M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana V. ACIT, C -6, Ludhiana

ITA 1451/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7927 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 26-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ADITYA KUMAR
• Keywords: Source of fund; Notional interest; Set aside

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A, CHANDIGARH . . , , BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJ AY GARG, JUDICIAL MEMBER ./ ITA NOS. 1450 & 1451/CHD/2018 ! / ASSESSMENT YEARS : 2013-14 &2014-15 M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., 85,INDUSTRIAL AREA-A, LUDHIANA VS. '# THE ACIT, CIRCLE 6, LUDHIANA $ % ./ PAN NO: AABCI 1842A $&/ APPELLANT ()$& / RESPONDENT *+ , - / ASSESSEE BY : SH. ASHWANI KUMAR, CA & SHRI ADITYA KUMAR, CA , - / REVENUE BY : SH. ROHIT MEHRA, SR. DR . / , +0% / DATE OF HEARING : 10.04.2019 12! , +0% / DATE OF PRONOUNCEMENT : .04.2019 / ORDER PER SANJAY GARG, JUDICIAL MEMBER : THE PRESENT APPEALS FOR DIFFERENT ASSESSMENT YEARS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST THE SEPARATE ORDE RS DATED 14.9.2018 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, LUDHIAN A [HEREINAFTER REFERRED TO AS CIT(A)]. 2. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.1450/CHD/2018 FOR ASSESSMENT YEAR 2013-14. ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 2 3. THE SOLE GROUND TAKEN BY THE ASSESSEE IN THIS AP PEAL IS REGARDING THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWA NCE OF A SUM OF 29,10,663/- OUT OF INTEREST ACCOUNT MADE BY THE ASS ESSING OFFICER U/S 36(1)(III) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'T HE ACT'). 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD SHOWN CAPITAL WORK IN PROGRESS TO THE EXTENT OF 31,50,70,871/-. HE OBSERVED THAT THE ASSESSEE HAD MADE THE PAYMENT OF CAPITAL ADVANCE AND INVESTMENT FOR CONSTRUCTION OF BUILDING OUT OF BORR OWED FUNDS WHICH WAS REQUIRED TO BE CAPITALIZED UP TO THE END OF THE FIN ANCIAL YEAR. THE ASSESSEE SUBMITTED THAT THE INTEREST ON TERM LOAN TAKEN FOR THE PURCHASE OF MACHINERY HAD BEEN DULY CAPITALIZED AND THAT THE F UNDS USED FOR BUILDING WERE OUT OF OWN FUNDS / INTEREST FREE FUNDS AVAILAB LE WITH THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT THE EN TIRE AMOUNT OF BUILDING CONSTRUCTION AND MACHINERY INSTALLATION AND CAPITA L ADVANCE WAS MUCH MORE THAN THE TERM LOAN UTILIZED. IN THE ABSENCE OF ANY SPECIFIC DETAILS, THE ASSESSING OFFICER WORKED OUT THE NOTIONAL INTEREST EXPENDITURE WHICH WAS REQUIRED TO BE CAPITALIZED U/S S 36(1)(III) OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 5. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) BUT REMAINED UNSUCCESSFUL. 6. BEFORE US, LD. COUNSEL FOR THE ASSESSEE HAS SUBM ITTED THAT THE TERM LOANS WERE TAKEN FOR SPECIFIC PURPOSES AND THE TERM LOANS TAKEN FOR ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 3 MACHINERY WERE DULY CAPITALIZED TILL THE MACHINERY WAS PUT TO USE. THAT THERE WAS NO OTHER BORROWED FUNDS WITH THE ASSESSEE . THAT THE SOURCE OF FUNDS FOR THE BUILDING WAS OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE OUT OF SALE PROCEEDS OF THE YEAR. THAT THE ASSESSEE HAD CAPITALIZED THE INTEREST OF 1,08,92,663/- DURING THE YEAR. THAT ALL THE DETAIL S OF THE CAPITAL WORK-IN-PROGRESS, THE FUNDS USED AND THE SO URCE OF THE FUNDS WERE FURNISHED BUT LOWER AUTHORITIES HAVE FAILED TO PROP ERLY APPRECIATE THE DETAILS SUBMITTED BY THE ASSESSEE. THE LD. COUNSEL HAS ALSO SUBMITTED THAT THE LOWER AUTHORITIES HAVE ALSO FAILED TO CONSIDER THE PROPOSITION OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD. [2010] 410 ITR 466 (SC), WHEREIN, THE HON'BLE SUPREME COURT HAS AGAIN CONFIRMED THE PROPOSITION O F LAW THAT IF THE OWN FUNDS / INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSESSEE TO MEET THE INVESTMENT, PRESUMPTION WILL BE THAT THE ASSESSEE H AD USED ITS OWN / INTEREST FREE FUNDS FOR THE SAID INVESTMENT. 7. THE LD. DR, ON THE OTHER HAND, HAS RELIED UPON T HE FINDINGS OF THE LOWER AUTHORITIES. 8. CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSE E, IN OUR VIEW, THE MATTER IS REQUIRED TO BE RESTORED TO THE FILE OF TH E ASSESSING OFFICER TO DULY CONSIDER THE AFORESAID CONTENTION OF THE ASSESSEE, EXAMINE THE DETAILS OF THE FINANCES AVAILABLE WITH THE ASSESSEE VIS-A-VIS AMOUNT CAPITALIZED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN THE LIGHT O F THE DECISION 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 ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 4 MATTER IS REMANDED TO THE ASSESSING OFFICER TO DECI DE THE ISSUE AFRESH AS PER THE OBSERVATIONS MADE ABOVE. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATE D AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1451/CHD/2018 9. THE ASSESSEE IN THIS APPEAL HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') BY THE LD. CIT(A)-3,LUDH IANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS SHE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD THE ACTION OF THE LD. ASSESSING OFFICER IN DISALLOWING A SUM OF 4,86,491/- OUT OF INTEREST ACCOUNT. 2. THAT LD. CIT(A) WAS FURTHER NOT JUSTIFIED TO ARB ITRARILY UPHOLD THE DISALLOWANCE OF 3,39,385/- OUT OF DIWALI EXPENSES, GARDENING EXPENSES, PRINTING & STATIONERY EXPENSES AND WEBSITE PROMOTION CHARGES. 10. GROUND NO.1: VIDE GROUND NO.1, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF A SUM OF 4,86,491/- MADE BY THE ASSESSING OFFICER OUT OF THE INTEREST A CCOUNT UNDER THE PROVISIONS OF SECTION 36(I)(II) OF THE ACT. 11. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER OBSERVED THAT THE ASSESSEE HAD GIVEN WORKING CAPITAL ADVANCE OF 84,60,720/- OUT OF BORROWED FUNDS WHICH WERE RELATABLE TO WORK IN PROG RESS. SINCE THE ASSETS WERE NOT PUT TO USE, THE ASSESSING OFFICER CALCULAT ED THE DISALLOWANCE OF INTEREST BY INVOKING THE PROVISIONS OF SECTION 36(1 )(III) OF THE ACT AND ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 5 WORKED OUT THE NOTIONAL INTEREST EXPENDITURE OF 4,86,491/- AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 12. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSES SING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE OWN / INTEREST FREE FUNDS O F THE ASSESSEE WERE SUFFICIENT TO MEET THE INVESTMENT / INTEREST FREE A DVANCES / CAPITAL WORK IN PROGRESS, MADE BY THE ASSESSEE, HOWEVER, THE LD. CI T(A) HELD THAT SINCE THE FUNDS USED BY THE ASSESSEE WERE OUT OF MIXED FU NDS, HENCE, THE PROVISIONS OF SEC 36(1) (III) OF THE ACT HAVE BEEN RIGHTLY INVOKED BY THE ASSESSING OFFICER. 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE WAS POSSESSED OF SUFFICIENT OWN FUNDS TO MEET THE INVESTMENTS / CAPITAL ADVANCES. THAT THE ASSESSEE COMPANY DURING THE YEAR RAISED FUNDS BY WAY OF SHARE CAPITAL TO THE TUNE OF 37.79 CRORES WHICH WERE CREDITED TO ITS CASH CREDIT ACCOUNT /CURRENT ACCOUNT. THAT T HE SALE PROCEEDS OF THE ASSESSEE COMPANY WERE ALSO CREDITED TO THESE ACCOUN TS AND THAT THESE FUNDS HAVE BEEN USED IN MAKING THE CAPITAL ADVANCE IN QUE STION. MOREOVER, THE FUNDS UTILIZED WERE OUT OF CURRENT ACCOUNT WHICH WA S INTEREST FREE FUNDS. THAT EVEN OTHERWISE THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD. [2010] (SUPRA). ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 6 14. THE LD. DR COULD NOT REBUT THE AFORESAID FACTS THAT THE ASSESSEE WAS POSSESSED OF OWN SUFFICIENT / INTEREST FREE FUNDS A VAILABLE WITH IT TO MEET THE CAPITAL ADVANCES IN QUESTION. 15. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD. (SUPRA). WE THEREFORE, DO NOT FIND ANY JUSTIF ICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE IMPUGNED DISALLOWAN CE. THE SAME IS ORDERED TO BE DELETED. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 16. GROUND NO.2: VIDE THIS GROUND, THE ASSESSEE HAS AGITATED THE ACTION OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF 3,39,385/- AS AGAINST THE DISALLOWANCE OF 3,77,055/- MADE BY THE ASSESSING OFFICER. THE ASS ESSING OFFICER MADE THE DISALLOWANCE OF 3,77,055/- OUT OF THE DIWALI EXPENSES, GARDENING EXPENSES, PRINTING & STATIONERY AND WEBS ITE PROMOTION EXPENSES ON THE GROUND THAT THE SAME WERE NOT PROPE RLY VOUCHED. 17. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THAT MOST OF THE EXPENSES INCURRED BY THE ASSESSEE WERE BY WAY OF AC COUNT PAYEE CHEQUES / BILLS. AS IN CASE OF DIWALI EXPENSES, OUT OF TOTAL EXPENSES OF 4,27,541/-, A SINGLE BILL AMOUNT OF 3,75,000/- WAS PAID THROUGH CHEQUE. LIKEWISE, THE EXPENSES ON WEBSITE PROMOTION, MOST OF THE DEBITS A RE OUT OF THE LAST YEARS PREPAID EXPENDITURE CARRIED OVER TO THE YEAR UNDER CONSIDERATION AND THAT NO CASH EXPENDITURE WERE INCURRED DURING THE YEAR. THAT SIMILAR WAS THE POSITION OF DISALLOWANCE MADE OUT OF OTHER TWO EXPE NDITURE I.E. PRINTING & STATIONARY AND GARDENING EXPENSES. HOWEVER, THE LD. CIT(A) GAVE PART ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 7 RELIEF TO THE ASSESSEE AND CONFIRMED THE REMAINI NG EXPENDITURE FOR WANT OF PROPER VOUCHERS. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSION ON THIS ISSUE. CONSIDERING THE NATURE OF THE EXPENDITURE I.E. AS DIWALI EXPEN SES, GARDENING EXPENSES, PRINTING AND STATIONARY AND WEBSITE PROMOTION EXPEN DITURE INCURRED WHICH ARE USUALLY INCURRED IN DAY TO DAY BUSINESS ACTIVIT Y AND ALSO CONSIDERING THE SMALLNESS OF THE AMOUNT AND FURTHER SUBMISSIONS OF THE ASSESSEE THAT MOST OF THE EXPENDITURE WERE PAID THROUGH ACCOUNT P AYEE CHEQUES, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES IN MAKING THE DISALLOWANCE IN RESPECT OF THE AFORESAID EXPENDITUR E. THE DISALLOWANCES MADE BY THE LOWER AUTHORITIES ON THIS ISSUE ARE THE REFORE, ORDERED TO BE DELETED. IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS TREAT ED AS ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE A SSESSMENT YEAR 2013-14 IS TREATED AS ALLOWED FOR STATISTICAL PURPO SES AND APPEAL FOR THE ASSESSMENT YEAR 2014-15 IS HEREBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.04.2019 SD/- SD/- ( . . / N.K. SAINI) ( ! / SANJAY GARG) '#$ / VICE PRESIDENT % & / JUDICIAL MEMBER DATED : 22. 04.2019 .. 3 , (+45 65!+ / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. ()$& / THE RESPONDENT 3. . 7+ / CIT 4. . 7+ ( )/ THE CIT(A) 5. 58 (+9 , 0 9 , :;<= / DR, ITAT, CHANDIGARH 6. < >/ / GUARD FILE ITA NOS.1450 & 1451-C-18- M/S IOL CHEMICALS AND PHARMACEUTICALS LTD., LUDHIA NA 8 3 . / BY ORDER, ? / ASSISTANT REGISTRAR