G.S. Pharmbutor Pvt. Ltd., Meerut V. DCIT Circle-10(1), New Delhi

ITA 1541/DEL/2019

AI Insights

The case involves G. S. Pharmbutor Pvt. Ltd, which appealed against the order of the CIT(A)-4, New Delhi, concerning disallowances made by the AO under section 36(1)(iii) of the Income Tax Act. The primary issues were the disallowance of interest on investments in convertible debentures and interest on borrowed funds used for work in progress. The Tribunal referenced a previous decision in the assessee's own case for A.Y. 2015-16, noting no change in facts or legal propositions. The Tribunal found merit in the assessee's argument regarding the computation of disallowance and directed the AO to re-evaluate the disallowance considering the company's own funds.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 131759 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 24-02-2019
• Other Referred Cases: ITA No.6716/Del/2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHIBENCH ‘C’, NEW DELHI Before Sh. C. M. Garg, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 1541/Del/2019 : Asstt. Year: 2013-14 G. S. Pharmbutor Pvt. Ltd, C/o Kashyap & Co, CA 214, Citi Center, Begum Bridge Road, New Delhi-110019 Vs. DCIT, Circle-10(1), New Delhi (APPELLANT) (RESPONDENT) PAN No. AAACG2925P Assessee by : Sh. P. S. Kashyap, CA Revenue by : Sh. Anuj Garg, Sr. DR Date of Hearing: 08.02.2023 Date of Pronouncement: 14.02.2023 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order of the ld CIT(A)-4, New Delhi dated 28.12.2018. 2. The assessee has raised the following grounds of appeal: “1. That the Ld. A.O has erred in law as well as on facts in making addition of Rs 3,36,00,000/- on account of disallowance of interest u/s 36(1 )(iii) on account of investment in convertible debentures. The action of Ld. A.O in making addition is bad in law and against the facts and circumstances of the case. 2. That the Ld. AO has erred in law as well as on facts in making disallowance of Rs. 1,99,83,172/- on account of interest on borrowed funds. In first appeal Ld CIT(A) has restricted the disallowance to Rs. 1,55,01,937/-. The action of Ld. A.O in making addition is bad in law and against the facts and circumstances of the case.” ITA No. 1541/Del/2019 G. S. Pharmbutor Pvt. Ltd 2 Disallowance of Interest u/s 36(1)(iii): 3. Suffice it to state that, the AO disallowed interest on borrowings which has been confirmed by the ld. CIT(A). The same issue has been dealt by the Tribunal in extenso in the order dated 08.1.2021 in assessee’s own case for the A.Y. 2015-16 in ITA No.6716/Del/2018. In the absence of any change in the facts of the case and legal proposition, we decline to support the rationale of the ld. CIT(A) on this issue. Disallowance of Interest: 4. The assessee incurred expenditure of Rs.13.15 crores in capital work in progress on cumulative basis. During the year under consideration an amount of Rs.9.7 crores has been added to work in progress. The AO disallowed Rs.1.99 crores on account of the interest paid. The AO held that the interest on borrowed funds utilized on work in progress needs to be disallowed. The ld. CIT(A) restricted the disallowance to Rs.1.55 crores. It was argued before us that the assessee has earned an amount of Rs.5.27 crores from the advances given and also paid an interest of Rs.5.78 crores. In that case, the net interest incurred would be Rs.50,99,073/- which needs to be disallowed being the interest incurred on specified business loans which are not directly related to any specific purpose. Hence, the case is being remanded to the file of the AO with direction to re- compute the disallowance after taking into consideration the own funds available in the form of share capital and reserves & surplus that the funds utilized for non-business purposes be re- computed after deducting the amount of the own funds available as per the balance sheet. ITA No. 1541/Del/2019 G. S. Pharmbutor Pvt. Ltd 3 5. In the result, the appeal of the assessee is allowed for statistical purpose. Order Pronounced in the Open Court on 14/02/2023. Sd/- Sd/- (C. M. Garg) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 14/02/2023 *Subodh Kumar/AK, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR