Appeal details
Counselvise Citation
[2013] 140 COUNSELVISE.COM (IT) 68456 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
11-09-2013
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2008-2009
Appeal Filed On
26-10-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD ACCOUNTANT MEMBER ITA NO.1106/CHD/2012 ASSESSMENT YEAR : 2008-09 M/S VISHAL PAPER INDUSTRIES P.LTD., VS THE A CIT, VILLAGE KHUSHROPUR, CIRCLE, MAIN ROAD, PATIALA. DISTT. PATIALA. PAN : AACCV-2149L (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 10.09.2013 DATE OF PRONOUNCEMENT : 11.09.2013 O R D E R PER T.R.SOOD, AM THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER DATED 31.08.2012, PASSED BY THE LD. CIT(APPEALS) PA TIALA U/S 250(6) OF THE INCOME-TAX ACT,1961 ( IN SHORT THE A CT ). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUND OF APPEAL : 1. A). THAT THE ORDER PASSED BY THE LEARNED CIT (A) IS AGAINST LAW AND FACTS ON THE FILE. THE PROVISIONS OF SECTION 36 (1) (III) READ WITH ITS PROVISO ARE NOT APPLICABLE IN THIS CASE SINCE THERE IS NEITHER ANY EXTENSION OF EXISTING BUSINESS NOR ANY CAPITAL HAS BEEN BORROWED FOR ACQUISITION O F ANY ASSET. THE ASSESSING OFFICER AND THE LEARNED CIT (A) HAS FAILED TO ESTAB LISH ANY RELATION OR NEXUS WITH ANY CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FO R THE EXTENSION OF EXISTING BUSINESS FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. B). THAT THE LEARNED CIT (A) FAILED TO APPRECI ATE THE WRITTEN SUBMISSIONS MADE DURING THE APPELLATE PROCEEDINGS. THE APPELLANT HAS EXPLAINED THE SOURCE OF PAYMENT FOR ACQUISITION OF ANY OF THESE NEW ASSETS AND 2 THEREBY THE CAPITAL HAS NOT BEEN BORROWED FOR THE A CQUISITION OF THESE NEW ASSETS. OTHERWISE ALSO, THE AMOUNT OF SECURED AS WELL AS UN SECURED LOANS IS LESSER THAN SECURED AND UNSECURED LOANS OF THE PRECEDING ASSESS MENT YEAR. C). THAT THE LEARNED CIT (A) HAS ERRED IN U PHOLDING THE DISALLOWANCE OF INTEREST OF RS. 905280/- UNDER SECTION 36 (1) (I II) READ WITH ITS PROVISO ON THE GROUND THAT INTEREST TO THAT EXTENT PERTAINED TO TH E FIXED ASSETS WORTH RS. 8229819/- UNDER INSTALLATION AT THE CLOSE OF THE FI NANCIAL YEAR. THE DISALLOWANCE IS TOTALLY UNCALLED FOR AS THE ASSESSING OFFICER AN D THE LEARNED CIT (A) HAS MADE THIS DISALLOWANCE ON MERE ASSUMPTIONS OR PRESU MPTIONS WITHOUT ANY CORROBORATING EVIDENCE OR PROOF OF ANY SUCH BORROWI NGS FOR ACQUISITION OF ANY ASSET WHICH IS A PRE-CONDITION FOR APPLICATION OF T HE PROVISO TO SECTION 36 (1) (III) OF INCOME TAX ACT 1961. 3. IN THIS CASE, NOTICE WAS ISSUED THROUGH REGISTER ED POST BUT NONE APPEARED DESPITE NOTICE. THE LD. DR POINT ED OUT THAT ISSUE IS SQUARELY COVERED BY THE ASSESSEE'S OWN CA SE BY THE ORDER OF TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08. THEREFORE, WE PROCEEDED TO HEAR THE APPEAL ON EX-PARTE BASIS. 4. THE LD. DR WAS HEARD. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. DR AND RELEVANT MATERIAL ON RECORD, WE FIND THAT DURING AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASS ESSEE HAS PAID INTEREST ON BORROWED CAPITAL AMOUNTING TO RS.9 2,34,381/-. FURTHER, IT WAS NOTICED THAT DURING THE YEAR, ASSES SEE HAS MADE ADDITION TO CAPITAL ASSETS AMOUNTING TO RS. 2,81,50 ,992/-. THEREFORE, ASSESSEE WAS REQUIRED TO SHOW THAT WHY I NTEREST SHOULD NOT BE DISALLOWED IN VIEW OF THE PROVISO TO SECTION 36(1)(II) OF THE ACT REGARDING INTEREST BEING NOT A LLOWED ON CAPITAL BORROWED FOR ACQUISITION OF ASSET FOR EXTEN SION OF EXISTING BUSINESS. THE ASSESSEE VIDE LETTER DATED 21.12.2010 REPLIED AS UNDER : THE REPLY HAS ALSO BEEN FILED ON 26.11.2010 AND 03. 12.2010. IT IS RESPECTFULLY SUBMITTED THAT THE FIXED ASSETS WOR TH RS. 28150992/- HAD BEEN PURCHASED DURING THE YEAR 2007- 2008 ON CREDIT BASIS FROM THE SUPPLIERS OF CAPITAL GOODS. THE ASSESSEE COMPANY DID NOT MAKE FULL PAYMENT OF RS. 28150992/- TO THE SUPPLIERS REFERRED SUPRA, THE DETAILS OF OUTSTANDING PAYMENTS AS 3 ON 31.03.2008 DUE TO THE SUPPLIERS OF CAPITAL GOODS WERE RS. 9857551/- (DETAILS WITH COMPLETE NAME AND AMOUNT OF THE SUPPLIER ENCLOSED), MEANING THEREBY THAT THE ASSESSEE COMPAN Y MADE PAYMENTS OF RS. 18293441/- AGAINST ADDITION IN FIXE D ASSETS IN THE FINANCIAL YEAR 2007-2008. SECONDLY, THE PAYMENTS OF RS. 1 8293441 /- HAVE BEEN MADE OUT OF OWN FUNDS OF THE C OMPANY. THE ASSESSEE COMPANY RECEIVED PAYMENTS AGAINST GOODS SO LD TO SUNDRY DEBTORS AND ALSO SHARES APPLICATION MONEY RECEIVED FROM THE SHARE HOLDERS. THE DETAILS OF DATE WISE PAYMENTS OF RS. 18293441/- ALONG WITH DATE WISE SOURCE OF FUNDS USE D FOR MAKING THESE PAYMENTS ARE ENCLOSED. THESE DETAILS CLEARLY, SHOW THAT THE ASSESSEE COMPANY DID NOT USE ANY BORROWED FUNDS FOR PURPOSES OF INVESTMENTS IN THE FIXED ASSETS. THE BOOKS OF ACCOU NTS ARE PRODUCED FOR NECESSARY VERIFICATION OF ALL DETAILS WHICH ARE ENCLOSED TO SUBSTANTIATE OUR CLAIM THAT BORROWED FU NDS HAVE NOT BEEN USED IN CAPITAL ASSETS PURCHASED IN THE YEAR U NDER CONSIDERATION. 6. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ABOVE REPLY. HE ALSO OBSERVED THAT THERE IS NO FORCE IN THE PLEA THAT THE BORROWED FUNDS HAD NOT BEEN USED FOR THE PURPOS E OF ACQUISITION OF ASSETS BECAUSE AFTER TAKING INTO CON SIDERATION THE CLOSING STOCK, SUNDRY DEBTORS, SUNDRY CREDITORS , CURRENT ASSETS/LIABILITIES, THE FIRMS WORKING CAPITAL WORK S OUT TO RS. 1,84,92,244/-. THIS SHOWS THAT NEW ASSET COULD NOT BE ACQUIRED WITHOUT BORROWING FUNDS. IN VIEW OF THESE OBSERVATIONS, HE DISALLOWED THE PROPORTIONATE INTER EST WHICH HAS WORKED OUT AS UNDER : TOTAL ASSETS UNDER INSTALLATION - RS. 1,80,87,370/ - LESS SUNDRY CREDITORS ON ACCOUNT - RS. 98,57,551 /- OF CAPITAL ASSETS TOTAL ASSETS UNDER INSTALLATION - RS. 82,29,819/ - INTEREST @ 11% PAID THEREON - RS. 9,05,280/- 7. ON APPEAL, ISSUE WAS DECIDED AGAINST THE ASSESSE E BY LD. CIT(APPEALS) BY FOLLOWING THE ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2007-08. 4 8. BEFORE US, LD. DR HAS FILED COPY OF THE ORDER OF TRIBUNAL DATED 26.03.2012 IN ITA NO. 348/CHD/2011 AND ITA 267/CHD/2011 (A.Y. 2007-08). THIS ISSUE HAS BEEN ADJUDICATED VIDE PARAS 27 TO 29, WHICH ARE AS UNDER : 27. THE AO DID NOT ACCEPT THE CONTENTION OF TH E ASSESSEE AND MADE THE IMPUGNED ADDITION U/S 36(1)(III) AND PROVI SO THEREUNDER. 28. THE ID. CIT(A) DELETED THE IMPUGNED ADDITION, O N THE GROUND THAT THE APPELLANT HAS OWN CAPITAL AS WELL AS BORRO WED FUNDS AND HENCE THE AO'S PRESUMPTION THAT THE BORROWED FU NDS HAVE BEEN UTILIZED FOR PURCHASE OF CAPITAL ASSET IS TOO FAR-F ETCHED CONCLUSION. IT IS, FURTHER, OBSERVED BY THE ID. CI T(A) THAT THE AO PRESUMED THAT OUT OF FUNDS AVAILABLE FROM SECURED AND UNSECURED LOANS, THE APPELLANT MADE PAYMENTS FO R PURCHASE OF ASSETS, EVEN THOUGH THE SAME WAS FAR IN EXCESS OF P ROFITS EARNED. THE ID. CIT(A), FURTHER, OBSERVED AS 'ALSO, INTERES T CANNOT BE DISALLOWED MERELY BECAUSE THE ASSET WAS NEVER USED AND WHERE THE BORROWING HAD BEEN HELD FOR BUSINESS (GIT V. ASSOCIATED FIBRE & RUBBER INDUSTRIES PVT LTD (1999) 236 I TR 471 (SO. IN VIEW OF THIS DISCUSSION MADE THE ADDITION MADE B Y THE AO NEEDS TO BE DELETED.' 29. THIS IS UNDISPUTED FACT THAT THE INTEREST HAS BEEN PAID BY THE ASSESSEE, AS IS EVIDENT FROM PERUSAL OF THE PROFIT AND LOSS ACCOUNT, AS MENTIONED BY THE AO. IT IS ALSO UNDISPUTED FACT THAT THE ASSESSEE HAD PURCHASE ASSETS. THEREFORE, THE PROVISIONS OF S ECTION 36(1)(III) AND PROVISO THEREUNDER, WHICH IS INSERTED W.E.F. 1.4.2004 VIDE FINANCE ACT, 2003 ARE APPLICABLE. IT IS EVIDENT THAT THE INTEREST ON BORROWED CAPITAL CANNOT BE ALLOWED UNLESS SUCH ASSE T WAS FIRST PUT TO USE. IN THE PRESENT CASE, THE ID. CIT(A), HAS PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F ASSOCIATE FIBRE AND RUBBER INDUSTRIES PVT LTD (SUPRA) WHICH R ELATES TO PERIOD PRIOR TO THE INSERTION OF PROVISO TO SECTION 36(1)( III) OF THE ACT. WE ARE DEALING WITH AY 2007-08 WHICH FALLS UNDER THE P ROVISO TO SEC 36(1)(III). IN THIS CONTEXT, THE HON'BLE SUPREME CO URT POINTED OUT IN A BATCH OF CASES IN ACIT V. ARVIND POLICOT LTD V JC IT, 299 ITR 12 (SC), UNITED PHOSPHOROUS LTD (2008) 299 ITR 9 (S.C) AND DCIT V. GUJARAT ALKALIES AND CHEMICALS LTD (2008) 299 ITR 8 5 (SC), HOLDING THAT ITS EARLIER DECISION IN DCIT V. CORE HEALTH CA RE LTD (2008)298 ITR 194 (SC) CONTINUE TO HAVE APPLICATION, FOR PRE- AMENDED PERIOD, FOR AY BEFORE AY 2004-05. SIMILARLY, THE DECISIONS RELIED UPON BY THE ID. CIT(A) ARE APPLICABLE TO THE PRE-AMENDED ER A. IN VIEW OF THIS, THE FINDINGS OF THE ID. CIT(A) ARE CONTRARY T O THE PROVISIONS OF SECTION 36(1)(III) AND PROVISO THEREUNDER, IN THE L IGHT OF THESE, THE LATEST DECISIONS OF THE HON'BLE SUPREME COURT. HAVI NG REGARD TO THE FACTS OF THE CASE AND RELEVANT PROVISIONS OF TH E ACT, AS DISCUSSED ABOVE AS ALSO DECISIONS OF THE HON'BLE AP EX COURT. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. HOWEVER , THE APPELLANT WOULD BE ENTITLED FOR ENHANCED DEDUCTION U/S 80IB, IN RESPECT OF SUCH ADDITION AS HELD IN THE FOREGOING PARAGRAPHS. 5 9. SINCE FACTS IN THE PRESENT CASE ARE IDENTICAL, T HEREFORE, WE DECIDE THE ISSUE AGAINST THE ASSESSEE IN TERMS OF T HE OBSERVATIONS MADE IN PARAS 27 TO 29 IN THE ORDER OF TRIBUNAL FOR EARLIER YEARS. 10. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER,2013. SD/- SD/- (BHAVNESH SAINI) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH SEPTEMBER, 2013. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR ITA T,CHD.
