The Bhavnagar Salt & Industrial Works Pvt.Ltd., Bhavnagar V. The ACIT, Circle-1, Bhavnagar

ITA 1951/AHD/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5112 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 30-08-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO.1951/AHD/2017 ( / ASSESSMENT YEAR : 2013-14) THE BHAVNAGAR SALT & INDUSTRIAL WORKS PVT.LTD. PLOT NO.1517 GHOGHA CIRCLE BHAVNAGAR 364 001 / VS. THE ACIT CIRCLE-1 BHAVNAGAR ./ ./ PAN/GIR NO. : AABCT 3761 D ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SUNIL TALATI, AR / RESPONDENT BY : SHRI VINOD TANWANI, SR.DR / DATE OF HEARING 05/08/2019 !'# / DATE OF PRONOUNCEMENT 16 /10/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS)6, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-6 /49/16-17 DATED 31/07/2017 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'TH E ACT') DATED 29/02/2016 RELEVANT TO ASSESSMENT YEAR (AY) 2012-1 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- ITA NO.1951/AHD/2017 THE BHAVNAGAR SALT & INDUSTRIAL WORKS VS. ACIT ASST .YEAR - 2013-14 - 2 - YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSE D BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-6 PRESENTS THI S APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS. 1. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DISALLOWING EXPENSES OF RS.4,62,459/- BEING BANK CH ARGES INCURRED FOR BORROWING FUNDS OF RS.3,60,549/- AND LEGAL/PROFESSI ONAL FEES OF RS.1,01,910/- BY NOT APPRECIATING THE FACT THAT THE ABOVE MENTION ED EXPENSES WERE INCURRED IN NORMAL COURSE OF BUSINESS ACTIVITY AND THEREFORE DEBITED TO P&L ACCOUNT AND CLAIMED AS REVENUE EXPENDITURE. FURTHER IT IS STATED THAT THERE IS NO INTEREST EXPENSES ELEMENT INVOLVED IN IT FOR CAPITA LIZE THE SAME. IT IS THEREFORE SUBMITTED THAT THE ADDITION OF RS.4,26,459/- IN RES PECT OF SUCH EXPENSES ARE TOTALLY INCORRECT BOTH ON FACTS AND ON LAW. THE SA ME MAY PLEASE BE DELETED NOW. 2. THE ORDER PASSED BY THE LEARNED CIT(A) IS BAD IN LA W AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME BE HELD SO NOW. 3. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR TO AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING. 2. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THA T THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFI CER BY TREATING THE BANK CHARGES/PROFESSIONAL FEES AS CAPITAL IN NATURE . 3. THE FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVAT E LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING OF SAL T. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS INCURRED AN EXPENS E OF RS. 4,62,459/- IN CONNECTION WITH THE BANK BORROWING. THE BANK BORRO WING WAS UTILISED FOR THE WINDMILL PROJECT, A NEW AND SEPARATE BUSINE SS OF THE ASSESSEE, WHICH WAS UNDER THE PROGRESS IN THE YEAR UNDER CONS IDERATION. THE ASSESSEE CLAIMED SO-CALLED EXPENDITURE AS REVENUE I N NATURE AND ACCORDINGLY THE SAME WAS DEBITED IN THE PROFIT & LO SS ACCOUNT. HOWEVER, THE ASSESSING OFFICER BEING DISSATISFIED W ITH THE CLAIM OF THE ASSESSEE CONTENDED THAT THE EXPENDITURE HAS BEEN IN CURRED IN CONNECTION ITA NO.1951/AHD/2017 THE BHAVNAGAR SALT & INDUSTRIAL WORKS VS. ACIT ASST .YEAR - 2013-14 - 3 - WITH THE WINDMILL PROJECT WHICH IS UNDER THE PROGRE SS. ACCORDINGLY, THE SAME NEEDS TO BE CAPITALIZED AS PER ACCOUNTING STAN DARD-16 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA. FINALL Y, THE ASSESSING OFFICER HELD THAT THE SAME CANNOT BE ALLOWED AS DEDUCTION U /S 36(1)(III) OF THE ACT. ACCORDINGLY, THE SAME WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE, PREFERRED APPEAL TO THE LD. CIT(A). THE ASSESSEE BEFORE THE LD.CIT(A) CLAIMED THAT IT H AS INCURRED THE IMPUGNED EXPENDITURE IN THE COURSE OF ITS BUSINESS ACTIVITIES. THEREFORE, THE SAME SHOULD BE TREATED AS REVENUE IN NATURE. H OWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE B Y OBSERVING AS UNDER:- 6.3. AFTER CAREFUL CONSIDERATION OF FINDINGS OF TH E AO AND THE SUBMISSION OF THE APPELLANT THIS GROUND IS ADJUDICATED AS FOLLOWS : IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION , THE APPELLANT WAS ESTABLISHING A WIND MILL PROJECT. FOR SETTING UP O F THE SAME, THE APPELLANT OBTAINED TERM LOAN FROM UCO BANK. THE APPELLANT IN CURRED EXPENDITURE OF RS.3,60,549/- AS PROCESSING CHARGES FOR THIS TERM L OAN. THE APPELLANT ALSO INCURRED EXPENDITURE OF RS.1,01,865/- ON STAMP PAPE R, DOCUMENT CHARGES AND FEES FOR PREPARING PROJECT REPORT. THE APPELLANT D EBITED TOTAL AMOUNT OF RS.4,62,459/- TO THE P&L A/C. CLAIMING THIS AS REV ENUE EXPENDITURE. AS MENTIONED ABOVE, THE APPELLANT HAS INCURRED THESE E XPENSES FOR OBTAINING TERMS LOAN FOR A WIND MILL PROJECT WHICH IS WORK-IN -PROGRESS DURING THE YEAR UNDER CONSIDERATION AND HAS NOT BEEN COMPLETED. TH EREFORE, THE AMOUNT IS NOT ALLOWABLE U/S.36(1)(III) OF THE ACT AS THE SAME IS TO BE CAPITALIZED. IN ITS SUBMISSION, THE APPELLANT HAS TRIED TO EXPLAIN THAT THE ABOVE MENTIONED EXPENSES WERE INCURRED IN NORMAL COURSE OF BUSINESS ACTIVITY AND THEREFORE DEBITED TO THE P&L A/C. AND CLAIMED AS REVENUE EXPE NDITURE. THE APPELLANT GOES ON TO EXPLAIN FURTHER THAT ABOVE MENTIONED BAN K CHARGES OF RS.3,60,549/- ITA NO.1951/AHD/2017 THE BHAVNAGAR SALT & INDUSTRIAL WORKS VS. ACIT ASST .YEAR - 2013-14 - 4 - AND LEGAL PROFESSIONAL FEES OF RS.1,01,910/- WERE I NCURRED FOR OBTAINING LOAN FROM UCO BANK. THERE IS AN INHERENT CONTRADICTION IN THE SUBMISSION OF THE APPELLANT. ON THE ONE SIDE IT SAYS THAT THE EXPEN SES WERE INCURRED IN NORMAL COURSE OF BUSINESS ACTIVITY AND ON THE OTHER SIDE I T SAYS THAT THE SAME WERE INCURRED FOR OBTAINING TERM LOAN FOR THE WIND MILL PROJECT WHICH HAS NOT STARTED. IT IS CLEAR THAT THE APPELLANT IS IN THE PROCESS OF SETTING UP OF THE WIND MILL PROJECT AND PROJECT HAS NOT BEEN COMPLETED DURING T HE YEAR UNDER CONSIDERATION. THEREFORE, THE AMOUNT IS NOT ALLOW ABLE U/S.36(1)(III) OF THE ACT WHICH READS AS UNDER: (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION:- PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN R ESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTI NG BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT ); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. THE APPELLANT AHS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN INDIA CEMENTS LTD. VS. CIT (1966) 60 ITR 52 (SC) IN SUPPORT OF ITS CONTENTION .THAT A LOAN OBTAINED CANNOT BE TREATED AS AN ASSET OR AN ADVANT AGE FOR ENDURING BENEFIT OF BUSINESS OF ASSESSEES AND A LOAN IS A LIABILITY AND HAS TO BE REPAID AND A LIABILITY CANNOT BE CONSIDERED AS AN ASSET OR AN ADVANTAGE.. . RELIANCE BY THE APPELLANT ON THIS CASE IS TOTALLY MISPLACED AS THE FACTS OF T HE ABOVE CASE ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE CASE OF THE APPELLANT. IN TH E ABOVE QUOTED CASE, THE LOAN OBTAINED BY THE ASSESSEE WAS IN ORDER TO FACILITATE RUNNING OF THE BUSINESS OF THE COMPANY AND NOT FOR SETTING UP A NEW BUSINESS OR EX TENSION OF AN EXISTING BUSINESS. IN THE CASE OF THE APPELLANT, THE LOAN HAS BEEN OBT AINED FOR SETTING UP A NEW WIND MILL PROJECT. HENCE, THE RATIO OF THE ABOVE JUDGME NT IS NOT APPLICABLE TO THE CASE OF THE APPELLANT. 6.4. THEREFORE, IN VIEW OF DISCUSSION ABOVE, IT IS HELD THAT THE AO WAS RIGHT IN DISALLOWING EXPENDITURE OF RS.4,62,459/-. ACCORDI NGLY, THE ADDITION OF RS.4,62,459/- MADE BY THE AO IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE IS IN APPEAL BEFORE US. ITA NO.1951/AHD/2017 THE BHAVNAGAR SALT & INDUSTRIAL WORKS VS. ACIT ASST .YEAR - 2013-14 - 5 - 5. THE LD.AR BEFORE US SUBMITTED THAT THE EXPENDITU RE WAS INCURRED IN THE COURSE OF BUSINESS AND, THEREFORE, THE SAME SHOULD BE ALLOWED AS DEDUCTION. THE LD.AR IN SUPPORT OF HIS CONTENTION RELIED ON THE ORDER OF THIS SPECIAL BENCH IN THE CASE OF ASHIMA SYNTEX LTD . VS. ACIT REPORTED IN [2006] 100 ITD 247 (AHMEDABAD) (SB). 6. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED T HE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SALT. BUT, THE ASSESSEE HAS INCURRED THE EXPENSES IN CONNECTION WITH THE BANK B ORROWING FOR ITS WINDMILL PROJECT WHICH IS DISTINCT FROM ITS PRESENT BUSINESS. ADMITTEDLY, THE COST INCURRED FOR ITS WINDMILL PROJECT WAS CLAS SIFIED AS WORK-IN- PROGRESS IN THE BALANCE-SHEET. IN OTHER WORDS, TH E COMMERCIAL ACTIVITY OF WINDMILL PROJECT WAS NOT COMMENCED IN THE YEAR UNDE R CONSIDERATION. THEREFORE, IN OUR CONSIDERED VIEW, THE EXPENDITURE INCURRED BY THE ASSESSEE TILL THE COMMENCEMENT OF THE COMMERCIAL AC TIVITY FROM WINDMILL PROJECT NEEDS TO BE CAPITALIZED. 8. THE RULINGS REFERRED BY THE LD.AR IN THE CASE OF ASHIMA SYNTEX LTD.(SUPRA) IS DISTINGUISHABLE FROM THE CASE ON HAN D. IN THAT CASE, THE EXPENDITURE WAS INCURRED BY THE ASSESSEE IN RESPECT TO THE CONVERTIBLE DEBENTURE WHICH WAS NOT TO BE REPAID BY THE ASSESSE E. THEREFORE, IN THAT ITA NO.1951/AHD/2017 THE BHAVNAGAR SALT & INDUSTRIAL WORKS VS. ACIT ASST .YEAR - 2013-14 - 6 - CASE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN C ONNECTION WITH THE ISSUE OF CONVERTIBLE DEBENTURES WAS ALLOWED AS DEDU CTION TREATING THE SAME AS REVENUE EXPENDITURE. HOWEVER, IN THE PRESEN T CASE, THE EXPENDITURE WAS INCURRED IN CONNECTION WITH THE BAN K BORROWING WHICH WAS TO BE REPAID BY THE ASSESSEE IN DUE COURSE OF T IME. THEREFORE, THE CASE LAW RELIED UPON BY THE LD.AR WILL NOT HELP THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES. HENCE, WE DISMISS THE GRO UND OF APPEAL RAISED BY THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. THIS ORDER PRONOUNCED IN OPEN COURT ON 16/ 10/2019 SD/- SD/- (MS. MADHUMITA ROY) (WA SEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 16/10/2019 &.., .(.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-6, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD