DCIT, Panchkula V. M/s Haryana State Roads & Bridges Development Corpration Ltd., Panchkula

ITA 1153/CHANDI/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95741 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 29-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHIL KUMAR
• Assessee Lawyers: SUNIL KUMAR
• Keywords: Depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 1153/CHD/2014 ASSESSMENT YEAR: 2005-06 THE DCIT, VS M/S HARYANA STATE ROADS & PANCHKULA CIRCLE, BRIDGES DEVELOPMENT CORP LTD., PANCHKULA. BAY NO. 13-14, SECTOR 2, PANCHKULA. PAN: AAACH9435M (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI SUSHIL KUMAR RESPONDENT BY : SHRI SUNIL KUMAR DATE OF HEARING : 09.12.2015 DATE OF PRONOUNCEMENT : 14.12.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS) PANCHKULA DATED 22.10.201 4 FOR ASSESSMENT YEAR 2005-2006 CHALLENGING THE DELET ION OF ADDITION MADE ON ACCOUNT OF CAPITALIZATION OF IN TEREST OF RS. 1,35,42,404/- AS THE ASSETS BUILT OUT OF LOA N ON WHICH INTEREST WAS PAID TO HUDCO WERE NOT PUT TO US E DURING THE YEAR UNDER CONSIDERATION. 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT A SUM OF RS. 2,56,64,189/- HAS BEEN PA ID AS INTEREST ON ACCOUNT OF LOAN FROM HUDCO FOR STA TE HIGHWAY III & IV. THE AO NOTICED FROM THE 'FIXED AS SETS SCHEDULE' THAT NO DEPRECIATION HAS BEEN CHARGED IN RESPECT OF THESE HIGHWAYS. IT WAS STATED THAT THE HIGHWAYS WERE NOT COMMERCIAL ASSETS AS TOLL POINTS HAVE NOT BEEN SET-UP. IN THE LIGHT OF THESE FACTS, THE A O HELD THAT INTEREST OF RS.2,56,64,189/- NEEDS TO BE CAPIT ALIZED AS THE ASSETS HAVE NOT BEEN PUT TO USE BY THE ASSES SEE. ACCORDINGLY, AN ADDITION OF RS.2,56,64,189/- WAS MA DE. THE HON'BLE ITAT SET ASIDE THIS ADDITION TO THE FIL E OF THE AO TO BE EXAMINED AFRESH IN ACCORDANCE WITH LAW . ACCORDINGLY, AO HAS RECONSIDERED THE ASSESSEE'S SUBMISSIONS AND PASSED ORDER U/S 143 R.W.S. 254 OF THE ACT 3. THE AO OBSERVED THAT A LOAN OF RS.76,54,58,000/- WAS CAPITALIZED AND DEPRECIATION WAS CHARGED ON TH IS PROJECT. AN AMOUNT OF RS. 1,21,21,785/- WAS PAID AS INTEREST TO HUDCO ON THE AMOUNT OF LOAN CAPITALI ZED. ON ANOTHER LOAN OF RS.85,96,35,000/- WHICH HAS ALSO BEEN CAPITALIZED BUT NO DEPRECIATION HAS BEEN CHARGED, THEREFORE, AMOUNT OF RS. 1,35,42,404/- PAI D AS INTEREST WAS ALSO TO BE CAPITALIZED. THE AO GRANTED RELIEF OF RS. 1,21,21,785/-AND MADE ADDITION OF RS. 1,35,42,404/-. 3 4. DURING THE COURSE OF APPELLATE PROCEEDINGS, T HE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E IS ENGAGED IN MAINTENANCE AND IMPROVEMENT OF STATE HIGHWAYS, MAIN DISTRICT ROADS AND OTHER DISTRICT RO ADS IN THE STATE OF HARYANA. THE REFERRED WORK IS UNDERTAKEN IN PHASES AND DURING THE YEAR UNDER CONSIDERATION AGAINST THE LOAN BORROWED FROM HUDCO AGAINST IMPROVEMENT OF STATE HIGHWAYS INTEREST OF RS.2,56,64,189/- WAS PAID TO HUDCO. THE AO HAS DISALLOWED INTEREST OF RS. 1,35,42,404/- BY STATING THAT IT NEEDS TO BE CAPITALIZED AS SUCH ROADS WERE NOT P UT TO USE. IN THIS CONTEXT, THE ASSESSEE SUBMITTED A CERTIFICATE FROM ENGINEER IN CHIEF, HARYANA PWD, B& R BRANCH, CHANDIGARH WHICH CLARIFIES THAT THE ROADS I NTO THE MENTIONED SCHEME WERE EXISTING ROADS AND WERE I N USE BY TRAFFIC. THESE ROADS WERE IMPROVED BY TAKING LOAN FROM HUDCO. IN OTHER WORDS THE ASSETS WERE ALREADY IN EXISTENCE AND WITH LOANS FROM HUDCO THEY WERE IMPROVED/UPGRADED. HENCE, INTEREST PAID ON SUC H LOANS IS REVENUE EXPENSE. FURTHER, LOAN AGREEMENT EXECUTED BETWEEN THE ASSESSEE AND HUDCO SHOWS THAT THE LOAN AGREEMENT IS FOR THE IMPROVEMENT OF STATE HIGHWAYS. IN THE REFERRED LOAN AGREEMENT IT IS CLEA RLY MENTIONED THAT THE PRESENT LOAN IS SANCTIONED FOR IMPROVEMENT OF STATE HIGHWAYS PHASE III AND IV. THI S CLEARLY INDICATE THAT THE ROADS WERE IN EXISTENCE A ND THE REFERRED LOAN HAD BEEN UTILIZED FOR THE IMPROVE MENT OF EXISTING ROADS. 4 5. THE ASSESSEE FURTHER SUBMITTED THAT WHILE DISALLOWING RS. 1,35,42,404/- INTEREST ON LOANS OF HUDCO FOR PROJECT OF IMPROVEMENT OF STATE HIGHWAYS ON THE BASIS OF NON PROVISION OF DEPRECIATION ON COMPL ETED WORKS SINCE TOLL POINTS HAVE NOT BEEN NOTIFIED DURI NG THE YEAR IN RESPECT OF SUCH WORKS VIDE FOOTNOTE IN SCHE DULE III OF BALANCE SHEET OF FIXED ASSETS THE AO HAS NOT APPRECIATED ALL THE FACTS ON RECORD AND IS AGAINST THE LAW. SECTION 36(1) (III) GRANTS, UNCONDITIONALLY DE DUCTION IN RESPECT OF INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS AND PROFESSION. THE PROVISO TO SECTION 36(L)(III) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE IN AS MUCH AS, THE CAPITAL BORROWED BY THE ASSESSEE FROM HUDCO IS NOT FOR ACQUISITION OF AN AS SET BUT IMPROVEMENT OF EXISTING ASSETS. AT THE MOST, IT CAN BE CONSTRUED THAT THE LOAN FROM HUDCO WAS TAKEN FOR THE REPLACEMENT OR MODERNIZATION OF STATE HIGHWAYS, AN EXISTING ASSET. MOREOVER, THE PROVISO NOT ONLY CONTEMPLATES ACQUISITION OF NEW ASSET BUT ALSO PROH IBITS THE DEDUCTION OF INTEREST ON BORROWED CAPITAL FOR T HE SAME ONLY UP TO POINT WHEN THE ASSETS IS FIRST PUT TO USE, WHEREAS IN THE CASE OF ASSESSEE, STATE HIGHWAY S ARE NOT ONLY IN EXISTENCE BUT ALSO UNDER USE THROUGHOUT THE PERIOD OF BORROWING OF CAPITAL FOR IMPROVEMENT. THE PRECONDITIONS FOR CAPITALIZATION OF INTEREST CONTEM PLATED BY THE SAID PROVISO I.E. FUNDS BORROWED FOR ACQUISI TION OF AN ASSET AND PERIOD FOR CAPITALIZATION ONLY UP TO T HE DATE OF ASSET FIRST PUT TO USE ARE NOT MET WITH IN THIS 5 PARTICULAR SITUATION. THEREFORE, THE CASE OF THE AS SESSEE IS NOT HIT BY THE PROVISO. THE AO HAS NOT NOTICED A NY SUCH EXPENSE OR ACTIVITY IN THE BOOKS OF ACCOUNTS A ND NOTHING CONTRARY HAS BEEN BROUGHT ON RECORD. THIS FURTHER ESTABLISHES THE CLAIM OF THE ASSESSEE THAT THE INVESTMENT HAS BEEN DONE FOR THE MAINTENANCE AND IMPROVEMENT OF EXISTING ROADS IN THE STATE OF HARYA NA. THE ASSESSEE RELIED UPON THE FOLLOWING CASES : I) CIT VS. VOITH PAPER FABRICS INDIA LTD. 346ITR 70 (P&H). II) CIT VS. VENKATESWARA POWER ROLLING MILLS AND AN OTHER 227 ITR 116 (A.P.) III) BHARAT FORGE CO. LTD. VS. CIT 240 ITR 654 (BOM ) IV) CIT VS. PORRITS AND SPENCER (A) LTD. 257 ITR 49 , 324 ITR 260 (P&H) V) CIT VS. LAKHANI RUBBER WORKS 326 ITR 415(P&H) VI) CIT VS. DELHI PRESS SAMACHAR PATRA P. LTD. 322 ITR 590 (DEL) VII) HONDA SIEL CARS INDIA LTD. VS. ASSTT. CIT 1 IT R 497(DELHI) 6. THE REMAND REPORT FROM THE ASSESSING OFFICER WAS CALLED FOR ON THE ADDITIONAL EVIDENCE SUBMITTED BY ASSESSEE. THE ASSESSING OFFICER, HOWEVER, IN THE REMAND REPORT REPRODUCED THE FACTS STATED IN THE ASSESSMENT ORDER. THE LD. CIT(APPEALS) ADMITTED TH E ADDITIONAL EVIDENCE. SAME WERE ALSO SENT TO THE ASSESSING OFFICER FOR FURTHER EXAMINATION AND COMME NTS BUT THE ASSESSING OFFICER DID NOT MAKE ANY FURTHER ENQUIRY AND COMMENTS ON THE FACTUAL POSITION. 7. THE LD. CIT(APPEALS), AFTER CONSIDERING THE RIVA L CONTENTIONS AND MATERIAL ON RECORD FOUND THAT ASSES SEE 6 SUBMITTED A COPY OF CERTIFICATE FROM EXECUTIVE ENGI NEER, HARYANA PWD CERTIFYING THAT SCHEME NO. 16977 FOR ST ATE HIGHWAYS, PHASE-III AND IV WERE IMPROVED BY TAKING LOANS FROM HUDCO ON THE EXISTING ROADS WHICH WERE ALREADY IN USE BY THE TRAFFIC. THE ASSESSEE ALSO F ILED COPY OF THE LOAN AGREEMENT DATED 31.12.2003 WITH HUDCO WHICH SHOWS THAT LOAN WAS GRANTED FOR IMPROVEMENT/UP-GRADATION OF STATE HIGHWAYS IN HARYANA (PHASE-III AND IV). THE SUBMISSIONS ALONGW ITH EVIDENCES WERE FORWARDED TO THE ASSESSING OFFICER F OR EXAMINATION AND REPORT BUT ASSESSING OFFICER MERELY REITERATED THE FINDINGS AS PER ASSESSMENT ORDER. THE LD. CIT(APPEALS), ON THE BASIS OF THE DOCUMENTS ON RECORD AS REFERRED TO ABOVE FOUND THAT ASSETS WERE ALREADY EXISTING AND BORROWED CAPITAL WAS UTILIZED FOR IMPROVEMENT OF EXISTING ASSET, THEREFORE, THE PROVI SO TO SECTION 36(1)(III) OF THE ACT IS NOT APPLICABLE. S INCE THE LOAN WAS ACQUIRED FOR IMPROVEMENT OF THE EXISTING S TATE HIGHWAYS WHICH DID NOT BRING OR ACQUIRE ANY NEW ASS ET, THEREFORE, THE INTEREST PAID ON SUCH BORROWED CAPIT AL IS REVENUE IN NATURE AND ACCORDINGLY, DELETED THE ADDI TION OF RS. 1,35,42,404/-. 8. THE LD. DR RELIED UPON ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN ASSESSMENT YEAR 2007- 08, THE TRIBUNAL WHILE DISMISSING THE APPEAL OF REVENUE IN ITA 1309/2010 VIDE ORDER DATED 24.04.2012 REFERRED TO THE FINDINGS OF LD. CIT(APPEALS) IN WHICH IT WAS NO TED 7 THAT THE NOTIFICATION OF TOLL POINTS HAVE BEEN TAKE N AS INDICATOR OF COMPLETION/COMMISSIONING OF THE PROJEC TS. THE LD. DR, THEREFORE, SUBMITTED THAT SINCE IN THIS CASE, TOLL POINTS HAVE NOT COMMENCED, THEREFORE, LD. CIT(APPEALS) SHOULD NOT ALLOWED THE APPEAL OF THE ASSESSEE. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS MADE BEFORE AUTHORI TIES BELOW AND REFERRED TO PB-6 WHICH IS CERTIFICATE OF EXECUTIVE ENGINEER (ENGINEER-IN-CHIEF) CERTIFYING T HE ROAD WAS EXISTING AND USED BY THE TRAFFIC AND ALSO SUBMITTED LOAN AGREEMENT DATED 31.12.2003 (SUPRA). 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE ASS ESSEE PRODUCED THE CERTIFICATE OF ENGINEER-IN-CHIEF, HARY ANA PWD (PB-6) IN WHICH IT WAS CERTIFIED THAT THE STATE HIGHWAYS PHASE III AND IV (SCHEME NO. 16977) IS EXISTING ROADS AND WERE ALREADY IN USE BY THE TRAFF IC. THESE ROADS WERE IMPROVED BY TAKING LOAN FROM HUDCO . THE LOAN AGREEMENT DATED 31.12.2003 (PB-7) IS ALSO FILED WHICH SHOWS THAT LOAN WAS GRANTED FOR IMPROVEMENT/UP-GRADATION OF THE SAME STATE HIGHWAYS IN HARYANA. THESE EVIDENCES WERE SENT TO THE ASSES SING OFFICER FOR HIS COMMENTS AND REPORT BUT ASSESSING OFFICER, INSTEAD OF EXAMINING THE SAME, MERELY REITERATED THE FACTS STATED IN THE ASSESSMENT ORDER . THESE EVIDENCES ON RECORD CLEARLY SHOW THAT BORROWE D FUNDS WERE USED FOR IMPROVEMENT/UP-GRADATION OF THE 8 EXISTING STATE HIGHWAYS. THE ASSETS WERE, THEREFOR E, ALREADY EXISTING AND BORROWED CAPITAL WAS UTILIZED FOR IMPROVEMENT OF THE EXISTING ASSET. THEREFORE, LD. CIT(APPEALS) WAS JUSTIFIED IN HOLDING THAT PROVISO TO SECTION 36(1)(III) OF THE ACT IS NOT APPLICABLE. FU RTHER, THE LOAN WAS ACQUIRED FOR IMPROVEMENT OF EXISTING S TATE HIGHWAYS WHICH DID NOT BRING OR ACQUIRE ANY NEW ASS ET. THEREFORE, IT WAS CERTAINLY REVENUE IN NATURE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(APPE ALS) IN ALLOWING THE APPEAL OF THE ASSESSEE. SINCE, ASSETS HAVE BEEN PUT TO USE IN THE ORDER UNDER CONSIDERATION, THEREFORE, CERTAINLY IT WAS REVENUE IN NATURE. SINC E ADDITIONAL EVIDENCES WERE NOT BEFORE THE AUTHORITIE S BELOW AS HAVE BEEN CONSIDERED IN THE PRESENT PROCEEDINGS, THEREFORE, EARLIER DECISION OF THE TRI BUNAL IS CLEARLY DISTINGUISHABLE ON FACTS. WE, THEREFORE , DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION. THE DEPARTM ENTAL APPEAL IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH DECEMBER, 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD