M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana V. Addl. CIT, R-I, Ludhiana

ITA 1419/CHANDI/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2657 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C CHANDRAKANTA CIT
• Keywords: Depreciation; Retrospective amendment; Cost of acquisition; Revised return; Set aside
• Section: 115JB; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH A, CHANDIGARH (VIRTUAL COURT) .., !' .. , # $% BEFORE: SHRI. N.K.SAINI, VP & SHRI , R.L. NEGI, JM ITA NO. 1419/CHD/2019 ASSESSMENT YEAR : 2011-12 M/S IOL CHEMICALS AND PHARMACEUTICALS LTD. INDUSTRIAL AREA-A, LUDHIANA ADDL. CIT RANGE-7, LUDHIANA PAN NO: AABCI1842A APPELLANT RESPONDENT !' ASSESSEE BY : SHRI ASHWANI KUMAR, CA SHRI ADITYA KUMAR,CA SHRI BHAVESH JINDAL, CA #!' REVENUE BY : SMT. C. CHANDRAKANTA, CIT $ %! & DATE OF HEARING : 15/04/2021 '()*! & DATE OF PRONOUNCEMENT : 21/06/2021 $&/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DT. 13/08/2019 OF THE LD. CIT(A)-3 LUDHIANA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPE AL: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARB ITRARILY UPHOLD A DISALLOWANCE OF RS. 26,81,157/- MADE BY THE LD. ASSESSING OFFICER OU T OF INTEREST ACCOUNT BY RESORT TO PROVISIONS OF SEC. 36(1)(III). 2. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARIL Y UPHOLD THAT A SUM OF RS. 51,14,705/- (ACTUAL FIGURE IS RS. 51,41,705/-) AND RS. 1,80,694/- OUT OF INTEREST ACCOUNT DESERVES TO BE CAPITALIZED WITHOUT GIVING A NY BENEFIT OF DEPRECIATION. 2 3. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARIL Y UPHOLD THE ADDITION OF RS. 35,60,870/- MADE BY THE LD. ASSESSING OFFICER BY RES ORT TO PROVISIONS OF SEC. 41(1) ON ACCOUNT OF OUTSTANDING BALANCES OF SUNDRY CREDI TORS FOR A PERIOD OF MORE THAN THREE YEARS. 3. VIDE GROUND NO. 1 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF DISALLOWANCE OF RS. 26,81,157/- MADE BY THE A.O. UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT ). 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 29/09/2011 DECLARING LOSS OF RS. 26,41,16,886/- UNDER THE NORMAL PROVISIONS OF THE ACT AND THE INCOME WAS SHOWN AT RS. 7,92,46,075/- UNDER SECTI ON 115JB OF THE ACT, THEREAFTER THE ASSESSEE FILED REVISED RETURN ON 29/09/2 011 SHOWING A NET LOSS OF RS. 26,41,16,886/- AND INCOME UNDER SECTION 115JB OF THE A CT WAS REVISED TO RS. 9,04,31,275/- LATER ON THE CASE WAS SELECTED FOR SCRU TINY. 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O . NOTICED THAT THE ASSESSEE HAD GIVEN FUNDS TO M/S G. DRUGS AND PHARMACEUTICALS LTD. (GDPL) ITS ASSOCIATED CONCERN, THE BALANCE ON THE LAST DATE WAS RS. 2,06,24,284 /- WHICH WAS SHOWN IN OTHER DEBTORS. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHETHER ANY INTEREST HAD BEEN CHARGED ON THE FUNDS GIVEN OUT AND THAT AS TO WHY THE INTERES T ON FUNDS DIVERTED FOR NON BUSINESS PURPOSE SHOULD NOT BE DISALLOWED. IN RESPO NSE THE ASSESSEE SUBMITTED AS UNDER: REGARDING YOUR QUERY ABOUT DISALLOWANCE OF INTERE ST ON LOAN TO G DRUGS AND PHARMACEUTICAL LIMITED (GDPL), IT IS SUBMITTED THAT GDPL HAS BEEN MERGED WITH THE ASSESSEE COMPANY WITH RETROSPECTIVE EFFECT FROM 01. 04.2010 AS PER BIFR ORDER DATED 15.03.2012. HENCE, QUESTION OF DISALLOWANCE OF INTE REST ON LOAN TO GDPL DOES NOT ARISE. COPY OF ORDER IS ENCLOSED FOR YOUR KIND REFERENCE. 4.2 THE A.O. AFTER CONSIDERING THE SUBMISSIONS OF THE AS SESSEE OBSERVED THAT ONLY COPY OF ORDER OF BIFR WAS FURNISHED AND NO COPY OF A MALGAMATION ORDER FROM THE HON'BLE PUNJAB & HARYANA HIGH COURT HAD BEEN FURNISHED, THE REFORE THE SUBMISSION OF THE ASSESSEE WERE NOT ACCEPTABLE. ACCORDINGLY THE DIS ALLOWANCE OF RS. 26,81,157/- WAS MADE UNDER SECTION 36(1)(III) OF THE ACT WHICH WAS WORK ED OUT @13% ON RS. 2,06,24,284/- 3 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: GROUND NO. 1 DISALLOWANCE OF INTEREST U/S 36(1)(III) REGARDING THE DISALLOWANCE OF INTEREST U/S 36(L)III ), IT IS SUBMITTED THAT THE DEBIT BALANCE IS ON ACCOUNT OF PAYMENTS MADE TO THE THIRD PARTIES BY THE APPELLANT COMPANY ON BEHALF OF M/S. G. DRUGS AND PHARMACEUTIC ALS LIMITED AND THROUGH CHEQUES FROM BANK ACCOUNTS TO THE APPELLANT COMPANY WHEREIN SALE PROCEEDS AS WELL AS THE INTEREST FREE AMOUNTS WERE ALSO RECE IVED/CREDITED BY THE APPELLANT. OTHERWISE ALSO THE APPELLANT COMPANY IS A LSO HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WHICH CAN BE SAID TO HAVE USED IN MAKING SUCH ADVANCE OR COVERS THE INTEREST FREE ADVANCES TO M/S. G. DRUGS AND PHARMACEUTICALS LIMITED. THE DETAIL OF INTEREST FREE FUNDS AS WERE AVAILABLE WITH THE APPELLANT ARE AS UNDER:- S.SO. PARTICULARS 31.03.2010 31.03.2011 1 SHARE CAPITAL INCLUDING SHARE PREMIUM 100,90,89,8 00 118,90,89,800 2 UNSECURED LOANS 17,55,68,004 59,74,14,914 TOTAL 118,46,57,804 178,65,04,714 FROM THE ABOVE IT IS VERY MUCH CLEAR THAT THE APPEL LANT HAD RAISED INTEREST FUNDS FROM ITS RESOURCES MORE THAN RS. 60,18,46,910/- DUR ING THE YEAR UNDER APPEAL AND HAD MUCH MORE INTEREST FREE FUNDS THAN THE AMOUNTS ADVANCED TO ITS SISTER CONCERN M/S G. DRUGS AND PHARMACEUTICALS LIMITED. YOUR HONOUR'S KIND ATTENTION IS DRAWN TO THE LATEST DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES LIMITED RE PORTED IN 379ITR PAGE 347 WHEREIN THEIR LORDSHIPS HAVE HELD THAT IF THE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE AMOUNT ADVANCED, NO DISALLOWANCE OF I NTEREST IS WARRANTED. KEEPING IN VIEW THESE FACTS, THE DISALLOWANCE DESER VES TO BE DELETED. FURTHER YOUR HONOUR'S KIND ATTENTION IS ALSO DRAWN TO THE LATEST JURISDICTIONAL HIGH COURT JUDGEMENT IN THE CASE OF CLT V/S KAPSONS ASSO CIATES (P & H HIGH COURT) (2016) REPORTED IN 381 ITR P. 204. ALSO THE ISSUE IS DECIDED IN FAVOUR OF THE APPELLAN T COMPANY IN THE EARLIER ASSESSMENT YEARS I.E. 2007-08, 2008-09, 2009-10 AND 2010-11 BY LD. CIT-A (4), LUDHIUNA. COPY OF ORDER OF' CIT-A(4), LUDHIANA FOR THE A. Y.2010-11 IS ENCLOSED FOR YOUR KIND REFERENCE. THE ABOVE GROUND MAY KINDLY BE ADJUDICATED IN THE L IGHT OF THE SUBMISSIONS MADE ABOVE. 5.1 THE LD. CIT(A) HOWEVER DID NOT FIND MERIT IN THE SUBM ISSIONS OF THE ASSESSEE AND SUSTAINED THE DISALLOWANCE BY OBSERVING IN PARA 3.4 TO 3.6 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 4 3.4 I HAVE CAREFULLY CONSIDERED THE APPELLANT'S SUB MISSION. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER. I HAVE ALSO CAREFULLY CONSIDERED CASE LAWS RELIED UPON BY THE APPELLANT. I HAVE ALSO CONSIDERED THE E ARLIER ORDERS IN THE CASE OF ASSESSEE COMPANY BY THE CIT APPEAL -4, WHILE CONSID ERING IDENTICAL ADDITION MADE IN EARLIER YEARS , THE SAME HAVE BEEN DELETED. HOWEVER DISAGREEING RESPECTFULLY WITH THE DECISION OF MY PREDECESSER CI T APPEAL-4, I FIND THAT THE ASSESSEE HAS COMPLETELY FAILED TO EXPLAIN THE COMME RCIAL EXPEDIENCY FOR WHICH THE AMOUNT OF LOAN EXTENDED TO ITS SISTER CONCERN W ITHOUT INTEREST, WHEREAS , AT THE SAME TIME THE ASSESSEE HAD BEEN PAYING HEFTY IN TEREST ON LOAN TAKEN BY IT. ASSESSEE HAS ALSO FAILED TO EXPLAIN THE HUGE ADVANC ES GIVEN BY IT, TO ITS SISTER CONCERN M/S G. DRUGS AND PHARMACEUTICALS LTD. IT IS AN ADMITTED FACT, THAT THE ASSESSEE HAD BEEN USING MIXED FUNDS , WHEREIN THE I NTEREST FREE FUNDS AND INTEREST-BEARING FUNDS BOTH HAVE BEEN MERGED. CONSI DERED THE EXPLANATION OF APPELLANT OF HAVING INTEREST FREE FUNDS, 3.5 I FIND THAT THE APPELLANT HAS FAILED TO EXPLAIN TO DEMONSTRATE WITH THE DOCUMENTARY EVIDENCE , THE AVAILABILITY OF INTEREST FREE FUNDS ,ON THE DATES ON WHICH THE ASSESSEE HAS EXTENDED THE INTEREST FREE L OANS TO ITS SISTER CONCERN . IT IS SEEN THAT APART FROM REITERATING ITS CONTENTION THA T ASSESSEE HAS NOT GIVEN ANY OTHER EXPLANATION W.R.T THE AVAILABILITY OF INTERES T FREE FUNDS , AND ITS UTILIZATION. 3.6 THE ASSESSEE HAS EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDING, THAT THE SISTER CONCERN OF APPELLANT NAMELY M/S G. DRUGS AND PHARMACEUTICALS LTD (GDPL) HAS BEEN MERGED WITH THE ASSESSEE COMPAN Y WITH RETROSPECTIVE EFFECT FROM 1/4/ 2010 AS PER ORDER OF BIFR DATED 15 TH MARCH 2012. HOWEVER THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS NOT SUBMITTED THE COPY OF ORDER OF BIFR , AS THE MERGER OF THE COMPANY HAS TO BE APPROVED BY THE HIGH COURT. THE ASSESSEE HAS NOT SUBMITTED THE COPY OF A MALGAMATION ORDER FROM PUNJAB AND HARYANA HIGH COURT. THE ASSESSING OFFICE R HAS ALSO NOTICED, THAT IF THE AMALGAMATION HAS TAKEN PLACE IN THAT CASE , THE ACC OUNTS SHOULD ALSO HAVE BEEN MERGED BUT THAT IS NOT THE CASE IN THE CASE OF APPELLANT COMPANY.. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE HA D AMPLE TIME AND OPPORTUNITY TO FURTHER ITS SUBMISSION BY FILING ABO VE MENTIONED DOCUMENTS IN SUPPORT OF ITS CONTENTION. HOWEVER THE ASSESSEE HAS MERELY REITERATED THE SAME SUBMISSIONS AS RELIED UPON AT THE TIME OF ASSESSMEN T PROCEEDINGS. DURING THE ENTIRE ASSESSMENT PROCEEDINGS AND APPELLATE PROCEED INGS THE ASSESSEE HAS NOT BEEN ABLE TO CORRELATE OR SUBSTANTIATE AMOUNT GIVEN TO M/S G. DRUGS AND PHARMACEUTICALS LTD (GDPL) OUT OF COMMERCIAL EXPEDI ENCY. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: C.R. AULUCK & SONS (2014) 360 ITR 93 (P&H) S.A. BUILDERS, (2007) 288 ITR 1 (SC) CIT VS. MALYALAM PLANTATIONS (1964) 53 ITR 140 (SC) CIT VS. BIRLA COTTON SPINNING AND WEAVING MILLS, (1971) 82 ITR 166 (SC) 5 TULIP STAR HOTELS (2012) 21 TAXMANN 97 (SC) CRESCENT ORGANICS (P.) LTD. VS. DCIT (2014) 49 TAXMA NN.COM 128 (BOM) HERO CYCLES (SC) CIVIL APPEAL NO. 514 OF 2008 CIT VS. KAPSONS ASSOCIATES (2017) 79 TAXMANN.COM 364 ( P&H) CIT VS. ABHISHEK INDUSTRIES LTD. 286 ITR 1 CIT VS. ORISSA CEMENT LTD. 258 ITR 365 (DEL) CIT VS. H.P. SUGAR FACTORY PVT. LTD. (ALL) 187 ITR 363 6. NOW THE ASSESSEE IS IN APPEAL. 7. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMIS SIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE DEBIT BALANCE WAS ON ACCOUNT OF PAYMENT MADE TO THE THIRD PARTIES BY THE ASSESSEE ON BEHA LF OF THE M/S G. DRUGS AND PHARMACEUTICALS LTD. IT WAS FURTHER SUBMITTED THAT THE PAYMENT WAS MADE THROUGH CHEQUES, SALE PROCEEDS AS WELL AS INTEREST FREE AMOUNT WERE ALSO RECEIVED / CREDITED BY THE ASSESSEE IN THE ACCOUNT OF THE SAID COMPANY. IT WA S ALSO SUBMITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAIL ABLE WHICH COULD BE SAID TO HAVE BEEN USED IN MAKING SUCH ADVANCES TO COVER THE INTEREST FREE ADVANCES TO M/S GDPL. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPRE ME COURT IN CASE OF HERO CYCLES LIMITED REPORTED IN 379 ITR 347. 8. IN HER RIVAL SUBMISSIONS THE LD. CIT DR STRONGLY SUP PORTED THE ORDER OF THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT IT IS NOT CLEAR THAT AS TO WHETHER THE ASSESSEE WAS HAVING INTEREST FREE ADVANCES WHICH WERE U TILIZED TO GIVE THE ADVANCES TO THE SISTER CONCERN, THEREFORE, THIS ISSUE MAY BE SET AS IDE TO THE A.O. FOR VERIFICATION. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, T HE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE COMPANY WAS HAVING SU FFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT WHICH WOULD BE SAID TO HAVE BEEN USED IN MAKING INTEREST FREE ADVANCES TO M/S GDPL REQUIRES VERIFICATION AT THE LE VEL OF THE A.O. THEREFORE THIS ISSUE IS 6 SET ASIDE TO THE FILE OF THE A.O. TO BE ADJUDICATED A FRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITIES OF BEING HEAR D TO THE ASSESSEE. 10. THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE SUST ENANCE OF ADDITION OF RS. 51,41,705/- AND RS. 1,80,694/- OUT OF INTEREST. 11. AS REGARDS TO THIS ISSUE THE FACTS IN BRIEF ARE THA T THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD T AKEN TERM LOAN FOR PURCHASE OF MACHINERY, HE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE INTEREST PERTAINING TO LOAN TAKEN FOR PURCHASE OF MACHINERY SHOULD NOT BE DISALLOW ED AND CAPITALIZED TO BE INCLUDED AS COST OF MACHINERY, AS AND WHEN THE SAME WAS P URCHASED AND PUT TO USE. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: REGARDING WORKING OF INTEREST CAPITALIZED ON ADDI TIONS TO FIXED ASSETS, IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT AVAILED ANY FRESH TERM LOAN DURING THE YEAR UNDER CONSIDERATION WHICH WAS USED FOR PURCHASE OF MIXED ASSETS AND PUT TO USE. THEREFORE, NO ADDITION OF INTEREST WAS MADE IN THE CAPITALIZATION OF FIXED ASSETS. HOWEVER, THE ASSESSEE COMPANY HAS CAPITALIZED DUE INTEREST PAID ON LOAN A VAILED ON THE AMOUNT OF CAPITAL WORK IN PROGRESS WHICH IS STILL NOT CAPITALIZED DURING T HE YEAR UNDER CONSIDERATION DETAILS OF WHICH HAS ALREADY BEEN SUBMITTED ON 08-01-2014. 11.1 THE A.O. HOWEVER WAS NOT SATISFIED FROM THE SUBMI SSIONS OF THE ASSESSEE AND MADE THE DISALLOWANCE OF RS. 1,80,694/- BY OBSERVING AS UNDER: THE ASSESSEE'S SUBMISSION IS CONSIDERED BUT THE SAM E ARE NOT ACCEPTABLE BECAUSE IT HAS TAKEN LOAN FOR PURCHASE OF MACHINERY DURING THE YEA R. THERE IS GAP BETWEEN THE PAYMENTS MADE AND THE DATE ON WHICH MACHINERY IS PU T TO USE. THERE IS ADDITION TO ASSETS TO THE EXTENT OF RS 2,94,41,623/-. INTEREST WORKED OUT FROM THE DATE OF PAYMENTS TO DATE OF ASSET PUT TO USE COMES TO RS.1,80,694/-. INTEREST R ELEVANT TO THE DATE OF PAYMENT TO ASSET PUT TO USE IS REQUIRED TO BE DISALLOWED U/S 36(1 )( III) OF THE LT. ACT ACCORDINGLY APPLYING THE INTEREST @ 13% ON ASSET PUT TO USE I.E. RS. 1,80,69 4/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. PENALTY PROCEEDINGS U/S 271 (1)(C) ARE INIT IATED ON THIS POINT FOR SUBMITTING IN ACCURATE PARTICULAR INCOME. 11.2 THE A.O. ALSO OBSERVED THAT THE ASSESSEE HAD SHOWN CAPITAL WORK IN PROGRESS TO THE EXTENT OF RS. 61,76,82,251/-. HE ASKED THE ASSESSE E TO EXPLAIN AS TO WHY THE INTEREST ON WORKING CAPITAL SHOULD NOT BE CAPITALIZED. IN RESPON SE THE ASSESSEE SUBMITTED AS UNDER: 'DETAIL OF CAPITAL WORK IN PROGRESS IS ENCLOSED HER EWITH FOR YOUR REFERENCE. 7 FURTHER, THE ASSESSEE COMPANY HAS THE POLICY TO CAP ITALISE THE INTEREST TUT THE DATE THE ASSET IS PUT TO USE AND THE SAME IS ALSO E VIDENCED BY THE BELOW MENTIONED NOTES TO THE ACCOUNTS:- (A) BORROWING COSTS BORROWING COSTS THAT ARE ATTRIBUTABLE TO ACQUISITIO N OR CONSTRUCTION OF A QUALIFYING ASSET ARE CAPITALISED AS PART OF COST OF SUCH ASSET S. QUALIFYING ASSET IS ONE THAT NECESSARILY TAKES SUBSTANTIAL PERIOD OF TIME TO GET READY FOR ITS INTENDED USE. ALL OTHER BORROWING COSTS ARE RECOGNISED AS EXPENSES IN THE PERIOD IN WHICH THEY ARE INCURRED. (B) FIXED ASSETS FIXED ASSETS ARE STATED AT COST (NET OF CENVAT) LES S ACCUMULATED DEPRECIATION. COST OF ACQUISITION IS INCLUSIVE OF FREIGHT, DUTIES , TAXES AND OTHER INCIDENTAL EXPENSES AND INTEREST ON LOAN TAKEN FOR THE ACQUIS ITION OF QUALIFYING ASSETS UP TO THE DATE OF COMMISSIONING OF ASSETS. AS PER ACCOUNTING POLICY BEING FOLLOWED YEAR AFTER YEAR, THE ASSESSEE COMPANY HAS ALREADY CAPITALISED SUM AMOUNTING TO RS. 87 ,26 ,813/- REPRESENTING THE AMOUNT SHOWN UNDER THE HEAD CAPITAL WORK IN PROGRES S (PROJECT DEVELOPMENT ACCOUNT) AS IS EVIDENT FROM THE COPY OF THE ACCOUNT ALREADY SUBMITTED ABOVE. AS SUCH THE REQUISITE AMOUNT OF INTEREST HAS ALREAD Y BEEN CAPITALISED ON THE AMOUNTS USED OUT OF BORROWED FUNDS IN THE BOOKS OF ACCOUNTS SO NO FURTHER DISALLOWANCE IS WARRANTED ON THIS ACCOUNT' 11.3 THE LD. CIT(A) HOWEVER DID NOT FIND MERIT IN THE SUB MISSIONS OF THE ASSESSEE AND SUSTAINED THE DISALLOWANCE, THE RELEVANT FINDINGS HAVE BE EN GIVEN IN PARA 8.5 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 8.5 THE ASSESSEE'S ARGUMENT THAT THE INTEREST WOULD BE CAPITALIZED WHEN THE ASSET IS PUT TO USE IS NOT ACCEPTABLE. AS PER PROVISO TO SECTION 36(L){III) OF THE LT. ACT INTEREST IS TO BE CAPITAL IZED TILL THE DATE OF ACTUAL USE FOR THE PURPOSE OF BUSINESS. IN THE INSTANT CASE IT HAS TO BE UTILIZED UPTO END OF FINANCIAL YEAR. THE ASSESSEE HAS FURNISHED THE W ORKING OF INTEREST FROM DATE OF PAYMENT IN RESPECT OF BUILDING UNDER CONSTR UCTION WHICH COMES TO RS. 19,14,381/-. SAME IS CAPITALISED TO BUILDING UN DER CONSTRUCTION. IN RESPECT OF CAPITAL ADVANCES THE AR EXPLAINED THAT I T HAS GONE OUT OF THE TERM LOAN WHOSE INTEREST HAS BEEN CAPITALIZED. THE ARGUMENT PUT FORTH IS NOT ACCEPTABLE BECAUSE THE ENTIRE AMOUNT OF BUILDING UN DER CONSTRUCTION, MACHINERY UNDER INSTALLATION AND CAPITAL ADVANCES I S MUCH/MORE THAN THE TERM LOAN UTILIZED. FURTHER, NO WORKING IN RESPECT OF TH E INTEREST ON CAPITAL ADVANCES HAS BEEN FURNISHED. HENCE, IN-ABSENCE OF DETAILS, THE INTEREST IS WORKED OUT AT HALF OF THE ENTIRE YEAR. THE CAPITAL ADVANCES ARE T O THE EXTENT OF RS. 4,96,51,140/-. INTEREST ON THE SAME AT HALF OF THE INTEREST FOR EN TIRE YEAR COMES TO RS.32,27,324/- (RS.49651140 * 13% /2). TOTAL DISALLOWANCE ON THIS ACCOUNT COMES TO RS.51,41,705/- 8 (RS.1914381 +RS.3227324). THE INTEREST TO THE EXTEN T OF RS. 51,41,705/- IS THEREFORE DISALLOWED AND CAPITALIZED UNDER PROVISO TO SECTION 36(L)(III) OF THE I.T. ACT THE SAME WOULD FORM PART OF THE ASSETS AND DEPRECIATION WOULD BE ALLOWED ACCORDINGLY WHEN THE ASSET IS PUT TO USE. PENALTY P ROCEEDINGS U/S 271(L)(C) OF THE I.T. ACT ARE INITIATED ON THIS POINT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 12. NOW THE ASSESSEE IS IN APPEAL. 13. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET STATED THAT THIS ISSUE HAS BEEN ADJUDICATED BY THE ITAT IN ASSESSEES OWN CASE, IN ITA NOS. 1450 & 1451/CHD/2018 FOR THE A.Y. 2013-14 & 2014-15 VIDE ORDER DT. 22/04/2019 , COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD. 14. THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 15. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT A SIMILAR ISSUE WAS A SUBJECT MATTER OF THE ASSESSEES APPEAL IN ITA NO. 1450 & 1451/CHD/2018 (SUPRA) WHEREIN VIDE ORDER DT. 22/04/2019 THE ISSUE HAS BEEN SET ASIDE TO THE A.O. AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARA 8 OF THE ORDER WHICH READ AS UNDER : 8. CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSE E, IN OUR VIEW, THE MATTER IS REQUIRED TO BE RESTORED TO THE FILE OF THE ASSESSIN G OFFICER TO DULY CONSIDER THE AFORESAID CONTENTION OF THE ASSESSEE, EXAMINE THE D ETAILS OF THE FINANCES AVAILABLE WITH THE ASSESSEE VIS-A-VIS AMOUNT CAPITA LIZED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE DECISIO N OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD. (SUPRA). THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE MATTER IS REMANDE D TO THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS PER THE OBSERVATIONS MAD E ABOVE. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. 16. BY RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER, THESE ISSUES ARE SET ASIDE TO THE FILE OF THE A.O. 17. THE NEXT ISSUE VIDE GROUND NO. 3 RELATES TO THE SUST ENANCE OF ADDITION OF RS. 35,60,870/- MADE BY THE A.O. BY INVOKING THE PROVISIONS OF SECTION 41(1) OF THE ACT. 9 18. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FURNISH THE COMPLETE DETAILS OF SUNDRY CREDITORS OF THE LAST THREE YEARS. FROM THE DETAILS O F THE CREDITORS THE A.O. FOUND THAT CERTAIN CREDITORS WERE OUTSTANDING FOR THE LAST THREE Y EARS. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: 'AS DESIRED, DETAILS OF SUNDRY CREDITORS WHIC H REMAINED OUTSTANDING FOR THE LAST THREE YEARS ARE ENCLOSED. REGARDING YOUR HONOUR'S QUERY AS TO WHY THESE ARE NOT TREATED AS CESSATION OF LIABILITY AND BROUGHT TO TA X U/S 41(1) OF THE ACT, IN REPLY, IT IS SUBMITTED THAT AS A MATTER OF PRACTICE, THE ASS ESSEE COMPANY REVIEW SUCH CREDITORS PERIODICALLY AND AS PER THE DECISION OF THE B OARD OF DIRECTORS OF THE COMPANY THESE CREDITORS ARE WRITTEN BACK. HOWEVER, FEW AMOUNTS WERE STILL OUTSTANDING WHICH ARE PENDING BECAUSE OF SOME DISPUTE WHIC H I S T O BE SETTLED . BECAUSE OF PENDING SETTLEMENT THESE ARE NOT WRITTEN BACK AND AS AND WHEN THE SAME IS SETTLED, THIS WILL BE ADJU S T ED. 18.1 THE A.O. HOWEVER DID NOT FIND MERIT IN THE SUBMISSIO NS OF THE ASSESSEE BY OBSERVING THAT THE SUNDRY CREDITORS AMOUNTING TO RS. 35,6 0,870/- WERE OUTSTANDING FOR MORE THAN THREE YEARS, SO IT WAS LIABLE TO BE TAXED UND ER SECTION 41(1) OF THE ACT AS CESSATION OF LIABILITY. ACCORDINGLY THE ADDITION OF RS. 35,60,870/- WAS MADE. 19. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: ADDITION OF RS.35,60,870/- N/S 41(1) ON ACCOUNT OF SUNDRY CREDITORS BALANCES OUTSTANDING FOR THE LAST 3 YEARS AND HAS NOT BEEN P AID TILL NOW, THEREFORE, IT IS BEING BROUGHT TO TAX U/S 41(1) OF THE INCOME TAX AC T, 1961 AS CESSATION OF LIABILITY. IT IS SUBMITTED THAT AS A MATTER OF PRACTICE, THE A PPELLANT COMPANY REVIEW SUCH CREDITORS/OLD OUTSTANDING CREDIT BALANCES PERIODICA LLY BY THE BOARD OF DIRECTORS FOR WRITING BACK. A CHART SHOWING THE PRESENT STATU S OF CREDIT BALANCE WHICH HAVE BEEN ADDED BY THE LD. ASSESSING OFFICER IS ENCLOSED . THE PERUSAL OF THE CHART REVEALS THAT SOME PAYMENTS WERE MADE AFTER PASSING OF ASSESSMENT ORDER AND SOME OF THEM HAVE BEEN WRITTEN BACK AS PER THE PRAC TICE OF THE APPELLANT COMPANY. IN TWO CASES, THE APPELLANT COMPANY HAS AL SO FILED LEGAL SUIT AGAINST THE PARTIES, THE ORDERS OF WHICH ARE STILL AWAITED AS ON DATE. THUS IN THESE CIRCUMSTANCES THE QUESTION OF TAKING THE BALANCES A S A CESSATION OF LIABILITY AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT AND THIS GROUND OF APPEAL MAY KINDLY BE ADJUDICATED ACCORDINGLY. 19.1 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUSTAINED THE ADDITION BY OBSERVING IN PARA 8.2 & 8.3 OF THE IMPUGNED ORDER AS UNDER: 10 8.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE APPELLANT HAS COMPLETELY FAILED TO SUBSTANTIATE ITS CLAIM, THAT T HESE LIABILITIES WERE STILL OUTSTANDING. IN ADDITION TO THIS, THE ASSESSING OFF ICER OBSERVED, THAT THE ASSESSEE HAD NOT TAKEN ANY STEPS AT ALL TO RECOVER THE DUES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE COULD NOT FILE ANY CORRESPONDENCE, IN THIS REGARD TO SUBSTANTIATE ITS CLAIM , THAT THESE LIABI LITIES WERE STILL PENDING AND THE ASSESSEE HAD TAKEN STEPS TO RECOVER THESE LIABILITI ES. THE ASSESSING OFFICER HAS STATED, THAT ALL THE LIABILITIES WERE PENDING SINCE 31/03/2007 AS PER THE CHART REPRODUCED BY THE IN PARA-4.6 ON PAGE 13 OF ASSESSM ENT ORDER. AT THE TIME OF APPELLATE PROCEEDINGS THE APPELLANT HAS COMPLETELY FAILED TO FILE ANY STAISFACTORY WRITTEN SUBMISSION OR ANY DOCUMENTARY EVIDENCE IN S UPPORT OF ITS CONTENTION. THE APPELLANT HAS SUBMITTED DURING APPELLATE PROCEEDING S, THAT SOME PAYMENTS WERE MADE AFTER PASSING OF ASSESSMENT ORDER AND SOM E OF THEM HAVE BEEN WRITTEN BACK AS PER THE PRACTICE OF THE APPELLANT C OMPANY. IN TWO CASES, THE APPELLANT COMPANY HAS ALSO FILED LEGAL SUIT AGAINST THE PARTIES, THE ORDERS OF WHICH ARE STILL AWAITED AS ON DATE. THUS IN THESE C IRCUMSTANCES THE QUESTION OF TAKING THE BALANCES AS A CESSATION OF LIABILITY AS PER THE PROVISIONS OF SECTION 41(1) OF THE ACT AND THIS GROUND OF APPEAL MAY BE ADJUDIC ATED ACCORDINGLY. 8.3. AFTER CAREFUL CONSIDERATION OF SUBMISSION OF A PPELLANT, IT IS OBSERVED , THAT THE APPELLANT HAS MERELY FILED A WRITTEN SUBMISSION, HO WEVER THE APPELLANT , HAS NOT ANNEXED, ANY DOCUMENTARY EVIDENCE W.R.T ITS CLAIM O F PAYMENT O SOME OF PARTIES, AND FILING OF LEGAL SUITS AGAINST TWO PART IES. IN ABSENCE OF SAME, THE CONTENTION OF APPELLANT HAS NO FORCE, HENCE THE SAM E IS REJECTED. ACCORDINGLY, IN MY CONSIDERED VIEW THE ASSESSING OFFICER HAS RIGHTL Y DISALLOWED THE AMOUNT OF RS. 35,60,870/- ON ACCOUNT OF CESSATION OF LIABILITY IN THE SECTION 41 (1). ACCORDINGLY THE DISALLOWANCE ON ACCOUNT OF CESSATION OF LIABILI TY IN THE SECTION 41(1) IS UPHELD. THESE GROUNDS OF APPEAL ARE THEREFORE DISMISSED. 20. NOW THE ASSESSEE IS IN APPEAL. 21. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMIS SIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT SINCE THE RE WAS NO CESSATION OF THE LIABILITY, THEREFORE THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAININ G THE ADDITION MADE BY THE A.O. IT WAS FURTHER SUBMITTED THAT CERTAIN PAYMENTS WERE MADE A FTER PASSING OF THE ASSESSMENT ORDER AND AMOUNTS OF FEW HAD BEEN WRITTEN BACK AS PER PRACTICE OF THE ASSESSEE COMPANY, IN TWO CASES THE ASSESSEE HAD FILED LEGAL SUIT AGAINST THE PARTIES AND THE ORDERS FOR WHICH WERE STILL AWAITED, THEREFORE T HE ADDITION MADE BY THE A.O. AND SUSTAINED BY THE LD. CIT(A) WAS NOT JUSTIFIED. 22. IN HER RIVAL SUBMISSIONS THE LD. CIT DR SUBMITTED THAT THE FACT NARRATED NOW BY THE LD. COUNSEL FOR THE ASSESSEE THAT FEW OF THE BALAN CES WERE WRITTEN BACK AND THE 11 PAYMENTS WERE MADE IN CERTAIN CASES WERE NOT BROUGHT TO THE KNOWLEDGE OF THE A.O. THEREFORE THIS ISSUE MAY BE SET ASIDE TO THE A.O. FOR VERIFICATION. 23. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTI ES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT APPEARS THAT THE FACTS THAT PAYMENTS WERE MADE IN CERTAIN CASES AFTER PASSING OF THE ASSESSMENT ORDER AND FEW WERE WRITTEN BACK AS PER THE PRACTICE OF THE ASSESS EE COMPANY WERE NOT BROUGHT TO THE KNOWLEDGE OF THE A.O. AND THE LD. CIT(A) IS ALSO SI LENT ON THOSE FACTS. WE THEREFORE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE A.O. TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITIES OF BEING HEARD TO THE ASSESSEE. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 21.06.2021) SD/- SD/- .. .., (R.L. NEGI ) ( N.K. SAIN I) # $%/ JUDICIAL MEMBER / VICE PRESIDENT AG DATE: 21.06.2021 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR