UNDER ITEM NO. 2 FOR AMOU NT RECEIVED FROM ALLOTTEES WAS PROVIDED DURING THE APPELLATE STAGE W HICH SHOWS THAT THE AMOUNT WAS REFUNDED AS PER SANCTION ISSUED IN SEPTE MBER, 2014. IF THERE WOULD HAVE BEEN ANY OTHER EVIDENCE, THE SA ME WOULD HAVE BEEN PROVIDED FOR ITS CLAIM. REGARDING THE PROVISIONS U/ S 41(1), IT IS FOUND THAT THE AMOUNTS UNDER ITEM NO. 1, 3 & 5 ARE ON ACCOUNT OF T RADING ACTIVITY WHERE THE PAYMENT OF EXPENSES ARE CLAIMED UNDER DISPUTE OR AD JUSTMENT. THE BENEFIT TO THE APPELLANT MAY ACCRUE IN ANY MANNER AND NEED NOT BE IN CASH IN SUBSEQUENT YEAR. REGARDING THE AMOUNT RECEIVED ON A CCOUNT OF 11 TH NATIONAL CONFERENCE, THE COUNSEL SUBMITTED THAT THE SAME IS KEPT WITH THE APPELLANT FOR CONFERENCE EXPECTED TO BE HELD IN SUBSEQUENT YE AR OR TO BE REFUNDED TO THE STATE GOVERNMENT. HOWEVER, THE APPELLANT HAS NO T PROVIDED ANY EVIDENCE REGARDING UTILIZATION OF SUCH AMOUNT FOR A NY CONFERENCE OR REFUND TO THE STATE GOVERNMENT EVEN AS ON DATE IN SEPTEMBER, 2016. THE APPELLANT IS RECEIVING VARIOUS FUNDS FROM THE STATE GOVERNMENT W HICH IS ACCOUNTED IN ITS BOOKS OF ACCOUNT. HOWEVER, NO TREATMENT ABOUT ITS U TILIZATION OR REFUND IS SHOWN BY ANY DOCUMENTARY EVIDENCE. THE APPELLANTS RELIANCE ON THE DECISION OF HONBLE ITAT, MUMBAI BENCH IN KRISHAN G OPAL RUNGTA (SUPRA) IS DISTINGUISHABLE ON THE FACTS OF THE INSTANT CASE AN D THEREFORE, NOT APPLICABLE. THEREFORE, IN VIEW OF THESE FINDINGS, CIT(A) VIEW T HAT THE CURRENT LIABILITIES WERE LIABLE TO TREATED AS INCOME AS PER PROVISIONS OF SE CTION41(1) OF THE ACT. 4 THE AO NEED NOT FURTHER VERIFY ABOUT THE CESSATION OF LIABILITIES IN THE ABSENCE OF PROPER EXPLANATION SUPPORTED BY EVIDENCES. IN VI EW OF ABOVE FACTS, THE LIABILITY ON ACCOUNT OF AMOUNT RECEIVED FROM ALLOTT EES OF RS. L,13,804/-WHICH WAS REFUNDED IN SUBSEQUENT YEAR IS EXCLUDED FROM TH E TOTAL CURRENT LIABILITIES WHICH WERE FOUND TO BE NOT PAYABLE. THEREFORE, THE AO WAS JUSTIFIED IN MAKING ADDITION OF SUCH CURRENT LIABILITIES OF RS. 1,24,98,454/- (1,26,12,258 - 1,13,804). THIS GROUND OF APPEAL IS PARTLY ALLOWED. THE AO HAS ALREADY RAISED QUERY TO THE APPELLANT TO EXPLAIN ABOUT THE CURRENT LIABILITIES. SO THE ONUS LIES ON THE APPELLANT TO EXPLAIN THAT THE LIABILITIES WE RE STILL PAYABLE. 8. BEFORE US THE LD. AR REITERATED THE ARGUMENTS TAKEN BEFORE THE LOWER AUTHORITY AND ARGUED THAT THE LIABILITIES ARE ALIVE AND DISPUTE ARE GOING IN CASE CERTAIN SUPPLIES. 9. THE LD. CIT(A), DR WAS ARGUED THAT THE ASSESSEE COU LD NOT GIVEN ANY DETAIL TO PROVE THE EXPLANATION OF THIS LIABILITY A ND ARGUED THAT THE AUDIT REPORT HAS BEEN DULY SIGNED WHILE FILING THE RETURN . 10. WE HAVE GONE THROUGH THE RECORD AND FOUND THAT COMP LETE DETAILS WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER. TH E LD.CIT(A) ALSO HELD THE VIEW THAT NO TANGIBLE MATERIAL WAS SUBMITTED BEFORE THE ASSESSING OFFICER. BEFORE US THE ASSESSEE SUBMITTED THAT HE WOULD BE A BLE TO PRODUCE ALL DOCUMENTS IN SUPPORT OF PAYABILITY OF THESE LIABILI TIES. HENCE IT IS HEREBY DECIDED TO SET ASIDE ISSUE OF EXAMINATION OF EVIDEN CES /DOCUMENTS PERTAINING TO THE LIABILITIES TO THE FILE OF THE AO TO EXAMINE IN DETAIL AND TAKE A DECISION ON ALLOWING THE LIABILITIES. THE ASSESSEE IS ALSO HEREBY DIRECTED TO FURNISH ALL THE DOCUMENTARY EVIDENCE IN SUPPORT OF HIS CLAIM FOLLOWING WHICH THE AO WOULD BE AT LIBERTY TO TAKE A DECISION. 11. NOW WE SHALL DEAL WITH THE APPEAL FILED BY THE DEPA RTMENT IN ITA NO. 1105/CHD/2016: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ID. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESJSEE AND DELETE T HE ADDITION OF RS. 3,26,085/- ON ACCOUNT OF PRIOR PERIOD EXPENSES WHICH IS NOT AS PE R LAW BECAUSE THE SAME IS NOT ALLOWABLE TO THE ASSESSEE AS THE ASSESSEE HAS FOLLO WED MERCANTILE SYSTEM. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ID. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE AND DELETE TH E ADDITION OF RS. 1,33,610/- ON ACCOUNT OF DISALLOWANCE U/SJ 14A WHICH IS NOT AS PE R LAW BECAUSE THE SAME IS NOT ALLOWABLE TO THE ASSESSEE AS THE! ASSESSEE HAS MADE INVESTMENTS AND OTHER HAND ASSESSEE HAS PAID INTEREST. 5 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE AND DELETE TH E ADDITION OF RS. 75,07,711/- WHICH IS NOT AS PER LAW BECAUSE THE SAME IS NOT ALL OWABLE TO THE ASSESSEE AS THE ASSESSEE; HAS SHOWN RS. 6,25,64,264/- ON ACCOUNT OF MACHINERY WORK IN PROGRESS ON OTHER HAND THE ASSESSEE HAS INCURRED HUGE INTERE ST ON VARIOUS LOANS OF RS. 1,85,78,612/-DURING THE YEAR ' 4. WHETHER ON THE FACTS AND TIRCURNSTANCES OF THE C ASE THE LD. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE AND GIVEN THE RELIEF OF RS. 1,13,804/- ON ACCOUNT OF UNEXPLAINED LIABILITY WHICH IS NOT AS PE R LAW. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF RS. 33000/- ON ACCOUNT OF STIPEND PAYABLE WHICH IS NOT CORRECT BECAUSE THE SAME IS NOT SHOWN IN THE ITR FOR THE A.Y. 2014-15. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS ERRED TO ALLOWED THE APPEAL OF THE ASSESSEE AND DELETE TH E ADDITION OF RS. 77,77,517/- WHICH IS NOT AS PER LAW BECAUSE THE SAME IS NOT ALL OWABLE TO THE ASSESSEE AS ASSESSEE HAS GIVEN ADVANCE TO HSIIDC FOR LAND AMOUN TING TO RS. 6,48,12,645/- AS SHOWN IN NOTE '.. 11 SHORT TERM LOANS AND ADVANCES. 12. GROUND NO. 1 RELATES TO DELETION OF RS. 3,26,08 5/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. 13. BRIEF FACTS OF THE CASE ARE THAT DURING ASSESSM ENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSED HAS DEBITED TO THE P&L ACC OUNT FOR PRIOR PERIOD EXPENSES UNDER THE HEAD NOTE -19 OTHER EXPENSES OF RS.3,26,085/-. THE AO ASKED THE ASSESSEE AS TO WHY THESE EXPENSES SHOULD NOT BE DISALLOWED. THE AO OBSERVED THAT THESE PRIOR PERIOD EXPENSES OF RS. 3,26,085/- WERE NOT RELATED TO THE CURRENT YEAR AND AN ADDITION OF RS.3 ,26,085/-WAS MADE TO THE RETURNED INCOME. 14. DURING THE PROCEEDINGS BEFORE THE LD.CIT(A), IT WAS SUBMITTED THAT AS REGARD PRIOR PERIOD EXPENSES AS SHOWN IN NOTE NO. 1 9 OTHER EXPENSES THE FOLLOWING DOCUMENTS WAS SUBMITTED BEFORE THE AO : I) WATER EXPENSES REIMBURSED TO THE LANDLORD, MR. JATINDER SINGH AS PER HIS REQUEST 16.09.2012. IT IS CLEAR THAT THE EXPENSES H AS BEEN CLAIMED BY THE LANDLORD DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY HAS ARISEN DURING THE YEAR AND RELATES TO THE YEAR UNDER CONSIDERATION. II) TELEPHONE/INTERNET EXPENSES OF RS.596/-, IT HAS BEEN RECEIVED DURING THE YEAR AND PAID DURING THE YEAR. ACCORDINGLY IT HAS A RISEN DURING THE Y AND RELATES TO THE YEAR UNDER CONSIDERATION. III) RS.2,97,352/- IS THE INTEREST SHOWN AS PRIO R PERIOD EXPENSES IS ACTUALLY EXCESS PROVIDED BY THE ASSESSEE DURING THE F.YS. 2010-11 A ND 2011-12 BY MISTAKE IN CALCULATION ON ACCRUAL ACCOUNTING I.E. MERCANTILE S YSTEM OF ACCOUNT IN RESPECT OF INTEREST RECEIVABLE AND HAS ALREADY PAID THE INC OME TAX IN THAT FINANCIAL YEARS AND SINCE THE ASSESSEE HAS ALREADY DISCLOSED THE SA ME AS INCOME IN THAT FINANCIAL YEAR IT HAS REVERSED THE ENTRIES DUE TO N ON RECEIPT OF THE INTEREST DURING THE YEAR UNDER CONSIDERATION AND IF DISALLOWED THE SAME WILL AMOUNT TO DOUBLE TAXATION ONCE IN THE YEAR OF RECEIPT SHOWN AND J ONCE IN THE YEAR OF REVERSAL. 6 15. THE LD. CIT(A) DELETED THE ADDITION ON THE GROU ND THAT THIS EXPENSES GAVE CRYSTALLIZED DURING THE YEAR AND SOME WERE ALL OWABLE AS EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. 16. BEFORE US LD. DR RELIED ON THE ASSESSMENT ORDER . 17. THE LD. DR ARGUED THAT THESE AMOUNTS ARE INFACT EXCESS PROVIDED BY THE ASSESSEE ON ACCOUNT OF INTEREST DURING FY 2010- 11 AND 2011-12 TO THE TUNE OF RS. 2,97,352/- AND THE REMAINING AMOUNT IS ON AC COUNT OF WATER AND TELEPHONE EXPENSES FOR WHICH THE BILLS HAVE BEEN RE CEIVED DURING THE YEAR. HENCE IT IS HELD THAT THE AMOUNTS WHICH HAVE BEEN R IGHTLY CLAIMED IN THE CURRENT YEAR AND NO INTERFERENCE IS CALLED FOR ON T HE ORDER OF THE LD. CIT(A) ON THIS GROUND. 18. GROUND NO. 2 RELATES TO ADDITION OF RS. 1,33,6 10/- UNDER SECTION 14A. 19. THE AO NOTED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS O RS. 1,14,88,000/- AND ON THE OTHER SIDE, ASSESSEE HAS S HOWN OUTSTANDING SECURED LOAN FROM BANKS AND PAID HUGE INTEREST ON LOANS. TH E AO ASKED THE ASSESSEE AS TO WHY EXPENSES RELATED TO INCOME COVERED U/S 14 A SHOULD NOT BE DISALLOWED. IN THE ABSENCE OF ANY JUSTIFICATION, TH E AO AFTER MAKING REFERENCE TO CBDT CIRCULAR NO.5/2014 CONCLUDED THAT THE PROVI SIONS OF SECTION 14A WAS APPLICABLE EVEN IN THOSE CASES WHERE THE EXEMPT INC OME DID NOT ARISE DURING THE YEAR ON THE INVESTMENTS. ACCORDINGLY, TH E DISALLOWANCE OF RS. 1,33,610/- U/S 14A WAS MADE AS COMPUTED IN PARA 3.1 OF THE ASSESSMENT ORDER AND ADDED TO THE INCOME 20. LD. CIT(A) ON PERUSAL OF THE BALANCE SHEET NOTI CED THAT THAT THE INVESTMENT SHOWN UNDER NON-CURRENT INVESTMENTS AS I N NOTE NO. 7 WERE MADE IN EARLIER YEARS IN EQUITY INSTRUMENTS OF OTHER COM PANIES. THERE WAS NO FRESH INVESTMENT MADE DURING THE YEAR. NO DIVIDEND OR ANY EXEMPT INCOME HAS BEEN SHOWN BY THE APPELLANT DURING THE YEAR NOR THE AO HAS RECORDED ABOUT ANY EXEMPT INCOME RECEIVED DURING THE YEAR. THE INT EREST EARNED SHOWN UNDER OTHER INCOME IS MORE THAN THE INTEREST DEBITE D IN THE P&L ACCOUNT. SINCE, THERE IS NO EXEMPT INCOME EARNED DURING THE YEAR AND NO INTEREST EXPENDITURE HAS BEEN INCURRED ON ANY LOAN, THEREFOR E, THE AO WAS NOT JUSTIFIED FOR INVOKING THE PROVISIONS OF SECTION 14 A FOR DISALLOWANCE OF EXPENDITURE ON INVESTMENTS WHICH WERE MADE IN EARLI ER YEARS. THUS, THE DISALLOWANCE OF RS. 1,33,610/- IS DELETED. 21. WE HAVE GONE THROUGH THE FACTS ON RECORD, SINCE NO EXEMPT INCOME WAS EARNED DURING THE YEAR AND NO INTEREST EXPENDIT URE HAS BEEN INCURRED ON 7 ANY LOAN THE ADDITION MADE IS NOT CALLED FOR AND TH E APPEAL OF THE REVENUE IS DISMISSED ON THIS GROUND. THE ORDER OF THE CIT(A) I S UPHELD ON THIS GROUND. 22. GROUND NO. 3 RELATES TO DELETION ON ACCOUNT OF MACHINERY WORK IN PROGRESS. 23. DURING THE ASSESSMENT, THE AO NOTED THAT THE AS SESSEE IN THE BALANCE SHEET HAS SHOWN RS.6,25,64,264/- ON ACCOUNT OF MA CHINERY WORK IN PROGRESS ON OTHER HAND THE ASSESSEE HAS INCURRED HUGE INTERE ST ON VARIOUS LOANS OF RS. 1,85,78,61 DURING THE YEAR. THE AO ASKED THE ASSESS EE AS TO WHY INTEREST EXPENSES SHOULD NOT BE DISALLOWANCE AND CAPITALIZED AS THE MACHINERY HAS NOT BEEN USED DURING THE YEAR. THE ASSESSEE DID NOT FILE ANY EXPLANATION IN THIS REGARD. AFTER MAKING REFERENCE OF SECTION 36(1 ), THE AO CONCLUDED THAT IF A CAPITAL ASSET HAS NOT BEEN PUT TO USE THEN THE RE LATED INTEREST EXPENSES SHOULD BE CAPITALIZED. SINCE THE ASSESSEE HAD INCUR RED HUGE INTEREST EXPENSES ON VARIOUS LOANS AND ON OTHER SIDE THE CAPITAL ASSE TS HAS NOT BEEN PUT TO USE DURING THE YEAR, THE AO APPLIED THE PROVISIONS OF S ECTION 36(1) AND RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN M/S ABHISHEK INDUSTRIES LTD., 286 ITR 1. THUS, THE PROPORTIONATE INTEREST OF RS.75,07,711/- @ 12% ON RS.6,25,64,264/- WAS DISALLOWED AND ADDED TO THE RETURNED INCOME. 24. DURING THE PROCEEDING BEFORE THE LD.CIT(A) IT W AS SUBMITTED THAT FROM THE PERUSAL OF THE BALANCE SHEET IT WILL BE OBSERVE D THERE IS NO SECURED OR UNSECURED BORROWING DURING THE YEAR AND IN THE PREV IOUS YEAR. AS PER BALANCE SHEET OF THE APPELLANT-THE CAPITAL WORK IN PROGRESS AS ON 31.03.2012 WAS RS. 5,80,66,791 AND AS ON 31.03.2013 WAS RS.6,2 5,64,264/- WHICH MEANS THERE IS ADDITIONAL PAYMENTS TOWARDS CAPITAL WORK I N PROGRESS OF RS.44,97,473/- DURING THE YEAR UNDER CONSIDERATION. THAT AS PER NO TE 18 FINANCE COST THERE IS INTEREST EXPENSES OF RS. 1,85,78,612/- DURING TH E YEAR. DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT SUBMITTED THE COMPLETE DE TAILS OF THIS EXPENDITURE WITH SUBMISSION DATED 23.12.2015 AS UNDER:-. AS REGARDS INTEREST PAYABLE AGAINST IN GRANT IN AID A SAMPLE COPY OF THE ADMINISTRATIVE APPROVAL DATED 28.03.2008 ISSUED BY THE MINISTRY OF COMMUNICATIONS & INFORMATION TECHNOLOGY GOVERNMENT OF INDIA WAS SUBMITTED. IN PARA (XII) OF THE TERMS AND CONDITIONS OF THE GR ANT-IN-AID IT HAS BEEN STATED THAT: 'THE GRANTEE INSTITUTION SHOULD MAINTAIN SEPARATE A UDITED ACCOUNTS FOR THE PROJECT. IF IT IS FOUND EXPEDIENT TO KEEP A PART OR WHOLE OF THE GRANT IN A BANK ACCOUNT EARNING INTEREST, THE INTEREST, THUS EARNED SHOULD BE REPORTED TO THIS DEPARTMENT. THE INTEREST SO EARNED SHALL BE TREATED AS A CREDIT TO THE GRANTEE TO BE ADJUSTED TOWARDS FUTURE INVESTMENT OF THE GRANT. ' HENCE THE ASSESSEE IS PAYING THE INTEREST AGAINST G RANT IN AID RECEIVED WHEREVER REQUIRED AND IT IS PERTINENT TO NOTE THAT WHEN THE INTEREST IS RECEIVED FROM THE BANK IT IS CREDITED TO INTEREST INCOME WHI CH HAS BEEN SHOWN IN NOTE 8 15 OTHER INCOME RS. 18,66,91,783/- AND TDS IS DEDUC TED BY THE BANK AS PER SECTION 194 A OF THE ACT AND AGAINST THIS INTEREST ON GRANT IN AID HAS BEEN SHOWN AT RS. 1,85,78,612/- IN NOTE 18 FINANCE COST AS IF IT IS DEBITED TO INTEREST INCOME THEN THE RECEIPT CANNOT BE RECONCILED WITH F ORM 26AS AND MOREOVER NO TDS IS DEDUCTIBLE ON INTEREST PAID AGAINST GRANT IN AID TO GOVERNMENT. 25. IT CLEAR THAT THE APPELLANT HAS COMPLIED WITH T HE CONDITION OF GRANT- IN AID AGAINST WHICH THE APPELLANT HAS RECEIVED INTERE ST OF RS. 18,66,91,783/- AS CAN BE VERIFIED FROM NOTE NO. 15 OTHER INCOME. THAT FROM THE PERUSAL OF BALANCE SHEET AS ON 31.03.2013, THE APPELLANT HAS S HARE CAPITAL OF RS.9,85,76,000/- AS PER NOTE NO. 1 AND GENERAL RESE RVE OF RS.48,96,00,269/- AS PER NOTE NO. 2(B) AND THERE IS NO BORROWING AT ALL. THEREFORE, THE APPELLANT HAS NOT BORROWED ANY FUNDS FOR CAPITAL WORK IN PROGRESS . THE APPELLANT RELIED ON THE DECISION OF HON'BLE ITAT, CHANDIGARH BENCH IN I TA NO. 820/CHD/2015 IN VIDEOTEX INTERNATIONAL (P) LTD.DATED 11.08.2016. IN VOKING THE JUDGEMENT OF THE ITAT CHANDIGARH THE LD. CIT(A) HAS DELETED THE ADDI TION. 26. WE HAVE GONE THROUGH THE FACTS OF THE CASE THE AND THE FACTS REVEALS THAT THERE WERE NO BORROWED FUNDS UTILIZED FOR MACH INERY WORK IN PROGRESS THEREFORE THE AO WAS NOT JUSTIFIED IN DISALLOWING T HE PROPORTIONATE INTEREST ATTRIBUTABLE TO CAPITAL WORK IN PROGRESS. IN VIEW O F THE DECISION OF THIS BENCH IN THE CASE OF VIDOTEX INTERNATIONAL (P) LTD. (SUPRA) THE APPEAL OF THE REVENUE ON THIS GROUND STANDS DISMISSED. 27. GROUND NO. 4 RELATES TO DELETION OF RS. 1,13,80 4/- ON ACCOUNT OF UNEXPLAINED LIABILITY. THIS MATTER HAS BEEN DEALT W ITH THE ASSESSEE'S APPEAL ABOVE IN PARA 7 WHERE IN THE LD.CIT(A) DELETED THIS ADDITION BASED ON THE FACT THAT THE AMOUNT HAS BEEN REFUNDED. 28. GROUND NO. 5 RELATING TO ADDITION OF RS. 33,000 /- ON ACCOUNT OF STIPEND PAYABLE. 29. AS PER PARA 6(I) OF THE AUDITOR'S REPORT, THE A O NOTED THAT THE STIPEND PAYABLE OF RS.33,000/- WAS AN EXTINGUISHED LIABILIT Y. THEREFORE, STIPEND PAYABLE SHOWN UNDER THE HEAD CURRENT LIABILITIES WAS TREATE D AS INCOME U/S 41 OF THE ACT AND ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. 30. DURING THE APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE APPELLANT HAS SHOWN THIS AS INCOME IN THE A.Y. 2014-15. IT IS REQUESTED THAT THE ADDITION MADE BY THE LD. AO U/S 41(1) BE D ELETED FOR THE YEAR UNDER CONSIDERATION OR ALLOWED TO BE DELETED FROM THE INC OME SHOWN IN THE A.Y. 2014-15 AFTER DUE VERIFICATION. 9 31. CIT(A) HELD THAT, HAVING GONE THROUGH THE FACTS OF THE CASE AND WRITTEN SUBMISSION FILED BY THE APPELLANT IT IS NOTICED THAT STIPEND PAYABLE OF RS.33,000/- WAS CONSIDERED AN EXTINGUISHED LIABILIT Y AND ACCORDINGLY THE APPELLANT HAS CLAIMED THAT THIS AMOUNT HAS BEEN SHO WN AS INCOME IN A.Y. 2014-15. TO AVOID DOUBLE TAXATION ON THE SAME AMOUN T IN TWO DIFFERENT ASSESSMENT YEARS, THE AO IS DIRECTED TO VERIFY FROM THE RETURN OF INCOME OF A.Y. 2014-15 AND IF THE AMOUNT IS FOUND TO BE OFFERED AS INCOME THEN THE ADDITION ON THIS ACCOUNT IN THE YEAR UNDER CONSIDER ATION NEED TO BE DELETED.. 32. WE HAVE GONE THROUGH THE SUBMISSION AND DETAILS , THE ORDER OF THE LD. CIT(A) THE AO IS HEREBY DIRECTED TO VERIFY THE RECO RD FOR THE AY 2014-15. WE CONCUR WITH THE CIT(A) DIRECTIONS ON THIS GROUND. 33. GROUND NO. 6 RELATES TO DELETION OF RS. 77,77,5 17/- ON ACCOUNT OF INTEREST. 34. THE AO NOTED THAT THE ASSESSEE HAS GIVEN ADVANCE TO HSIIDC FOR LAND AMOUNTING TO RS.6,48,12,645/- AS SHOWN IN NOTE 11 SHORT TERM LOANS AND ADVANCES. THE AO ASKED THE ASSESSEE AS TO WHY INTEREST EXPENSES SHOU LD NOT BE CAPITALIZED AS FIT IS GIVEN FOR ACQUISITION OF C APITAL ASSETS TO HSIIDC. THE ASSESSEE FILED A COPY OF ACCOUNT OF HSIIDC LAND AND SUBMITTED THAT THERE WAS NO BORROWING FROM ANY INSTITUTION OF ANY TYPE. THE AO CONSIDERED THE INTEREST EXPENDITURE OF RS. 1,85,78,612/- DEBITED IN P&L ACC OUNT AS INTEREST PAID ON BORROWED FUND AND APPLIED THE EXPLANATION 8 OF SECT ION 43(1) AND COMPUTED THE PROPORTIONATE INTEREST @ 12% ON THE ENTIRE AMOU NT INVESTED FOR THE LAND ACQUISITION OVER THE YEARS AND THUS DISALLOWED RS.7 7,77,517/- AND ADDED TO THE INCOME. 35. DURING THE PROCEEDINGS BEFORE LD.CIT(A), IT WAS FOU ND FROM THE PERUSAL OF THE BALANCE SHEET THAT THERE IS NO SECURED OR UN SECURED BORROWING DURING THE YEAR AND IN THE PREVIOUS YEAR. AS PER BALANCE S HEET THE ADVANCE GIVEN TO HSIIDC FOR LAND AS ON 31.03.2012 WAS RS.3,90,17,714 AND AS ON 31.03.2013 WAS RS.6,48,12,645/- WHICH MEANS THERE IS ADDITIONAL PA YMENTS TOWARDS LAND OF RS.2,57,94,931/- DURING THE YEAR UNDER CONSIDERATIO N. THAT AS PER NOTE 18 FINANCE COST THERE IS INTEREST EXPENSES OF RS. 1,85 ,78,612/- DURING THE YEAR. DURING THE ASSESSING PROCEEDINGS THE APPELLANT SUBM ITTED THE COMPLETE DETAILS OF THIS EXPENDITURE ON 23.12.2015. HENCE TH E ASSESSEE IS PAYING THE INTEREST AGAINST GRANT IN AID RECEIVED WHEREVER REQ UIRED AND IT IS PERTINENT TO NOTE THAT WHEN THE INTEREST IS RECEIVED FROM THE BA NK IT IS CREDITED TO INTEREST INCOME WHICH HAS BEEN SHOWN IN NOTE T5 OTHER INCOME RS. 18,66,91,783/- AS 10 TDS IS DEDUCTED BY THE BANK AS PER SECTION' 194A OF THE ACT AND AGAINST THIS INTEREST ON GRANT IN AID HAS BEEN SHOWN AT RS. 1,85 ,78,612/- IN NOTE 18 FINANCE COST AS IF IT IS DEBITED TO INTEREST INCOME THEN TH E RECEIPT CANNOT BE RECONCILED WITH FORM 26AS AND MOREOVER NO TDS IS DE DUCTIBLE ON INTEREST PAID AGAINST GRANT IN AID TO GOVERNMENT. THE APPELLANT H AS COMPLIED WITH THE CONDITION OF GRANT IN AID AGAINST WHICH THE APPELLA NT HAS RECEIVED INTEREST OF RS. 18,66,91,783/- AS CAN BE VERIFIED FROM NOTE NO. 15 OTHER INCOME. THAT FROM THE PERUSAL OF BALANCE SHEET AS ON 31.03.2013, THE APPELLANT HAS SHARE CAPITAL OF RS.9,85,76,000/- AS PER NOTE NO. 1 AND GENERAL R ESERVE OF RS.48,96,00,269/- AS PER NOTE NO. 2(B) AND THERE IS NO BORROWING AT ALL. THEREFORE, THE APPELLANT HAS NOT BORROWED ANY FUNDS FOR CAPITAL WORK IN PROGRESS . THE APPELLANT RELIED ON THE DECISION OF HON'BLE ITAT, CHANDIGARH BENCH IN V IDEOTEX INTERNATIONAL (P) LTD. (SUPRA). 36. WE HAVE GONE THROUGH THE RECORDS AND FOUND THAT BAS ED ON THE FACT THAT THERE WERE NO BORROWED FUNDS AND INTEREST DEBI TED PERTAINING TO VARIOUS PROJECTS WHICH WERE CARRIED FROM GRANTS IN AID LEFT FROM THE GOVERNMENT. SINCE NO BORROWED FUND ON WHICH INTEREST EXPENDITURE HAS BEEN INCURRED WERE UTILIZED FOR INVESTMENT IN LAND NO ADDITION ON THIS ACCOUNT IS CALLED FOR, THEREFORE THE APPEAL OF THE REVENUE STANDS DISMISSE D. THE ORDER OF THE CIT(A) IS CONFIRMED HEREWITH. 37. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AN D CROSS APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED ON 26/07/2017 IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUM AR) JUDICIAL MEMBER ACCOUNTANT MEMBER AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DEPARTMENTAL REPRESENTATIVE