CIL Nova Petrochemicals Ltd., Ahmedabad V. The Income Tax Officer, Ward-1(1)(4), Ahmedabad

ITA 1401/AHD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0976 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 08-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: S N SOPARKAR
• Keywords: Proportionate interest; Notional interest

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 1401/AHD/2017 / ASSESSMENT YEAR: 2014-15 CIL NOVA PETROCHEMCIALS LTD. 391/396 MORAIYA VILLAGE SARKHEJ-BAVLA HIGHWAY SANAND AHMEDABAD 382 210. PAN : AADCN 0932 G VS ITO, WARD-5(3)(4) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, SR.ADVOCATE REVENUE BY : SHRI L.P. JAIN, SR.DR / DATE OF HEARING : 20/03/2019 /DATE OF PRONOUNCEMENT : 25 / 03/2019 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 1, AHMEDABAD DATED 28.4.2017 PASSED FOR THE ASSTT.YEAR 2014-15. 2. SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CI T(A) HAS ERRED IN LAW AND ON FACTS BY CONFIRMING THE DISALLOWANCE OF INTE REST EXPENDITURE TO THE EXTENT OF 9.75% UNDER SECTION 36(1)(III) OF THE ACT IN RESPECT OF CAPITAL WORK-IN-PROGRESS. ITA NO.1401/AHD/2017 - 2 - 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 7.11.2014 DECLARING TOTAL INCOME AT NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSEE AT THE RELEVANT TIME WAS E NGAGED IN MANUFACTURING OF FINE PRODUCT (DENIER) IN POY, FDY, DTY AND TEXTURISED YARN. IT HAS SHOWN TOTAL TURNOVER OF RS .344.55 CRORES AND NET PROFIT AT RS.3,86,54,576/-. ON SCRUTINY OF THE AC COUNTS THE LD.AO OBSERVED THAT THE ASSESSEE HAS SHOWN CLOSING CAPITA L WORK-IN-PROGRESS AT RS.4,81,60,593/-. IT HAS DEBITED INTEREST EXPENDIT URE OF RS.6,95,72,774/-. HE WAS OF THE OPINION THAT INTEREST EXPENDITURE WAS PARTLY REQUIRED TO BE DISALLOWED ON WORK-IN-PROGRESS. HE OBSERVED THA T IN THE ASSTT.YEAR 2012-13, THE LD.CIT(A) HAS RESTRICTED THE DISALLOWA NCE AT THE RATE OF 10.75%. THUS, HE WORKED OUT THE DISALLOWANCE IN TH IS YEAR AT 18,96,716/- . ON APPEAL, THE LD.CIT(A) HAS CONFIRMED THE DISAL LOWANCE BY RELYING UPON THE ORDER OF THE LD.CIT(A) IN THE ASSTT.YEAR 2 013-14. THE DISCUSSION MADE BY THE LD.CIT(A) IN THIS RESPECT RE ADS AS UNDER: H) WITHOUT PREJUDICE TO WHAT IS STATED ABOVE, EVEN IF YOUR HONOR IS OF THE VIEW THAT DISALLOWANCE SHALL BE MADE IN RESPECT OF INTEREST EXPENSE THAN IT SHOULD BE MADE BY TAKING INTEREST RATE @9.7 5% AS PER THE TERMS OF CDR TO THE COMPANY INSTEAD OF 10.75%. WE WOULD FURT HER LIKE TO STATE THAT SIMILAR VIEW HAS BEEN ALREADY ACCEPTED BY THE HON'BLE CIT(A)-1 IN COMPANIES APPEAL FOR AY.2013-14. 2.3. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND THE SUBMISSION OF THE APPELLANT CAREFULLY. THE ASSESSING OFFICER H AS MADE DISALLOWANCE OF INTEREST ON CAPITAL WORK IN PROGRESS OF RS. 18,96,7 16/-. IT IS PERTINENT TO NOTE THAT SIMILAR DISALLOWANCE WAS MADE BY ASSESSIN G OFFICER IN AY. 2013-14 WHEREIN CIT(A)~1 VIDE ORDER DATED 28TH /J FEB RUARY, 2017 IN APPEAL NO. 344/CLT(A)-1 HAS HELD AS UNDER:- 2.3. 'I HAVE GONE THROUGH THE FACTS AND THE SUBMISS ION OF THE APPELLANT CAREFULLY. IN THE ASSESSMENT ORDER A.O HA S OBSERVED THAT ITA NO.1401/AHD/2017 - 3 - THERE IS A CLOSING CAPITAL WORK-IN-PROGRESS OF RS.4 ,83,38,831/- AND THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,46,18.3 56/- IN THE P&L A/C, ON WORKING CAPITAL. THE ASSESSEE WAS ASKED BY THE A.O. AS TO WHY PROPORTIONATE INTEREST @12% SHOULD NOT BE CAPIT ALIZED AND ALSO SHOW CAUSED AS TO WHY THE DIFFERENCE SHOULD NO T BE ADDED TO THE TOTAL INCOME. SINCE NO SEPARATE ACCOUNT HAS BEE N MAINTAINED AND THE INVESTMENT IS MADE FROM COMMON HOTCHPOTCH F UND, INTEREST IS REQUIRED TO BE DISALLOWED. THE ASSESSIN G OFFICER HAD DISALLOWED INTEREST ON CAPITAL WORK IN PROGRESS BY CALCULATING INTEREST ON THE CAPITAL WORK IN PROGRESS OF RS.4,83 ,38,831/- ON DAILY BASIS @12% FOR WHOLE YEAR AND DISALLOWED TOTA L INTEREST OF RS. 17,34,463/-. THE APPELLANT HAS SUBMITTED THAT FOR THE PURPOSE O F PROCUREMENT OF SUCH ASSETS, NO NEW TERM LOAN HAS BE EN TAKEN BY THE APPELLANT DURING THE YEAR; HENCE ENTIRE INVESTMENT HAS BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE C OMPANY. THE APPELLANT HAS FURTHER SUBMITTED THAT THE APPELL ANT COMPANY A/SO HAVE PAID UP CAPITAL OF RS.18,55,00,000/-, RES ERVE & SURPLUS OF RS.32,52,89,886/~ AND INTEREST FREE UNSECURED LO AN OF RS. 33,73,88,300/- FOR THE PURPOSE OF MAKING SUCH PAYME NTS IN RESPECT OF SUCH CAPITAL WORK IN PROGRESS. SINCE NO NEW FUND HAS BEEN RAISED BY WAY OF TERM LOAN BY THE APPELLANT COMPANY, IT IS QUITE CLEAR THAT SUCH AMOUNT HAS BEEN PAID OUT OF INTEREST FREE LOAN , INTERNAL CASH ACCRUALS AND PAID UP CAPITAL OF THE COMPANY. THE RE LIANCE HAS BEEN PLACED ON THE DECISION HIGH COURT IN THE CASE OF CO MMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD 178 T AXMAN 135{BOM.) '...XX WHERE IN IT HAS BEEN CATEGORICALLY SPECIFIED THAT WHEN THERE ARE INTEREST FREE AND INTEREST BEARING B OTH FUNDS ARE AVAILABLE THEN BASIC PRESUMPTION IS THAT SUCH INTER EST FREE ADVANCE HAS BEEN MADE OUT OF INTEREST FREE ADVANCE AVAILABL E. THE APPELLANT HAS FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO WHA T IS STATED ABOVE WE WOULD FURTHER LIKE TO STATE THAT AS PER CO RPORATE DEBT RESTRUCTURING SCHEME WHERE IN IT HAS BEEN CATEGORIC ALLY SPECIFIED THAT INTEREST RATE AS PER CDR SCHEME SHALL BE 9,75% FOR THE FUNDED INTEREST TERM LOAN AND 10.75% P.A. FOR THE W ORKING CAPITAL AND TERM LOAN. HOWEVER, ASSESSING OFFICER H AS FAILED TO APPRECIATE SUCH FACT AND MADE DISALLOWANCE AT NOTIO NAL RATE OF 12%. ITA NO.1401/AHD/2017 - 4 - 2.4. THE SUBMISSIONS OF THE APPELLANT'S HAVE BEEN C ONSIDERED. THE RELIANCE OF APPELLANT ON VARIOUS CASE LAWS IS CONSI DERED, IT IS SEEN THAT, IN EACH CASE IT WAS REQUIRED TO EXAMINE THE A VAILABILITY OF FUNDS AND THE SOURCE OF THE SAME, IT IS SEEN THAT T HE APPELLANT COMPANY IS HAVING MIXED FUNDS AND IS NOT HAVING SEP ARATE ACCOUNTS FOR DIFFERENT OPERATIONS. FROM THE COMBINE D BALANCE SHEET OF THE APPELLANT, IT IS SEEN THAT BOTH SECURED AND UNSECURED LOANS HAVE GONE UP SUBSTANTIALLY HIGH DURING THE YEAR UND ER APPEAL. IT IS FURTHER SEEN THAT THE APPELLANT WAS ALREADY HAVING HEAVY INVESTMENT IN FIXED ASSETS WHICH IS MORE THAN SEVER AL TIMES OF SHARE CAPITAL. IN VIEW OF THIS, THE CLAIM OF THE AP PLICANT THAT ITS INVESTMENT IN CAPITAL WORK IN PROGRESS SHOULD BE AS SUMED FROM SHARE CAPITAL AND BUSINESS CASH FLOW IS DIFFICULT T O BE ACCEPTED. IT IS SEEN FROM THE DEBT STRUCTURING SCHEME APPROVED AND INTEREST CHARGED IS AT THE RATE OF 9.75%. AS THE INTEREST ON TERM LOAN IS 9.75% THE CHARGING OF AT THE RATE OF 12% BY THE ASS ESSING OFFICER IS ON THE HIGHER SIDE. IT WOULD BE APPROPRIATE AND FAI R TO ADOPT THE INTEREST AT THE RATE OF 9.75% FOR THE CALCULATION O F INTEREST ON CAPITAL WORK ON PROGRESS. THIS VIEW HAS ALSO BEEN T AKEN IN THE EARLIER YEARS IN THE APPELLANT CASE BY THE CIT(A)1 W HERE HE HAD HOLD THAT INTEREST ON CAPITAL WORK IN PROGRESS SHOU LD BE CALCULATED AT THE RATE OF 9.75% AND NOT AT THE RATE OF 12%. IN VIEW OF THE ABOVE DISCUSSION AND FOLLOWING THE DECISION OF MY P REDECESSOR FOR EARLIER ASSESSMENT YEARS, THE ASSESSING OFFICER IS DIRECTED TO CALCULATE THE INTEREST ON CAPITAL WORK ON PROGRESS ON DAILY BASIS AT THE RATE OF 9.75% ON THE AMOUNT OF RS. 4,83,38,831 ATMS GROUND OF APPEAL IS PARTLY ALLOWED'. IN VIEW OF ABOVE REFERRED ORDER, ISSUE OF DISALLOWA NCE OF INTEREST ON CAPITAL WORK IN PROGRESS IS ALREADY DECIDED IN FAVOUR OF AP PELLANT AND ISSUE RAISED IN YEAR UNDER CONSIDERATION IS IDENTICAL WIT H FACTS OF PRECEDING ASSESSMENT YEAR. THUS, THE ASSESSING OFFICER IS DIR ECTED TO CALCULATE THE INTEREST ON CAPITAL WORK ON PROGRESS ON DAILY BASIS AT THE RATE OF 9.75% ON THE AMOUNT OF RS. 4,81,60,593/-. THIS GROUND OF APP EAL IS PARTLY ALLOWED. 4. THE LD.COUNSEL FOR THE ASSESSEE AT THE OUTSET CO NTENDED THAT THE LD.CIT(A) HAS NOT RECORDED ANY FINDING IN THIS YEAR , RATHER RELIED UPON THE ORDER OF LD.CIT(A) IN THE ASSTT.YEAR 2013-14, W HEREAS IN THE ASSTT.YEAR 2013-14, THE LD.CIT(A) HAS FOLLOWED THE ORDER OF A.Y.2012-13. ITA NO.1401/AHD/2017 - 5 - THE TRIBUNAL HAS DELETED SUCH DISALLOWANCE IN THE A SSTT.YEAR 2012-13 ALSO. THIS ORDER HAS BEEN FOLLOWED IN ITA NO.983/A HD/2017 FOR THE ASSTT.YEAR 2013-14. PUTTING RELIANCE UPON THIS ORD ER, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT DISALLOWANCE BE DELETED . ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT(A). 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE ORDER OF THE LD .CIT(A) WOULD INDICATE THAT THE LD.CIT(A) HAS NOT RECORDED ANY FINDING RAT HER SIMPLY RELIED UPON THE ORDER OF THE LD.CIT(A) IN THE ASSTT.YEAR 2 013-14. THIS ORDER DID NOT MEET APPROVAL OF THE TRIBUNAL IN THE ASSTT. YEAR 2013-14. THE TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE AND DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 8. WE HAVE HEARD RIVAL SUBMISSIONS. AS POINTED OUT ON BEHALF OF THE ASSESSEE, WE FIND THAT THE DISALLOWANCE OF INTEREST ON CAPITAL WORK-IN- PROGRESS WAS REVERSED BY THE CO-ORDINATE BENCH IN A SSESSEE'S OWN CASE IN AY 2012-13. THE RELEVANT OPERATIVE PART OF THE ORDE R OF THE ITAT IS REPRODUCED HEREUNDER: '5. WITH THE ASSISTANCE OF THE ID.REPRESE NTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSES SEE HAS ANNUAL REPORT CONTAINING THE BALANCE SHEET AND PLACED ON RECORD OTHER DETAILS. THE ASSESSEE HAS RESERVES AND SURPLUS OF MORE THAN ES.48 CRORES. IT HAS INTERNAL ACCRUAL DURING THE YEAR WHI CH CAN LAKE CARE OF SUCH INVESTMENTS. THE ID. COUNSEL FOR THE ASSESS EE TOOK US THROUGH NET CASH FLOW FROM OPERATIONS AVAILABLE ON PAGE NO.20 OF THE ANNUAL REPORT WHICH SUGGEST THAT THE ASSESSEE H AS NET CASH FLOW RS.16,55,474/-. THUS, CONSIDERING INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF SHARE CAPITAL, RE SERVES AND SURPLUS, AS WELL AS NET REVENUE FROM OPERATIONS, WE ARE OF T HE VIEW THAT ALLEGED INVESTMENT IN WIP COULD BE ASSUMED AS C ARRIED FROM THESE SURPLUS FUNDS. NO NOTIONAL INTEREST OUGHT TO BE CALCULATED FOR CAPIIALIZATION. IN ORDER TO FORTIFY OURSELVES, WE WOULD LIKE TO REFER TO THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF ITA NO.1401/AHD/2017 - 6 - CIT VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 34 0 (BOM). IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL IS ALLOWED . ' 9. THE FACTS AND THE CIRCUMSTANCES BEING SIMILAR WITHOUT ANY MATERIAL CHANGE, WE DO NOT SEE ANY REASON TO DE PART FROM THE VIEW ALREADY TAKEN IN THIS REGARD. IN PARITY WITH THE F INDINGS OF THE CO- ORDINATE BENCH, WE FIND THAT MERIT IN THE PLEA OF T HE ASSESSEE. THE AO IS ACCORDINGLY DIRECTED TO DELETE THE ADDITION MADE ON THIS SCORE. 6. SINCE THERE IS NO DISPARITY ON THE FACTS, AND NO INDEPENDENT FINDING RECORDED BY THE LD.CIT(A) IN THIS YEAR EXCE PT FOLLOWING HIS PREDECESSORS ORDER, WE ARE OF THE VIEW THAT FOLLOW ING ORDER OF CO- ORDINATE BENCH OF THE ITAT, THIS DISALLOWANCE DESER VES TO BE DELETED. WE ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2019. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 25/03/2019