M/s Bajaj Sons Ltd., Ludhiana V. Addl. CIT, Ludhiana

ITA 1114/CHANDI/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77155 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Capital asset; Depreciation; Capital expenditure
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1114/CHD/2009 ASSESSMENT YEAR : 2006-07 M/S BAJAJ SONS LTD., VS THE ADDL. CIT, C-103, PHASE-V, RANGE-1, FOCAL POINT, LUDHIANA. LUDHIANA. PAN : AAACB6875H (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY : SMT. JYOTI KUMARI DATE OF HEARING : 21.05.2014 DATE OF PRONOUNCEMENT : 19.06.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DA TED 30.09.2009 AGAINST THE ORDER PASSED UNDER SECTION 1 43(3) OF THE INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT ORDER PASSED U/S 250(6) BY THE LD. COMMISSI ONER OF INCOME LAX (APPEALS) IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD ACTION OF THE L D. ASSESSING OFFICER IN DISALLOWING INTEREST ON CAPITAL-WORK-IN PROGRESS A MOUNTING TO RS. 12,805/-. 2. THAT HE WAS FURTHER NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN: A) DISALLOWING A SUM OF RS. 6,95,000/- TOWARDS EXC HANGE DIFFERENCE BY RESORT TO PROVISIONS OF SECTION 43A. 2 B) DISALLOWING A SUM OF RS. 3,05,735/- OUT OF PROCE SSING FEE AGAINST ECB BY WRONGLY TREATING THE SAME AS A CAPIT AL EXPENDITURE. 3. THAT HE FURTHER GRAVELY ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 50,000/- BY RESORT TO PROVISIONS OF SECTION 14A . 3. THE ASSESSEE MOVED AN APPLICATION FOR ADJOURNMEN T WHICH WAS REFUSED AS THE MATTER HAD BEEN ADJOURNED FROM D ATE TO DATE. WE PROCEED TO DECIDE THE PRESENT APPEAL AFTER HEARI NG LD. DR FOR THE REVENUE. 4. THE PERUSAL OF THE MEMO OF APPEAL REFLECTS THAT THE GROUND OF APPEAL NO. 1 AGAINST ADDITION OF RS. 12,805/- WA S NOT PRESSED ON THE EARLIER DATES OF HEARING AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. 5. THE ISSUE IN GROUND NO. 2(A) IS AGAINST DISALLOW ANCE OF RS. 6,95,000/- UNDER THE PROVISIONS OF SECTION 43A OF T HE ACT. 6. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD DEBITED A SUM OF RS .6,95,000/- UNDER HEAD FINANCIAL EXPENSES ON ACCOUNT OF FOREI GN EXCHANGE DIFFERENCE ON ECB. IN REPLY, THE ASSESSEE POINTED OUT THAT THE FOREIGN EXCHANGE DIFFERENCE IS IN ACCORDANCE WITH T HE ACCOUNTING STANDARD AS-II HAD TO BE REPORTED AT EACH BALANCE S HEET DATE USING THE CLOSING DATE AND THE SAME WAS ALLOWABLE AS AN E XPENDITURE. THE ASSESSING OFFICER, HOWEVER NOTED THAT THE FOREIGN EXCHANGE DIFFERENCE CLAIMED UNDER THE HEAD FINANCI AL EXPENSES IS ON ACCOUNT OF ECB LOAN FROM CITI BANK AND LOAN F ROM GE CAPITAL RAISED BY THE ASSESSEE COMPANY AGAINST VARI OUS ASSETS DURING THE YEAR UNDER CONSIDERATION. SINCE THE LOA N FUND RAISED FROM THESE BANKS HAS BEEN UTILIZED FOR THE RAISING OF CAPITAL 3 ASSETS, THE EXPENSES CONNECTED WITH THE RAISING OF CAPITAL ASSETS, THE EXPENSES CONNECTED WITH THE RAISING OF LOAN, TI LL THE ASSET IS FIRST PUT TO USE FOR THE PURPOSE OF BUSINESS HAS TO BE CAPITALIZED. THE ASSESSING OFFICER, THUS TREATED A SUM OF RS. 6, 95,000/- AS A CAPITAL LOSS AND CAPITALIZED THE SAME UNDER THE HEA D PLANT & MACHINERY ON WHICH DEPRECIATION @ 15% WAS ALLOWABLE . HOWEVER, DEPRECIATION @ 7.5% WAS ALLOWED AS THE ASS ET WAS PUT TO USE FOR A PERIOD LESS THAN 180 DAYS AND THE NET ADDITION WAS MADE AT RS. 642,875/-. 7. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE SUBMISSION OF THE ASSESSEE WAS THAT THE LOANS WERE AVAILED MUCH LATER THAN THE DATE OF PUTTING TO USE THE RESPECTIV E ASSETS. AS PER THE LD. AR FOR THE ASSESSEE, AS CONTENDED BEFORE TH E COMMISSIONER OF INCOME TAX (APPEALS), THE PROVISIONS OF SECTION 43A WERE NOT APPLICABLE AS THE EXCHANGE DIFFERENCE WAS NOT ON AC COUNT OF BORROWING FOR THE PURPOSE OF IMPORTED MACHINERY. T HE SAID LOAN WAS TAKEN ONLY TO SAVE THE COST OF INTEREST ON INDI GENOUS BORROWING. THE COMMISSIONER OF INCOME TAX (APPEALS ) RELYING UPON THE PROVISIONS OF SECTION 43A OF THE ACT UPHEL D THE ORDER OF ASSESSING OFFICER AND DISMISSED THE GROUND OF APPEA L. 8. THE ASSESSEE IS AGGRIEVED AND HENCE, THE GROUND NO. 2(A) RAISED BY THE ASSESSEE. 9. ON THE PERUSAL OF RECORD AND THE RELEVANT PROVIS IONS OF ACT, THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELAT ION TO THE DISALLOWANCE COMPUTED UNDER SECTION 43A OF THE ACT. SECTION 43A OF THE ACT IS ATTRACTED WHERE AN ASSESSEE HAS A CQUIRED ANY ASSET IN ANY PREVIOUS YEAR FROM ANY COUNTRY OUTSIDE INDIA FOR THE 4 PURPOSE OF HIS BUSINESS OR PROFESSION AND IN CASE T HE SAID ASSET HAS BEEN ACQUIRED OUT OF FOREIGN BORROWINGS, WHERE THERE IS AN INCREASE OR REDUCTION IN THE LIABILITY OF THE ASSES SEE AS COMPARED TO THE LIABILITY OF THE ASSESSEE AFTER THE ACQUISIT ION OF THE ASSET, AS COMPARED TO THE LIABILITY EXISTING AT THE TIME O F ACQUISITION OF THE ASSET AS COMPARED TO THE LIABILITY AT THE TIME OF MAKING PAYMENT, THEN SUCH LIABILITY IRRESPECTIVE OF THE ME THOD OF ACCOUNTING ADOPTED BY THE ASSESSEE IS TO BE ADDED O R DEDUCTED FROM THE ACTUAL COST OF THE ASSET. THE FIRST CONDI TION PROVIDED UNDER SECTION 43A OF THE ACT IS THAT THE ASSESSEE S HOULD HAVE ACQUIRED ANY ASSET FROM A COUNTRY OUTSIDE INDIA IN ANY PREVIOUS YEAR. THE ASSESSING OFFICER HAD NOTED THAT THE ASS ESSEE HAD RAISED THE SAID ECB LOAN FROM CITI BANK AND FROM GE CAPITAL AGAINST VARIOUS ASSETS DURING THE YEAR. HOWEVER, T HE CASE OF THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME TAX (APP EALS) WAS THAT THE PROVISIONS OF SEC43A WERE NOT APPLICABLE A S THE FOREIGN EXCHANGE WAS NOT ON ACCOUNT OF BORROWING FOR THE PU RPOSE OF IMPORTED MACHINERY. THE ASSESSEE HAS FILED A PAPER BOOK WHICH IS AVAILABLE ON RECORD. HOWEVER, IT IS NOT CLEAR F ROM THE DOCUMENTS AVAILABLE ON RECORD WHETHER THE ASSESSEE HAD UTILIZED THE SAID FOREIGN EXCHANGE FOR THE PURPOSE OF ACQUIS ITION OF MACHINERY FROM ANY COUNTRY OUTSIDE INDIA. INCASE T HE BASIC CONDITION OF ACQUISITION OF ASSET FROM OUTSIDE INDI A IS NOT SATISFIED THEN THE PROVISIONS OF SECTION 43A ARE NO T ATTRACTED. IN ORDER TO CULL OUT THE FACTS, WE DEEM IT FIT TO REST ORE THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DETERMINE THE FACTS OF THE CASE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AF TER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE GROUND OF APPEAL NO. 2(A) IS THUS, ALLOWED FOR STATISTICAL PU RPOSES. 5 10. THE ISSUE IN GROUND NO. 2(B) IS AGAINST THE DIS ALLOWANCE OF RS. 305735/- ON ACCOUNT OF PROCESSING FEE AGAINST T HE ECB LOAN. 11. THIS ISSUE RAISED VIDE GROUND NO. 2(B) IS LINKE D TO THE EARLIER ISSUE RAISED BY THE ASSESSEE. THE MATTER H AS BEEN REMITTED BACK TO THE FILE OF ASSESSING OFFICER AGAINST GROUN D NO. 2(A) IN ORDER TO DETERMINE THE NATURE OF THE ECB LOAN TAKEN BY THE ASSESSEE. IN CASE THE SAID LOAN HAS BEEN TAKEN DUR ING THE COURSE OF CARRYING ON OF THE BUSINESS, THE EXPENDITURE INC URRED ON PROCESSING FEE IS TO BE ALLOWED AS EXPENDITURE IN T HE HANDS OF THE ASSESSEE. HOWEVER, IN CASE THE SAID LOAN IS UTILIZ ED FOR THE ACQUISITION OF ASSETS FROM A COUNTRY OUTSIDE INDIA, THEN THE PROCESSING FEE IS A CAPITAL EXPENDITURE AND THE SAM E IS TO BE CAPITALIZED TO THE COST OF PLANT & MACHINERY. THIS ASPECT ALSO SHALL BE VERIFIED BY THE ASSESSING OFFICER AND THE ISSUE WOULD BE DECIDED IN ACCORDANCE WITH LAW. THE GROUND OF APPE AL NO. 2(B) RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 12. THE GROUND NO. 3 RAISED BY THE ASSESSEE IS AGAI NST DISALLOWANCE OF RS. 50,000/- UNDER SECTION 14A OF T HE ACT. 13. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED DIVIDE ND INCOME OF RS. 279,170/- AND ALSO AGRICULTURAL INCOME OF RS. 4 5,000/-. THE ASSESSING OFFICER IN VIEW OF THE INVESTMENTS MADE B Y THE ASSESSEE INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AN D DISALLOWED A SUM OF RS.1,00,000/- OUT OF GENERAL AND ADMINISTRAT IVE EXPENSES AND FINANCIAL EXPENSES RELATABLE TO EARNING OF EXEM PT INCOME. THE SAID DISALLOWANCE WAS RESTRICTED TO RS. 50,000/ - BY THE COMMISSIONER OF INCOME TAX (APPEALS) AGAINST WHICH THE 6 ASSESSEE IS IN APPEAL. THE YEAR UNDER APPEAL IS AS SESSMENT YEAR 2006-07 AND THE PROVISIONS OF SECTION 8D ARE NOT AP PLICABLE AND IN VIEW THEREOF, WE RESTRICT THE DISALLOWANCE TO RS . 20,000/-. THE GROUND OF APPEAL NO. 3 RAISED BY THE ASSESSEE IS TH US, PARTLY ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JUNE, 2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH JUNE, 2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITAT,CHD.