The DCITNavsari Circle, Navsari V. Sahakari Khand Udyog Mandli Ltd., Navsari

ITA 122/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73101 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 19-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: K N BHATT
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMADABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI N. S. SAINI , ACCOUNTANT MEMBER ITA NO. 122/AHD/2011 ASSESSMENT YEAR :2006-07 DY. COMMISSIONER OF INCOME - TAX, NAVSARI CIRCLE, NAVSARI V/S . SAHAKARI KHAND UDYOG MANDLI LTD. GANDEVI, DISTRICT NAVSARI PAN NO. A AA AS3791B (APPELLANT) .. (RESPONDENT) / BY APPELLANT SHRI O. P. BATHEJA, SR.D.R. /BY RESPONDENT SHRI K. N. BHATT, A.R. ! '#$ /DATE OF HEARING 06.02.2014 %&' '#$ /DATE OF PRONOUNCEMENT 28.02.2014 O R D E R PER : SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE ARISING FROM THE ORDER OF CIT(A)- VALSAD, DATED 16.10.2010 AND THE MAIN GROUND IS REP RODUCED BELOW: [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE CIT(A) ERRED IN DELETING THE ADDITION OF RS . 10,53,243/-, MADE U/S.36(1)(III) ON ACCOUNT OF DISALLOWANCE OF I NTEREST, ON CAPITAL USED FOR ACQUIRING ASSET, FOR THE PERIOD DURING WHI CH IT WAS NOT PUT TO USE. 2. THE ASSESSMENT ORDER WAS PASSED U/S. 143(3) DATE D 31.12.2008 IN THE CASE OF THIS CO-OPERATIVE SOCIETY. IT WAS NOTED BY THE A.O. THAT THE ASSESSEE HAD COMMENCED A DISTILLERY UNIT DURING THE YEAR UND ER CONSIDERATION AND INSTALLED A BOILER FOR A SUM OF RS.1,97,48,714/-. AS PER A.O., THE SAID BOILER ITA NO. 122/AHD/11 A.Y. 06-07 PAGE 2 WAS PUT TO USE ON 20 TH NOVEMBER, 2005. IT WAS FURTHER NOTED BY THE A.O. THAT THE BOILER WAS PURCHASED OUT OF THE BORROWED FUNDS AND AN INTEREST @ 8% WAS PAID TO THE MEMBERS OF THE SOCIETY ON THE TERM DEPOSIT. THE OBJECTION OF THE A.O. WAS THAT WHY THE INTEREST U/S.36(1)(III) B E DISALLOWED UP TO THE DATE WHEN THE SAID BOILER WAS PUT TO USE. THE A.O. HAS ALSO EXAMINED THE BALANCE SHEET OF THE ASSESSEE AND THEN DRAWN A CONC LUSION THAT THE ASSESSEE HAD NO SURPLUS OWN FUNDS AVAILABLE FOR THE PURPOSE OF INVESTMENT IN THE BOILER. SO HE HAS DRAWN A CONCLUSION THAT THE INVESTMENT IN THE SAID FIXED ASSET WAS MADE OUT OF THE INTEREST BEARING BORROWED FUNDS. AFTER NARRATING FEW CASE LAWS, A.O. HAS WORKED OUT THE INTEREST AT RS.10,53,243/- FOR THE PERIOD FROM 01.04.2004 TO 20 TH NOVEMBER 2005 AND DISALLOWED THE SAME. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APP ELLATE AUTHORITY, IT WAS HELD AS UNDER: 6.3 CONCLUSION :- I HAVE CONSIDERED THE RIVAL CONTENTIONS. I FOUND FO RCE IN THE ARGUMENT ADVANCED BY THE AR OF THE APPELLANT PARTIC ULARLY, IN RESPECT OF ALLOWABILITY OF EXPENDITURE U/S 36(1)(II I). THE VERY CONDITION OF SEC. 36(1)(III) DEALS WITH THE UTILIZA TION OF BORROWED CAPITAL AND THE PURPOSE OF BUSINESS IN THE INSTANT CASE OF THE APPELLANT, THE APPELLANT SOCIETY MUST UNDERTOOK AN EXPANSION PROGRAMME OF A DISTILLERY UNIT IN ACCORDANCE WITH T HE BYE LAWS OF THE SOCIETY AND FOR THE PURPOSE OF BUSINESS, THE SA ME EXPANSION PROGRAMME IS IN FURTHERANCE OF THE BENEFIT OF THE M EMBERS OF THE SOCIETY AS THE DISTILLERY UNIT IS MANUFACTURING THE RECTIFIED SPRIT USING THE WASTE/ BYE-PRODUCTS CALLED MOLASSES OF TH E APPELLANT SOCIETY ITSELF. THUS, THE EXPANSION PROGRAMME IS UN DERTAKEN AS A MEASURE OF COMMERCIAL EXPEDIENCY AND THEREFORE, THE VOLUNTARY DEPOSITS COLLECTED FROM THE MEMBERS IN THE ORDINARY COURSE OF ITA NO. 122/AHD/11 A.Y. 06-07 PAGE 3 BUSINESS DOES NOT CONSTITUTE THE CAPITAL BORROWED A S ENVISAGED IN SECTION 36(1)(III). SINCE THIS OFFICE HAS DECIDED T HE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE VIDE ORDER DTD. 12/05/2008 I FOUND THE AO IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC. 36 (1)(III) OF THE ACT. THUS, THE APPELLANT'S GROUND IS ALLOWED. 4. WITH THIS FACTUAL BACKGROUND, WE HAVE BEEN INFOR MED THAT IN THE PAST IN IDENTICAL SITUATION A VIEW HAS BEEN TAKEN BY RESPEC TED ITAT IN ASSESSEES OWN CASE AND THE MATTER WAS RESTORED BACK FOR DE NO VO CONSIDERATION AT THE STAGE OF THE A.O. THE ORDER OF ITAT A BENCH, AHM ADABAD BEARING ITA NO. 3136/AHD/2008 (A.Y. 1994-95) TITLED AS DY.CIT, NAVSARI CIRCLE, NAVSARI SWAPNALOK SOCIETY, NR. KALIAWADI BRIDGE, JUNATHANA, NAVSARI VS. SAHAKARI KHAND UDHYOG MANDAL, GANDEVI, DISTRICT- NAVSARI, DA TED 05.12.2008 IS PLACED ON RECORD, WHEREIN CONCLUSION OF THE RESPECT ED BENCH WAS AS UNDER: 5. WE HAVE HEARD THE LEARNED DR AND PERUSED THE MA TERIALS AVAILABLE ON RECORD INCLUDING THE STATEMENT OF FACTS FILED BY THE ASSESSING OFFICER TOGETHER WITH THE APPEAL MEMO BEFORE THIS TRIBUNAL. THE LEARNED CIT(A) HAS DELETED THE IMPUGNED ADDITION WITHOUT TAKING NO TE OF THE PROVISO TO SECTION 36(10(III) OF THE ACT WHICH HAS BEEN INSERT ED BY THE FINANCE ACT 2003 WITH EFFECT FROM 1-4-2004. ACCORDING TO THE SAID PROVISO ANY AMOUNT OF INTEREST PAID IN RESPECT OF THE CAPITAL B ORROWED FRO ACQUISITION OF AN ASSET FOR EXPANSION OF EXISTING BUSINESS OR PROF ESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED FOR ACQUISIT ION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHAL L NOT BE ALLOWED AS A DEDUCTION. IN THE PRESENT CASE, A NEW UNIT I. E. DI STILLERY UNIT WAS SET UP AND COMMISSIONED WITH EFFECT FROM 11-1-2005. THE AS SESSEE HAD BORROWED MONEY WHICH ACCORDING TO THE ASSESSING OFF ICER WAS UTILISED FOR SETTING UP OF DISTILLERY UNIT THROUGH TRANSFER OF F UNDS FROM THE SUGAR UNIT TO DISTILLERY UNIT. IT IS THE CASE OF THE ASSESSING OF FICER THAT THE IMPUGNED DEDUCTION CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF THE PROVISO TO ITA NO. 122/AHD/11 A.Y. 06-07 PAGE 4 SECTION 36(1) (III) OF THE ACT READ WITH EXPLANA TION (8) TO SECTION 43(1) OF THE ACT. IT IS ALSO THE CASE OF THE ASSESSING OFFIC ER THAT THE ASSESSEE HAS PLACED NO EVIDENCE TO ESTABLISH THAT OWN FUNDS WERE UTILISED FOR SETTING UP OF THE NEW UNIT I. E. THE DISTILLERY UNIT. IN VIE W OF THE AFORESAID, THE ORDER OF THE LEARNED CIT(A) DESERVES TO BE VACATED AND IS A CCORDINGLY VACATED THE MATTER IS RESTORED TO HIS FILE WITH THE DIRECTI ON TO EXAMINE AND ADJUDICATE UPON THE MATTER AFRESH IN THE LIGHT OF THE PROVISIONS CONTAINED IN PROVISO TO SECTION 36(1) (III) OF THE ACT READ WITH EXPLANATION 43(1) OF THE ACT AFTER GIVING OPPORTUNITY OF HEARIN G TO THE ASSESSEE AND THE ASSESSING OFFICER. 4(I). SINCE IN THE PAST, THE TRIBUNAL HAS RESTORED THE ISSUE BACK TO THE FILE OF THE A.O. FOR DE NOVO CONSIDERATION, HOWEVER, AS PER THE DIRECTION, THEREFORE ON THE SAME LINE FOR THE YEAR UNDER CONSIDERATION AS W ELL, THIS ISSUE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH ADJUDICATI ON. 5. IN THE RESULT, APPEAL OF THE REVENUE MAY BE TREA TED AS ALLOWED FOR STATISTICAL PURPOSE. THIS ORDER PRONOUNCED IN OPEN COURT ON 28.02.2014 SD/- SD/- (N. S. SAINI) ( MUKUL KR. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER S.K.SINHA ( ( ( ( ') ') ') ') *)'' *)'' *)'' *)'' / COPY OF ORDER FORWARDED TO:- 1. -. / REVENUE 2. / ASSESSEE 3. 11 ' 2 / CONCERNED CIT 4. 2- / CIT (A) 5. ) 67 ' , , / DR, ITAT, AHMEDABAD 6. 79: ;< / GUARD FILE. BY ORDER/ ( , 1- , =