M/s. Nirav Industries, Ahmedabad V. The Income tax Officer, Ward-6(4), Ahmedabad

ITA 19/AHD/2006

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9091 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-08-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 04-01-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 11/08/09 DRAFTED ON: 27/08 /09 ITA NO.19/AHD/2006 ASSESSMENT YEAR : 2002-03 M/S.NIRAV INDUSTRIES 81/4, PHASE-I GIDC, VATVA AHMEDABAD VS. THE INCOME TAX OFFICER WARD-6(4) AHMEDABAD PAN/GIR NO. : AACFN 6636 K (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI J.P.SHAH, AR RESPONDENT BY: SHRI GOVIND SINGHAL, DR O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(APPEALS)-XII, AHMEDABAD DATED 17/11/2005 PASSED FOR AY 2002-03 BY TAKING FOLLOWING GROUNDS:- 1. YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PA SSED BY LEARNED CIT(A) XII PRESENTS THIS APPEAL ON FOLLOWING G ROUNDS. 2. THAT THE ORDER PASSED BY LEARNED CIT(APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. 3. THE LEARNED CIT(APPEALS) HAS ERRED IN NOT ALLOWING RS.4,25,305/- BEING CLAIM OF INTEREST THOUGH FULLY EXPLAINED. THE DISALLOWANCE MADE BE DELETED. ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 2 - 4. THE LEARNED CIT(APPEALS) HAS ERRED IN NOT ALLOWING RS.60,000/- BEING REMUNERATION PAID TO PARTNER SHRI M.N.PATEL HUF THOUGH EXPLAINED. THE DISALLOWANCE MADE BE DELTED. 5. THE APPELLANT CRAVES, LEAVE TO ADD, ALTER, EDIT, DE LETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEAL AT THE TIME OF OR BEFORE HEARING OF THIS APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASS ESSEE IS CARRYING ON THE BUSINESS OF MANUFACTURING OF MACHINERY PARTS AN D DOING JOB WORK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS DISCLOSED TURNOVER OF RS.62,84,100/- AND GROSS PROFIT OF RS.23,00,659/- WHICH IS 26.27% AS AGAINST TURNOVER OF RS.985,32,195/- AND GROSS PROFIT RATE OF 22.19% IN THE PRECEDING YEAR. DURING THE COURSE OF EXAMINATION OF THE RECO RD, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAI D INTEREST OF RS.4,25,305/-. IT WAS FURTHER NOTICED THAT THE P AYMENT WITH INTEREST WAS IN RESPECT OF PURCHASE OF A PLOT. WH EN THE ASSESSEE WAS ASKED TO EXPLAIN THE SOURCE OF INCOME, THE FOLL OWING EXPLANATION WAS FURNISHED. WITH REFERENCE TO ABOVE DURING CASE OF HEARING ON 3.2.05 SOME QUERIES WERE RAISED BY YOU, WE THEREFORE SUBMIT AS UNDER: 1. SHRI VARUN C PATEL IS A PARTNER IN THE FIRM AND DURI NG THE TIME HE WAS A MINOR. A PLOT WAS PURCHASED IN PHASE-I V ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 3 - GIDC VATVA BY MOTHER AND GUARDIAN SMT. BHAGWATIBEN C. PATEL AS MINOR CANNOT ENTERED INTO AN AGREEMENT THEREFORE, THE PLOT WAS PURCHASED BY MOTHER AND GUARDIAN FOR R.1,58,140/-. THE BUSINESS OF THE COMPANY STARTED IN THE YEAR 1998 IN THE PREMISES OF MARUTI COACH CO AND THE WORK WAS STARTED IN OPEN SHED COVERED WITH ROOFS AND WITH THE INCREASE IN BUSINESS. THERE WAS NO SUFFICIENT SPACE TO STORE THE GOODS, THEREFORE, IN THE ABOVE PURCHASED GOODS WERE STORED AND WORK ON SO . DURING THE YEAR WE HAVE PAID INTEREST FOR RS.3,95,103 /- TO GIDC VATVA, FOR THE LOAN TAKEN FOR THE USE OF PLOT, WE WERE NOT PAYING ANY RENT BUT INTEREST IS PAID FOR THE PERIOD OF 2 OR 3 YEARS WHICH IS CONSIDERED AS A BUSINES S EXPENDITURE. WITHOUT ANY PREJUDICE TO ABOVE SUBMISSION, WE FURTHE R SUBMIT THAT THE COMPANY HA SNOT TAKEN ANY LOAN AND THEREFORE NO INTEREST IS PAYABLE THEREFORE IT CANNOT BE SAID THAT BORROWED FUNDS HAS BEEN UTILIZED FOR THE PURCHASE OF PLOT AND THEREFORE THERE IS NO QUESTION I S ARISING FOR NOT ALLOWING THE INTEREST PAID. 3. THE ASSESSING OFFICER SUMMARIZED THE TRANSACTION S OF PURCHASE OF PLOT AS UNDER:- 1. ONE PLOT NO.5215 WAS PURCHASED IN GIDC PHASE-IV , AHMEDABAD. 2. THE PLOT WAS PURCHASED IN THE NAME OF SMT. BHAGWA TIBEN PATEL, GUARDIAN OF MINOR VARUN C PATEL (PARTNER). ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 4 - 3. THE PLOT IS AN OPEN PLOT WITH NO CONSTRUCTION ON IT. THERE IS NO FENCING. 4. THE ASSESSEE HAS MADE ALL THE PAYMENT OF INSTALMEN T, INTEREST AND PENAL INTEREST TO GIDC. 5. THE TOTAL AMOUNT PAID TO GIDC TOWARDS PURCHASE OF PLOT HAVE BEEN SHOWN AS LOAN TO BHAGWATIBEN PATEL AS VIDE HAVALA ENTRY. 6. NO INTEREST HAS BEEN CHARGED ON THE AMOUNT OF RS.4,25,305/- OUTSTANDING IN THE NAME OF BHAGWATIBEN IN THE BOOK OF THE ASSESSEE AS ON 31.3.2002. 4. THE ASSESSEE HAD CLAIMED THAT IT IS USING THE PL OT AS GODOWN AND NO RENT IS PAID. THE ASSESSING OFFICER DID NO T AGREE WITH THIS AND DISALLOWED THE CLAIM OF INTEREST. 5. THE LEARNED CIT(APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER:- THE APPELLANT HAS MADE WRITTEN SUBMISSION DATED 18.10.2005 BEFORE ME. IT IS CONTENDED THAT THE PLOT WAS PURCHASED WITH THE FUNDS OF THE FIRM IN THE NAME OF SMT.BHAGWATIBEN C.PATEL. THEREFORE, THE PLOT IN FA CT IS OWNED BY THE FIRM. IT IS ALSO SUBMITTED THAT THE APPE LLANT BEING THE MANUFACTURING CONCERN HAS STORED THE IRON RAW- MATERIAL ON THIS PLOT OF LAND WHICH IS ADJOINING TO T HE FACTORY. THEREFORE, THE INTEREST OF RS.3,95,103/- PAID TO GIDC WAS ALLOWABLE AS DEDUCTION. IT IS SEEN FROM THE ASSESSMENT ORDER THAT IT WAS AN OPEN PLOT OF LAND WITH NO FENCING ARO UND THIS. ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 5 - THEREFORE, IT IS VERY DIFFICULT TO SAY THAT IT COULD HAVE BEEN PUT TO USE BY THE APPELLANT. SECONDLY, THE INTEREST OF RS.3,95,103/- WAS PAID TO GIDC ON THE PURCHASE OF PLOT , WHICH IS A CAPITAL ASSET AND HENCE AT THE MOST THIS IN TEREST PAYMENT CAN BE CAPITALIZED. THUS IN NO CASE THE INTE REST CAN BE ALLOWED AS A DEDUCTION AND HENCE THE DECISIO N OF AO IS UPHELD. 6. BEFORE US, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE IS THE OWN ER OF THE PLOT EVEN IF IT HAS BEEN PURCHASED IN THE NAME OF SMT.BH AGWATIBEN C.PATEL. IT HAS BEEN USING THE PLOT FOR STORING RA W-MATERIAL AND FOR THE PURPOSE OF FUTURE EXPANSION. SINCE IT IS USED FOR THE BUSINESS PURPOSES AND THERE IS NO BAR INVESTING IN CAPITAL A SSETS, INTEREST PAID ON BORROWED FUNDS TO PURCHASE SUCH CAPITAL ASS ETS IS AN ALLOWABLE EXPENDITURE. THE LEARNED AUTHORISED REP RESENTATIVE OF THE ASSESSEE REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BOMBAY STEAM NAVIGATION CO. (1953) PVT. LTD. VS. CIT (1965) 56 ITR 52(SC), WHERE IT IS HELD THAT INTERES T PAID ON BORROWED FUNDS FOR PURCHASE OF CAPITAL ASSET IS AN ALLOWABLE BUSINESS EXPENDITURE. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHAT THE ASSESSE E HAS ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 6 - PURCHASED IS CAPITAL ASSET AND, THEREFORE, INTERES T PAID ON THE BORROWED FUNDS FOR PURCHASE OF CAPITAL ASSETS IS NO T ALLOWED. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN OUR CONSIDERED VIEW THE LEARNED CIT(APPEALS) WAS NOT JU STIFIED IN CONFIRMING THE ADDITION. IT IS BECAUSE THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT PLOT OF THE LAND WAS NOT USE D FOR THE PURPOSES OF BUSINESS. ONCE AN ASSERTION IS MADE T HAT PLOT OF LAND IS USED FOR STORING THE RAW-MATERIAL AND IS A BUSIN ESS ASSET, THEN THE ASSESSING OFFICER WAS DUTY BOUND TO VERIFY THE FACT S. ONCE IT IS NOT DONE, THEN IT CANNOT BE TREATED AS A CAPITAL ASSET INDEPENDENT OF BUSINESS. ONLY THE INTEREST PAID ON BORROWED FUN DS TO PURCHASE AN ASSET NOT USED FOR BUSINESS CAN BE DISALLOWED. BUT WHERE AN ASSET IS USED FOR THE BUSINESS PURPOSE, THE INTERES T PAID ON BORROWED FUNDS FOR ACQUIRING SUCH AN ASSET WOULD BE AN ALLOWABLE EXPENDITURE. SUPPORT IS DERIVED FROM THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BOMBAY STEAM N AVIGATION CO. (1953) PVT.LTD. VS. CIT (1965) 56 ITR 52(SC). AS A RESULT THIS GROUND OF ASSESSEE IS ALLOWED. ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 7 - 8. SECOND GROUND :- WE HAVE HEARD THE LEARNED AUTHORISED REPRESENTATI VE OF THE ASSESSEE AND DEPARTMENTAL REPRESENTATIVE. REM UNERATION PAID TO SHRI M.N.PATEL HUF IS COVERED BY THE FOLL OWING DECISIONS IN FAVOUR OF THE ASSESSEE:- 1. 65 TTJ PAGE 55 AMRITSAR 2. 70 TTJ PAGE 114 MUMBAI 3. 93 TTJ PAGE 641 JODHPUR 4. (2000) 286 ITR 01 PUNE (ITAT) IN THE CASE OF IT O VS. BHARAT ENTERPRISES. 5. CIT VS. BHAGYA LAXMI & CO. (1965) 55 ITR 660 (SC) 6. RASIKLAL & CO. VS. CIT 229 ITR 458 (SC) THUS, THIS GROUND IS ALSO ALLOWED IN FAVOUR OF AS SESSEE. 9. AS A RESULT THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/09/2009. SD/- SD/- (H.L. KARWA) ( D.C.AGRAWAL ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 11/ 09/2009 T.C. NAIR ITA NO .19/AHD/2006 M/S.NIRAV INDUSTRIES VS. ITO ASST.YEAR 2002-03 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD