KLT AUTOMOTIVE AND TUBULAR PRODUCTS LTD, MUMBAI V. DCIT 10(1)(2), MUMBAI

ITA 1508/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4853 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2013-2014
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL H BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE- PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 1508/MUM/2018 (ASSESSMENT YEAR 2013-14 ) M/S KLT AUTOMOTIVE AND TUBULAR PRODUCTS LTD. B-601, ELEGANT BUSINESS PARK, MIDC ROAD NO. 2, J B NAGAR, ANDHERI(EAST), MUMBAI- 400059. PAN: AAACT3895R VS. DCIT-10(1)(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-4000020. APPELLANT RESPONDE NT APPELLANT BY : SHRI YAGNESH DESAI WITH SHRI HEMANT BAHEDIA (AR) RESPONDENT BY : SHRI SAURABH KUMAR RAI (DR) DATE OF HEARING : 16.04.2019 DATE OF PRONOUNCEMEN T : 22.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 17, MUMBAI [HEREINAFTER REFERRED AS LD. CIT(A)] DAT ED 20.12.2017 FOR ASSESSMENT YEAR 2013-14. THE SOLE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THAT THE LD. DY.CIT HAS ERRED IN DISALLOWING THE INTEREST EXPENSES OF RS. 1,42,78,820/- AS CAPITAL IN NATURE U/S. 36(1)(III) DURING THE YEAR. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPA NY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FRAME ASSEMBLY OF CHES IS AND TUBES, FILED ITA NO. 1508 MUM 2018-M/S KLT AUTOMOTIVE AND TUBULA R PRODUCTS LTD. 2 ITS RETURN OF INCOME ON 30.11.2013 DECLARING LOSS OF RS. 13,76,29,431/-. DURING THE ASSESSMENT, THE ASSESSING OFFICER NOTED THAT ASSESSEE MADE INVESTMENT IN CAPITAL ASSET AND IN SUBSIDIARY OF RS . 132.21 CRORE. THE ASSESSEE HAS CAPITALIZED THE INTEREST TOTALING OF R S. 14.44 CRORE. THE PERCENTAGE OF INTEREST CAPITALIZATION WAS WORKED OU T BY ASSESSING OF 10.92%. ON PERUSAL OF RECORD, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS PAID INTEREST TO BANK ON THE FINANCIAL INSTITUT ION AT THE AVERAGE RATE OF 12%, THEREFORE, THE ASSESSEE WAS ASKED AS TO WHY THE DIFFERENTIAL AMOUNT OF INTEREST SHOULD NOT BE CAPITALIZED. THE A SSESSEE FILED ITS REPLY AND STATED THAT ASSESSEE EARNED DIRECT INCOME FROM THE PART OF THESE INVESTMENTS AND NO INTEREST SHOULD BE DISALLOWED. T HE ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT SUBMITTED ANY DETAILS I N THIS REGARD. THE ASSESSING OFFICER TOOK HIS VIEW THAT INTEREST BEAR ING FUNDS HAVE BEEN USED FOR MAKING CAPITAL INVESTMENT. THEREFORE, THE ASSESSING OFFICER DISALLOWED 1.08% OF RS. 132.21 CRORE WHICH IS WORKE D OUT AT RS. 1,42,78,820/-. ON APPEAL BEFORE THE LD. CIT(A), THE ACTION OF ASSESSING OFFICER WAS CONFIRMED. THUS, FURTHER AGGRIEVED BY T HE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL B EFORE US. 3. WE HAVE HEARD THE SUBMISSION OF LD. AUTHORIZED REPR ESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENT REPRESENTATIVE (DR) FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE L D. AR OF THE ASSESSEE SUBMITS THAT ASSESSING OFFICER DISALLOWED THE INTER EST EXPENDITURE OF RS. ITA NO. 1508 MUM 2018-M/S KLT AUTOMOTIVE AND TUBULA R PRODUCTS LTD. 3 1.42 CRORE U/S 36(1)(III) WITHOUT ANY EVIDENCE TO C ONTRARY. THE ADDITION IS BASED PURELY ON ASSUMPTION AND SURMISES. THE ASS ESSEE HAS CAPITAL OF RS. 198.11 CRORE, WHEREAS INVESTMENT IN ASSOCIATE/S UBSIDIARY WAS MADE ONLY RS. 23.84 CRORE. THE ASSESSEE HAS MADE SUO-MOT O DISALLOWANCE OF RS. 14.44 CRORE AND THEREFORE, FURTHER DISALLOWANCE UNDER SECTION 36(1)(III) WAS UNJUSTIFIED. THE LD. AR OF THE ASSES SEE FURTHER SUBMITS THAT THE ASSESSEE HAS UTILIZED HIS OWN FUNDS FROM THE CA PITAL AND RESERVE FOR MAKING THE SAID INVESTMENT. IN SUPPORT OF HIS SUBMI SSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SU PREME COURT IN CIT VS. RELIANCE INDUSTRIES LTD. (410 ITR 466). THE LD. AR OF THE ASSESSEE FURTHER INVITED OUR ATTENTION ON THE PROFIT & LOSS ACCOUNT AS ON 31.03.2013 WHEREIN THE ASSESSEE HAS SHOWN TO HAVE O WN RESERVE & SURPLUS OF RS. 189.25 CRORE AND SHARE CAPITAL OF RS .8.85 CRORE (PAGE -19 OF PB). 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FURTHER SUBMITS THAT ASSESSEE HIMSELF CAPITALIZED THE INTEREST EXPENDITURE WHICH IS ABOUT 11%. THE ASSESSEE HAS PAID INTEREST AVERAGE RATE ON 12%. THE DIFFEREN TIAL OF RS. 1.42 CRORE WAS DISALLOWED ON ACCOUNT OF PROPORTIONATE DIFFEREN TIAL BY ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER MADE THE ITA NO. 1508 MUM 2018-M/S KLT AUTOMOTIVE AND TUBULA R PRODUCTS LTD. 4 DISALLOWANCE OF RS. 1.42 CRORE U/S 36(1)(III) ON TA KING VIEW THAT THE ASSESSEE HAS CAPITALIZED INTEREST @ 10.92%. HOWEVER , THE INTEREST EXPENDITURE WHICH THE ASSESSEE CLAIMED IN PROFIT & LOSS ACCOUNT FROM FINANCIAL INSTITUTION IS @ 12%. THE ASSESSING OFFIC ER MADE THE DISALLOWANCE OF DIFFERENTIAL RATE OF INTEREST. THE LD. CIT(A) CONCLUDED THAT THE MAIN ISSUE IS THE DIFFERENTIAL RATE OF INT EREST WHICH HAS NEITHER BEEN EXPLAINED BY THE ASSESSEE DURING THE ASSESSMEN T NOR AT APPELLATE PROCEEDING. THEREFORE, THE LD CIT(A) DID NOT FIND ANY REASON TO DEVIATE FROM THE DISALLOWANCE. 6. WE HAVE NOTED THAT ASSESSEE HAS GIVEN DETAILED WRIT TEN SUBMISSION WHICH BEFORE LD CIT(A), WHICH HAS BEEN RECORDED IN PARA-2.2 OF HIS ORDER, WHEREIN IT IS RECORDED THAT ASSESSEE CLAIMED THAT THEY HAVE THE CAPITAL OF RS. 198.11 CRORE AND WHEREAS THE INVESTM ENT IN ASSOCIATE/SUBSIDIARY IS ONLY RS. 23.83 CRORE AND TH AT THE FIXED ASSET OF RS. 119.69 CRORE HAS ALREADY BEEN PUT TO USE DURING THE YEAR. THE ASSESSEE ALSO ASSERTED THAT IT HAS ALREADY DISALLOW ED INTEREST EXPENSES OF RS. 14.44 CRORE AND THAT THE INVESTMENTS ARE MADE O UT OF THEIR OWN FUND. HOWEVER, THE LD. CIT(A) HAS NOT GIVEN ANY FINDING O N THOSE SUBMISSIONS. WE HAVE PERUSED THE BALANCE-SHEET OF A SSESSEE AS ON 31.03.2013. THE ASSESSEE HAS OWNED SHARE CAPITAL OF RS. 8.85 CRORE AND RESERVE & SURPLUS OF RS. 189.25 CRORE. THE ASSESSEE HAS MADE INVESTMENT OF RS. 23.85 CRORE ONLY. THE HONBLE SUP REME COURT IN CIT ITA NO. 1508 MUM 2018-M/S KLT AUTOMOTIVE AND TUBULA R PRODUCTS LTD. 5 VS. RELIANCE INDUSTRIES LTD. (SUPRA) HELD THAT WHER E THE ASSESSEE HAS SUFFICIENT FUND TO MEET THE INVESTMENT IN SUBSIDIAR IES, THE INTEREST DISALLOWANCE WAS NOT JUSTIFIED. THEREFORE, CONSIDER ING THE RATIO OF DECISION OF HONBLE APEX COURT, THE DISALLOWANCE MA DE BY ASSESSING OFFICER IS DELETED. THE ASSESSING OFFICER IS DIRECT ED ACCORDINGLY. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/05/2019. SD/- SD /- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 22.05.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI