Asst. Commissioner of Income Tax, Bangalore V. M/s.Komet Precision Tools India Private Limited, Bangalore

ITA 1309/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7071 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 08-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N SUKUMAR
• Keywords: Capital asset; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, B E NGAL U R U BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER ITA NO. 1309/ BANG/ 201 6 (ASSESSMENT YEAR : 201 0 - 11 ) ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 4(1)(1) , BENGALURU. VS. APPELLANT M/S.KOMET PRECISION TOOLS INDIA PVT. LTD. 16J, ATTIBELE INDUSTRIAL AREA, BENGALURU - 560 107. PAN:AABCK 4981 E RESPONDENT APPELLANT BY : SHRI N.SUKUMAR, ADDL.CIT(DR) RESPONDENT BY : NONE DATE OF HEARING : 14/09/2017 DATE OF PRONOUNCEMENT : 06 /1 2 /2017 O R D E R PER I NTURI RAMA RAO, AM : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) - 4, BANGALORE, [CIT(A)] DATED 29/04/20 16 FOR THE ASSESSMENT YEAR 2010 - 11. ITA NO . 1309 /BANG/201 6 PAGE 2 OF 7 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 3. BRIEFLY FACTS OF THE CASE ARE THAT THE RESPONDENT - ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2010 - 11 WAS FILED ON 28/09/2010 DECLARING INCOME OF RS.1,56,87,963/ - . AGAINST SAID RETURN OF INCOME, ASSESSMENT WAS COMPLETED VIDE ORDER DATED 07/05/2014 PASSED U/S 143(3) R.W.S. 144C(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. WHILE DOING SO, THE ASSESSING OFFICER (AO) MADE ARM S LENGTH ADJUSTMENT OF RS.8,27,247/ - AND ALSO DISALLOWED EXPENDITURE OF INTEREST U/S 36(1)(III) OF RS.79,58,141/ - . AO DISALLOWED INTEREST ON ECB LOANS BORROWED FOR T HE PURPOSE OF ACQUISITION OF LAND. AO DISALLOWED INTEREST INVOKING PROVISO TO SECTION 36(1)(III) OF THE ACT AS THE ASSET WAS NOT PUT TO USE. 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE THE CIT(A) WHO GRANTED RELIEF FOLLOWING THE ORDER OF THE C IT(A) FOR THE ASSESSMENT YEAR 2008 - 09 . THE RELEVANT PARAGRAPH OF THE CIT(A) IS EXTRACTED BELOW: 6.2 THE APPELLANT S CORE SUBMISSION IS THAT, IN THE PRESENT CASE, THE PURPOSE OF BORROWING WAS TO ACQUIRE LAND FOR SETTING UP ITS OWN UNIT WHICH HITHERTO WAS BEING CARRIED ON , IN RENTED PREMISES. IT IS CLAIMED THAT THE LOAN TAKEN FOR PURPOSE OF ITA NO . 1309 /BANG/201 6 PAGE 3 OF 7 5. BEING AGGRIEVED , REVENUE IS IN APPEAL BEFORE US. ITA NO . 1309 /BANG/201 6 PAGE 4 OF 7 5.1 ON THE DATE OF HEARING NONE APPEARED ON BEHALF OF THE ASSESSEE AND IN FACT, AN ADJOURNMENT PETITION FROM M/S. MANOHAR CHOWDHRY ASSOCIATES, CHARTERED ACCOUNTANTS, WAS MOVED BY THE MANAGER OF THE SAID FIRM AND THIS PETITION WAS REJECTED FOR SIMPLY REASON THAT THE ISSUE IN APPEAL IS COVERED BY THE ORDER OF THIS TRIBUNAL I N EARLIER YEAR. 5.2 LD.CIT(DR) HAD VEHEMENTLY ARGUED THAT THE CIT(A) OUGHT NOT TO HAVE GRANTED RELIEF AS THE PROVISO TO SECTION 36(1)(III) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. 6. AFTER HEARING THE LD.CIT(DR) AND PERUSING MATERIAL ON RE CORD, WE FIND THAT THE ISSUE IN PRESENT APPEAL IS COVERED BY THE DECISION OF THIS TRIBUNAL FOR EARLIER YEARS IN IT(TP)A NO.359/BANG/2013 DATED 09/06/2017 FOR ASSESSMENT YEAR 2008 - 09. THE RELEVANT PARA S . ARE EXTRACTED HEREUNDER: 9. WE HAVE HEARD THE RI VAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE ONLY ISSUE IN THESE GROUNDS OF APPEAL IS WHETHER THE PROVISO TO SECTION 36(1)(3) IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. IT IS UNDISPUTED FACT THAT THE LAND WAS PURCHASED OUT OF THE BORROWED FUN D FROM THE HOLDING COMPANY. BUT THIS LAND WAS PURPORTEDLY PURCHASED FOR THE PURPOSE OF CONSTRUCTING THE MANUFACTURE FACILITY. BUT THIS MANUFACTURING HAD NOT COMMENCED. FROM THE ELECTRICITY BILL AND WATER CHARGES BILL FILED AS ADDITIONAL EVIDENCE, IT IS EVIDENT THAT THERE IS NO CONSUMPTION OF ELECTRICITY AND WATER. THIS CLEARLY ESTABLISH THE FACT THAT THE LAND WAS NOT PUT TO USE BY THE ASSESSEE - COMPANY FOR HIS BUSINESS PURPOSES. THEREFORE THE PROVISO TO SECTION 36(1)(3) IS CLEARLY APPLICABLE WHICH READS AS UNDER. THE SAID PROVISO WAS INSERTED BY FINDINGS IN 2003 WITH EFFECT FROM 01.11.2004 WHICH READS AS UNDER. PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET (WHETHER CAPITALIZED IN THE BOOKS O F ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE OF WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE; SHALL NOT BE ALLOWED AS DEDUCTION. 10. ON THE MERE PERUSAL OF THE PROVISO, IT IS MANIFEST THAT FROM THE ASSESSMENT YEAR 2004 - 05, LOAN FUNDS TAKEN FOR THE PURPOSE OF ACQUIRING CAPITAL ASSET, THE INTEREST WILL NOT BE ADMISSIBLE AS DEDUCTION TILL THE DATE IT IS BROUGHT TO USE AND FROM THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE COMPANY IT IS CLEAR THAT THE ASSET WAS NOT PUT TO USE. THUS THE CIT(A) HAD FAILED TO APPLY THE ITA NO . 1309 /BANG/201 6 PAGE 5 OF 7 PROVISO TO SECTION 36(1)(3) WHICH IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF THUKRAL REGAL SHOES VS. CIT (391 ITR 119)(P&H) HELD THAT WHERE THE ASSESSEE FAILED TO ESTABLISH THAT PROPERTIES PURCHASED BY IT ARE PUT TO USE INTEREST PAID ON BORROWED FUNDS FOR ACQUISITION OF SAME IS NOT ALLOWABLE IN VIEW OF THE PROVISO TO SECTION 36(1)(III) OF THE AC T. THE RELEVANT PARAGRAPHS OF THE DECISIONS ARE EXTRACTED BELOW: 7. THE PROVISO TO SECTION 36(1)( III ) WAS INTRODUCED BY THE FINANCE ACT, 2003, WITH EFFECT FROM 01.04.2004 AND, THEREFORE, APPLIES TO THE APPEAL WHICH PERTAINS TO THE ASSESSMENT YEAR 2009 - 10. IN OUR VIEW, THE DEDUCTION WAS LIABLE TO BE DISALLOWED IN VIEW OF THE PROVISO TO SECTION 36(1)( III ) FOR THE ASSETS THAT WERE PURCHASED BY THE PARTNERS WERE NOT PUT TO USE AT LEAST DURING THE ASSESSMENT YEAR IN QUESTION. THE APPELLANTS HAVE FAILED TO E STABLISH THAT THE PROPERTIES PURCHASED BY THEIR PARTNERS WERE PUT TO USE DURING THE RELEVANT PERIOD. 8. MR. M.R. SHARMA, THE LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLANTS, HOWEVER, CONTENDED THAT THE PROVISO IS NOT APPLICABLE TO THIS CASE AS T HE ASSETS WERE NOT PURCHASED BY THE APPELLANTS. HE CONTENDED THAT THE PROVISO APPLIES ONLY TO CASES WHERE THE ASSESSEE ITSELF PURCHASES THE ASSET. THE SUBMISSION IS NOT WELL - FOUNDED. 9. UNDER THE PROVISO, ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPIT AL BORROWED FOR ACQUISITION OF AN ASSET FOR THE 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 CANNOT BE ALLOWED AS A DEDUCTION. THE PROVISO RELATES, THER EFORE, TO CAPITAL BORROWED FOR ACQUISITION OF AN ASSET AND NOT MERELY IN RESPECT OF THE CAPITAL BORROWED FOR THE PURCHASE OF AN ASSET. THE WORD 'ACQUISITION' IS OF WIDER AMPLITUDE THAN THE WORD 'PURCHASE'. A PURCHASE IS BUT ONE OF THE MODES OF ACQUISITION. A PROPERTY CAN BE ACQUIRED EVEN OTHERWISE, SUCH AS, FOR INSTANCE, BY WAY OF LEASE OR LICENSE. BLACK'S LAW DICTIONARY (NINTH EDITION) DEFINES 'ACQUISITION' AS FOLLOWS: 'ACQUISITION, N. (14C) 1. THE GAINING OF POSSESSION OR CONTROL OVER SOMETHING ' 10. POSSESSION OF RIGHTS AND INTEREST IN AN ASSET CAN BE GAINED IN SEVERAL WAYS AND NOT MERELY BY THE PURCHASE THEREOF. IT CAN BE GAINED FOR INSTANCE BY VIRTUE OF OR UNDER A LEASE, LICENCE OR ON RENT. IF THE LEGISLATURE INTENDED RESTRICTING THE AMBIT OF THE PROVISO TO CAPITAL BORROWED FOR THE PURCHASE OF AN ASSET, IT WOULD HAVE PROVIDED SO EXPRESSLY. THE LEGISLATURE HAS DELIBERATELY USED A WIDER EXPRESSION 'ACQUISITION OF AN ASSET' TO ENSURE THAT ASSESSEES DO NOT GET THE BENEFIT OF A DEDUCTION UNLESS AND UNTI L THEY PUT SUCH ASSETS TO USE. THERE IS NOTHING IN THE PLAIN LANGUAGE OF THE SECTION OR OTHERWISE THAT ITA NO . 1309 /BANG/201 6 PAGE 6 OF 7 PERSUADES US TO HOLD THAT THE LEGISLATURE INTENDED EXCLUDING ALL MODES OF ACQUISITION OF AN ASSET OTHER THAN BY THE PURCHASE THEREOF. ADMITTEDLY, THE LOA N WAS TAKEN BY THE APPELLANTS FOR THE ACQUISITION OF THE ASSET, NAMELY, THE SAID IMMOVABLE PROPERTIES. 11. THE PROVISO DOES NOT OPERATE ONLY IN CASES WHERE THE ASSESSEE ACQUIRES THE ASSET DIRECTLY. THE MODE OF ACQUISITION IS IRRELEVANT AND THE PROVISO WOULD APPLY SO LONG AS THE PRIMARY INTENTION OF THE ASSESSEE IS TO ACQUIRE THE ASSET FOR THE PURPOSE OF ITS BUSINESS. WE DO NOT EXPRESS ANY OPINION WHERE THE ACQUISITION OF THE ASSET IS ONLY INCIDENTAL TO THE TRANSACTION OR ARRANGEMENT SUCH AS IN THE CASE OF A MERGER OF COMPANIES UNDER SECTIONS 391 AND 394 OF THE COMPANIES ACT. IN THE PRESENT CASE, THE APPELLANTS/ASSESSEES ALLEGEDLY ACQUIRED THE ASSETS BY ADVANCING INTEREST - FREE LOANS TO THEIR PARTNERS TO ENABLE THE PARTNERS TO PURCHASE THE ASSETS AND TO M AKE THE SAME AVAILABLE TO THEM FOR THE EXTENSION OF THEIR EXISTING BUSINESS. THE ASSESSEES ARE IN THE BUSINESS, INTER ALIA , OF SELLING FOOTWEAR. THEY CONTEND THAT THEY REQUIRED THE ADDITIONAL PREMISES OR SHOWROOMS TO SELL THE SAME. THIS WAS, THEREFORE, IN ANY EVENT, AN INDIRECT ACQUISITION OF THE ASSET BY A PARTICULAR MODE. THE SOLE INTENTION WAS TO ACQUIRE THE ASSETS. EVEN DURING THIS YEAR, THERE IS NO MATERIAL ON RECORD TO SHOW THAT LAND WAS PUT TO USE AND THEREFORE, THE PROVISO TO SECTION 36(1)(III) IS SQUARELY APPLICABLE. THE CIT(A), WITHOUT CONSIDERING THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) HAD GRANTED RELIEF. THEREFORE, WE REVER S E THE ORDER OF THE CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRON OUNCED IN THE OPEN COURT ON 06 TH DECEMBER , 201 7 SD/ - SD/ - ( LALI T KUMAR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : B EN GAL URU D A T E : 06 /12 /2017 SRINIVASULU, SPS ITA NO . 1309 /BANG/201 6 PAGE 7 OF 7 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE