M/s Shivalik Steels, Chandigarh V. ACIT, Chandigarh

ITA 1117/CHANDI/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2407 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MINKY MITTAL
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES ACHANDIGARH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIA L MEMBER ITA NO. 1117/CHD/2011 ASSESSMENT YEAR:2007-08 M/S SHIVALIK STEELS, V THE ACIT, CIRCLE 2(1), 242, INDUSTRIAL AREA, CHANDIGARH. PHASE-I, CHANDIGARH. PAN NO. AALFS-4272R (APPELLANT) (RESPONDENT) ASSESSEE BY : MS.MINKY MITTAL DEPARTMENT BY: SHRI AKHILESH GUPTA DATE OF HEARING : 13.06.2013 DATE OF PRONOUNCEMENT : 21.6.2013 O R D E R PER SUSHMA CHOWLA, JM THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORDER OF CIT(A), DATED 17.06.2011 RELATING TO ASSESSMENT YEAR 2007-0 8 AGAINST THE ORDER PASSED UNDER SECTION 143(3)/147 OF THE I.T. A CT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE IMPUGNED ORDER IS AGAINST FACTS AND LAW. 2. WORTHY CIT(A) HAS ERRED IN SUSTAINING THE PATENT LY ERRONEOUS ORDER OF THE LD. ASSESSING OFFICER. 3. WORTHY CIT(A) HAS ERRED IN SUSTAINING THE ADDITI ON ERRONEOUSLY MADE BY LD. AO AT RS. 4,08,104/-. 4. WORTHY CIT(A) HAS ALSO ERRED IN SUSTAINING THE ADDITION ERRONEOUSLY MADE BY LD. AO AT RS. 1,560/-. 2 5. WORTHY CIT(A) HAS ERRED IN SUSTAINING THE ADDITION ERRONEOUSLY MADE BY LD. AO ON ACCOUNT OF DISALLOWANCE AT RS. 24,742/-. 6. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ALTER OR ADD TO ABOVE GROUNDS OF APPEAL, BEFORE THE APPEAL IS H EARD AND DISPOSED OFF. 7. IT IS PRAYED THAT THE IMPUGNED ORDER MAY KINDLY BE DROPPED. 3. THE PRESENT APPEAL IS FILED BY THE ASSESSEE AFTE R A DELAY OF 94 DAYS. THE ASSESSEE HAD FURNISHED AN APPLICATION DA TED 23.01.2012 ALONGWITH THE AFFIDAVIT OF SHRI PRADEEP KUMAR, PART NER OF SHIVALIK STEELS DATED 11.04.2012 ON PLAIN PAPER. THE CONTEN TION OF THE ASSESSEE, WITH REGARD TO THE DELAY IN FILING THE AP PEAL BEFORE THE TRIBUNAL WAS AS UNDER : THAT THE AFOREMENTIONED APPEAL IS DIRECTED AGAINST THE ORDERS DATED 17/06/2011 PASSED BY WORTHY CIT(A), CHANDIGAR H. THE ASSESSEE COULD, HOWEVER, NOT PREFER THE SAID APPEAL WITHIN T HE STATUTORY PERIOD OF 60 DAYS AS THE ASSESSEE HAD TO ATTEND TO HIS UNC LE WHO WAS SERIOUSLY ILL AND ULTIMATELY DIED ON 16/10/2011 WHI LE HE WAS HOSPITALIZED AT SIR GANGA RAM HOSPITAL AT NEW DELHI . A COPY OF THE DEATH CERTIFICATE EVIDENCING THE DEATH OF THE UNCLE OF THE ASSESSEE IS ENCLOSED HEREWITH FOR THE KIND PERUSAL OF THIS HON' BLE TRIBUNAL. A STATEMENT OF THE ASSESSEE DATED 23/11/2011 EVIDENCI NG THE AFORESAID IS ATTACHED HEREWITH. 4. AFFIDAVIT DATED 11.04.2012 OF SHRI PRADEEP KUMAR STATING THE ABOVESAID FACTS HAS ALSO BEEN FILED ALONGWITH THE C OPY OF THE DEATH CERTIFICATE. IN THE TOTALITY OF THE ABOVESAID FACT S AND CIRCUMSTANCES, WE CONDONE THE DELAY IN FILING THE PRESENT APPEAL B EFORE THE TRIBUNAL AND PROCEED TO DISPOSE OF THE PRESENT APPE AL. 5. THE ASSESSEE HAS ALSO FILED AN APPLICATION DATED 09.04.2012 UNDER WHICH THE PERMISSION HAS BEEN SOUGHT TO WITHD RAW GROUND OF 3 APPEAL NO. 4 & 5. THE GROUND NOS. 4 & 5 ARE THUS, DISMISSED AS WITHDRAWN. 6. ANOTHER LETTER HAS BEEN FILED BY THE ASSESSEE IN RELATION TO THE ISSUE RAISED VIDE GROUND NO.3. ON THE APPOINTED DA TE OF HEARING I.E. 13.06.2013, THE ASSESSEE HAS FILED WRITTEN SUBMISSI ONS DATED 03.06.2013 IN RESPECT OF GROUND NO.3. 7. THE ONLY ISSUE TO BE ADJUDICATED IS IN RELATION TO THE ADDITION OF RS.4,08,104/-. 8. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE YEAR UNDER CONSIDERATION IN THE BALANCE SHEET, THE ASSES SEE HAD SHOWN BUILDING UNDER CONSTRUCTION AT INVESTMENT OF RS.34, 00,867/-. AS PER THE AO, SINCE THE BUILDING WAS UNDER CONSIDERATION, THE SAME HAS NOT BEEN PUT TO USE. THE ASSESSEE HAD NOT REFLECTE D THE BUILDING UNDER CONSIDERATION IN THE SCHEDULE OF FIXED ASSETS AND HAD NOT CLAIMED ANY DEPRECIATION ON THE SAME. THE AO, IN V IEW OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT INSERTED W .E.F. 01.04.2004 DISALLOWED INTEREST @ 12% ON THE TOTAL INVESTMENT, RESULTING IN ADDITION OF RS.4,08,104/-. RELIANCE WAS ALSO PLACE D ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN ABHISHEK INDUSTRIES V CIT 286 ITR 1 (P&H). 9. THE CIT(APPEALS) VIDE PARA 3.3 UPHELD THE ADDITI ON MADE BY THE AO OBSERVING AS UNDER : 3.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL FOR THE APPELLANT. THE APPELLANT HAD SHOWN THE BUIL DING UNDER CONSTRUCTION IN ITS BALANCE SHEET AND SO EXPL ANATION OF THE APPELLANT THAT IT CONSTRUCTED CONTINUED BUILDIN G IS NOT ACCEPTABLE. THE EXPLANATION OF THE APPELLANT REGARD ING RENOVATION OF EXISTING INDUSTRY ALSO HAS NO MEANING AS THE 4 BUILDING HAS BEEN SHOWN TO BE UNDER CONSTRUCTION. T HERE IS NO FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE AP PELLANT THAT THE INVESTMENT WAS DONE WITHOUT FRESH BORROWIN GS AND PARTNERS/OLD LOANS HAD BEEN UTILIZED, SINCE HON'BLE PUNJAB & HARYANA HIGH COURT HAS HELD IN THE CASE OF ABHISHEK INDUSTRIES LTD. (286 ITR 1) THAT ALL THE R ECEIPTS IN THE BUSINESS HAVE THE COLOUR OF BUSINESS RECEIPTS A ND DO NOT HAVE SEPARATE IDENTIFICATION. HENCE, THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF A SSETS NOT PUT TO USE HAD TO BE DISALLOWED AND ASSESSING OFFICER'S ACTION IN THIS REGARD IS CONFIRMED. GROUND OF APPEAL NO. 3 IS DISMISSED. 10. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADDI TION OF RS.4,08,104/-. VIDE THE WRITTEN SUBMISSIONS FILED, THE ASSESSEE SUBMITS AS UNDER : THE ASSESSEE CONSTRUCTED CONTINUED BUILDING IN WHI CH HE CARRIED ON THE SAME BUSINESS WHICH IS MANUFACTURING OF NUTS. IT IS NOT A CASE OF EXTENSION OF THE BUILDING WITH BOR ROWED MONEY. IT IS A CASE OF RENOVATION OF THE EXISTING INDUSTRY AND THAT TOO WITHOUT FRESH BORROWINGS DURING THE YEAR UNDER REFE RENCE. HE UTILIZED PARTNER'S CAPITAL AND OLD LOANS OF DIFFERE NT PARTIES IN CONSTRUCTION AND RENOVATION OF THE BUILDING. THE AS SESSEE DID NOT BORROW ANY MONEY FREE OF INTEREST OR INTEREST B EARING FROM ANY PERSON DURING THE YEAR UNDER REFERENCE. THEREFO RE, INTEREST HAS NOT BEEN PAID ON FRESH BORROWINGS WHICH WERE UT ILIZED FOR RENOVATION AND IMPROVEMENT OF THE EXISTING BUILDING STRUCTURE. IT WAS UTILIZED AS A STORE AND WAS READY TO BE USED AS A FACTORY PREMISES IN WHICH HE INSTALLED THE MACHINERY DURING THE IMMEDIATELY NEXT YEAR. THIS BUILDING WAS NEVER RENT ED. DURING THIS YEAR IT WAS ONLY UTILIZED IN THE BUSINESS FOR STORAGE PURPOSES OF RAW MATERIAL AND FINISHED PRODUCTS. THA T TANTAMOUNT TO PUTTING THE SAME TO USE FOR THE PURPO SE OF CLAIM OF INTEREST U/S 36(1) OF THE INCOME TAX ACT. 5 11. THE SECOND PLEA OF THE ASSESSEE WAS THAT AS NO CAPITAL WAS BORROWED FOR THE ACQUISITION OF THE SAID ASSET, THE RE WAS NO MERIT IN APPLYING THE PROVISO TO SECTION 36(1)(III) OF THE A CT. LD. AR FURTHER SUBMITTED THAT THE ALLEGATION OF THE AO WAS THAT TH E BUILDING WAS UNDER CONSIDERATION AND HAD NOT BEEN PUT TO USE WHE REAS THE CORRECT LAW IS THAT, IF ANY ASSET IS KEPT READY FOR USE OR IS MADE READY FOR USE, IT TANTAMOUNTS TO UTILIZATION OF THE MACHINERY AND IN SUCH CIRCUMSTANCES, INTEREST PAID ON THE MONEY UTILIZED IN CONSTRUCTION OF THE BUILDING IS ALLOWABLE DEDUCTION. RELIANCE WAS PLACED ON THE JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RE PORTED IN (2011) 49 DTR (P&H) 321 IN THE CASE OF COMMISSIONER OF INCOME TAX VS SHAHBAD COOPERATIVE SUGAR MILLS LTD. 12. THE LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. 14. THE ISSUE ARISING VIDE GROUND NO.3 IS IN RELATI ON TO THE DISALLOWANCE OF INTEREST RELATABLE TO THE INVESTMEN T IN BUILDING UNDER CONSTRUCTION. THE CLAIM OF THE ASSESSEE BEFO RE THE CIT(APPEALS) WAS ALSO THAT IT HAD CONSTRUCTED NEW B UILDING, BUT THE SAME WAS NOT ACCEPTED BY THE CIT(APPEALS) AS THE AS SESSEE HAD SHOWN THE BUILDING UNDER CONSTRUCTION IN ITS BALANC E SHEET. THE AO AND THE CIT(APPEALS) HAVE GIVEN A FINDING THAT IN T HE BALANCE SHEET FILED, THE ASSESSEE HAD SHOWN THE BUILDING UNDER CO NSTRUCTION AT RS.34,00,867/-. THE SAID BUILDING UNDER CONSTRUCTI ON WAS NOT REFLECTED IN THE SCHEDULE OF FIXED ASSETS AND FURTH ER, NO DEPRECIATION WAS CLAIMED THEREON BY THE ASSESSEE FOR THE YEAR UN DER CONSIDERATION. THE ABOVESAID FACTS HAVE NOT BEEN C ONTROVERTED BY 6 THE LD. AR FOR THE ASSESSEE EVEN IN THE WRITTEN SUB MISSIONS FILED BY THE ASSESSEE. 15. IN THE ABOVESAID FACTS AND CIRCUMSTANCES, WE FI ND NO MERIT IN THE SUBMISSIONS RAISED BY THE ASSESSEE IN THIS REGA RD. THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON INTEREST BEARIN G LOANS RAISED BY IT AND AS AGAINST THE SAME, HAD MADE INVESTMENT IN THE BUILDING WHICH WAS UNDER CONSTRUCTION AND CONSEQUENTLY, THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT WERE ATTRACTED. WE FI ND NO MERIT IN THE CLAIM OF THE ASSESSEE THAT NO FRESH LOANS WERE RAIS ED FOR THE PURPOSE OF THE SAID INVESTMENT IN VIEW OF THE RATIO LAID DO WN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES V CIT (SUPRA). FOLLOWING THE SAME, THE INTEREST RELATABLE TO THE A MOUNT INVESTED IN THE BUILDING UNDER CONSTRUCTION IS TO BE DISALLOWED UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. AS FA R AS THE APPLICATION OF PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF T HE ACT ARE CONCERNED, THE SAME ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IT IS PROVIDED UNDER THE SAID PROVI SO THAT 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, THE INTEREST PAID IN RESPECT OF C APITAL BORROWED FOR ACQUISITION OF THE SAID ASSET, IS TO BE DISALLOWED AS DEDUCTION. ADMITTEDLY IN THE FACTS OF THE PRESENT CASE, THE AS SESSEE HAD PAID INTEREST ON CERTAIN BORROWED FUNDS WHICH IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN ABHISHEK INDUSTRIES V CIT (SUPRA), WHETHER BORROWED IN THE Y EAR UNDER CONSIDERATION OR IN THE EARLIER YEAR, TAKE THE COLO UR OF BUSINESS RECEIPTS AND DO NOT HAVE SEPARATE IDENTIFICATION AN D HENCE, THE AMOUNT OF INTEREST RELATABLE TO SUCH BORROWED FUNDS UTILIZESD FOR THE 7 PURPOSE OF ACQUISITION OF ASSETS WHICH HAVE NOT BEE N PUT TO USE, IS TO BE DISALLOWED IN VIEW OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT. 16. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF CIT V SHAHBAD COOPERATIVE SUGAR MILLS LTD. 49 DTR 321 (P&H), WHIC H IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 17. UPHOLDING THE ORDER OF CIT(APPEALS), WE DISMISS THE GROUND NO.3 RAISED BY THE ASSESSEE. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2013. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE,2013 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH