Marck Biosciences Ltd. ( Now Amanta Healthcare Ltd. ), Ahmedabad V. The Dy.CIT(OSD)-1, Circle-4, Ahmedabad

ITA 2023/AHD/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2793 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 08-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Capital asset; Source of fund; Proportionate interest; Additional evidence
• Section: 271(1)(c)

Judgement Text

ITA NO. 2023/AHD/2015 MARCK BIOSCIENCES LTD VS. DCIT ASSESSMENT YEAR : 2011-12 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR, VP AND MS. MADHUMITA ROY, JM] ITA NO. 2023/AHD/2015 ASSESSMENT YEAR: 2011-12 MARCK BIOSCIENCES LTD ..................APP ELLANT (NOW AMANTA HEALTHCARE LTD), 5 TH FLOOR, HARITAGE, NR. GUJARAT VIDHYAPITH, USMANPURA, ASHRAM ROAD, AHMEDABAD 380 014 [PAN : AABCM 0366 P] VS. DY. COMMISSIONER OF INCOME-TAX (OSD)-1 ............................RESPONDENT CIRCLE-4, AHMEDABAD APPEARANCES BY: SN SOPARKAR & PARIN SHAH, FOR THE APPELLANT MUDIT NAGPAL, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 29.11.2018 DATE OF PRONOUNCING THE ORDER : 28.02.2019 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT : 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENG ED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 14 TH MAY 2015 FOR THE ASSESSMENT YEAR 2011-12. 2. IN GROUND NO.1, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE:- 1. THE LEARNED ASSESSING OFFICER AND HONBLE CIT(A ) HAVE ERRED IN LAW AND ON FACTS IN MAKING THE CONFIRMING ADDITION OF RS.27 ,16,919/- BEING THE AMOUNT OF FIXED DEPOSITS WRITTEN OFF OF DEFUNCT BANK. 3. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD WRITTEN OFF RS.27,16,919/- IN ITS PROFIT AND LOSS ACCOUNT TOWARDS FIXED DEPOSI TS WITH THE BANK. THIS AMOUNT REFLECTED FIXED DEPOSIT THAT THE ASSESSEE HAD WITH MADHAVPURA CO-OPERATIVE BANK. THERE IS NO DISPUTE THAT THE AMOUNT HAS BECOME UNRE COVERABLE BUT YET THE DEDUCTION WAS DECLINED ON THE GROUND THAT DEPOSITS WERE MADE FOR EARNING INTEREST INCOME TAXABLE UNDER THE HEAD INCOME FROM OTHER SOU RCES, AND, THEREFORE, DEDUCTION CANNOT BE ALLOWED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. WHILE DOING SO, THE CIT(A) OBSERVED T HAT THE CLAIM OF THE ASSESSEE THAT FDR WAS MADE IN ORDER TO AVAIL BANK GUARANTEE, AND WAS MARGIN MONEY IS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE . THE CIT(A) ALSO DECLINED TO ADMIT ANY ITA NO. 2023/AHD/2015 MARCK BIOSCIENCES LTD VS. DCIT ASSESSMENT YEAR : 2011-12 PAGE 2 OF 5 ADDITIONAL EVIDENCE AT THIS STAGE. AS REGARDS ASSE SSEES CLAIM THAT THIS ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY HONBLE JURI SDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF CIT VS. RAO CONSTRUCTIONS PVT LTD (TA N O. 579 OF 2012; JUDGEMENT DATED 25.03.2013), IT WAS OBSERVED THAT, THE RELIANCE PLACED BY THE APPELLANT ON THE JUDGMENT OF GUJARAT HIGH COURT IN THE CASE OF RAO C ONSTRUCTIONS (SUPRA) IS OF NO HELP AS IN THAT CASE THERE WERE CLEAR EVIDENCES TO SHOW THAT THE DEPOSIT WITH THE BANK WAS FOR THE PURPOSE OF BUSINESS (BUT) THERE IS NO EVIDENCE TO SHOW THAT DEPOSIT WAS FOR THE PURPOSE OF BUSINESS. AGGRIEVED BY THE STAND SO TAKEN BY THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 5. WE FIND THAT THE FDS IN QUESTION WERE MADE FOR T HE PURPOSE OF THE BUSINESS, AS IS CLEARLY EVIDENT FROM THE TERMS OF BANKS SANC TION LETTER DATED 22.01.2011; A COPY OF WHICH WAS PLACED BEFORE US AT PAGE NOS. 60 TO 63 OF THE PAPER BOOK. IN VIEW OF THIS FACTUAL POSITION, AND IN THE LIGHT OF LAW L AID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAO CONSTRUCTION (SUPRA), THE DEDUCTION OF THIS BUSINESS LOSS IS CLEARLY ADMISSIBLE. THE LOSS, ON ACCOUNT OF FIXED DEPOSIT HAVING BECOME BAD, IS CLEARLY IN THE NATURE OF BUSINESS LOSS. THE AUTHOR ITIES BELOW WERE THUS IN ERROR. WE, THEREFORE, DELETE THE IMPUGNED DISALLOWANCE OF RS.2 7,16,919/-. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 6. GROUND NO.1 IS THUS ALLOWED. 7. GROUND NO. 2 IS NOT PRESSED AND IS DISMISSED AS SUCH. 8. IN GROUND NO.3, THE ASSESSEE HAS RAISED THE FOLL OWING GRIEVANCE:- 3. THE LEARNED ASSESSING OFFICER AND HONBLE CIT(A ) HAVE ERRED IN LAW AND ON FACTS IN MAKING AND CONFIRMING ADDITION OF RS.1, 88,92,153/- STATED TO BE POSSIBLE INTEREST ON WORK IN PROGRESS DISREGARDING SUBMISSIONS OF ASSESSEE. 9. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INVESTED A SUM OF RS. 16,13,19,455/- IN CAPITAL WORK IN PROGRESS, AND, IN THIS BACKDROP, REQUIRED THE ASSES SEE TO SHOW CAUSE AS TO WHY THE PROPORTIONATE INTEREST NOT BE DISALLOWED. IT WAS E XPLAINED BY THE ASSESSEE THAT DURING THE YEAR, THE ASSESSEE HAD BORROWED TERM LOA N FROM STATE BANK OF INDIA, INDUSTRIAL FINANCE BRANCH, AHMEDABAD AND INTEREST T HEREON HAS BEEN DULY CAPITALIZED. THAT, HOWEVER, DID NOT SATISFY THE AS SESSING OFFICER. HE NOTICED THAT THE DETAILS OF CASH CREDIT ACCOUNT, FROM WHICH PAYMENTS TOWARDS CAPITAL WORK IN PROGRESS WERE MADE, CONSTANTLY SHOWED NEGATIVE BALANCE AND T HAT COMPLETE DETAILS WERE NOT AVAILABLE. ON THESE FACTS, THE ASSESSING OFFICER C ONCLUDED AS FOLLOWS:- SINCE THE ASSESSEE FAILED TO FURNISH, THE COMPLETE DETAILS OF SOURCE OF FUND FOR MAKING INVESTMENT IN CWIP DESPITE SEVERAL OPPOR TUNITIES, THE POSSIBILITIES OF UTILIZATION OF BORROWED FUND FOR THIS PURPOSE CA NNOT BE RULED OUT. THEREFORE, IT WILL BE JUSTIFIABLE TO DISALLOW THE PROPORTIONAT E INTEREST ON THE CWIP OF RS.16,13,19,455/- AT REASONABLE RATE OF INTEREST I. E. 12%, WHICH IS WORKED OUT ITA NO. 2023/AHD/2015 MARCK BIOSCIENCES LTD VS. DCIT ASSESSMENT YEAR : 2011-12 PAGE 3 OF 5 AT RS.1,93,58,335/-. SINCE THE ASSESSEE HAS ALREADY CAPITALISED INTEREST OF RS.4,66,182/- THE NET INTEREST OF RS.1,88,92,153/- (1,93,58,335-4,66,182) IS CAPITALISED AND ADDED TO THE TOTAL INCOME OF THE AS SESSEE BEING THE EXPENSE INCURRED TO ACQUIRE THE CAPITAL ASSETS WHICH WERE N OT PUT TO USE DURING THE YEAR AS PER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. PENAL PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 ARE INITIATED SEPARATELY AS THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF IT S INCOME. 10. AGGRIEVED, ASSESSEE CARRIED THE MATER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. WHILE CONFIRMING THE ACTION OF THE AS SESSING OFFICER, LEARNED CIT(A) OBSERVED AS FOLLOWS:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS DISALLOWED INTEREST UNDER SECTION 36(1)(III) IN PROPORTION TO THE CAPITAL WOR K IN PROGRESS SHOWN BY THE APPELLANT IN THE BALANCE SHEET. IT HAS BEEN HELD BY THE AO THAT SINCE, THE ASSETS WERE NOT PUT TO USE TILL 31/03/2011 THE INTE REST CANNOT BE ALLOWED. THE CLAIM OF THE APPELLANT REGARDING NON-INCURRING OF I NTEREST EXPENDITURE ON ACQUISITION OF CAPITAL ASSET HAS ALSO BEEN SUITABLY DEALT BY THE AO IN THE ORDER AND IT HAS BEEN HELD BY HIM THAT THE SOURCES OF FUN DS CLEARLY INDICATE THAT THE INTEREST-BEARING FUNDS HAVE BEEN UTILISED FOR ACQUI SITION OF CAPITAL ASSETS. THE APPELLANT ON THE OTHER HAND HAS SUBMITTED THAT SINCE, THERE WAS NO 'EXTENSION' OF BUSINESS THE INTEREST CANNOT BE CAPI TALISED. IT HAS BEEN POINTED OUT BY THE APPELLANT THAT THERE WAS NO PROVISION OF THE INCOME TAX ACT FOR DISALLOWING THE INTEREST FOR 'EXPANSION' OF BUSINES S. THE PROVISIONS ARE FOR EXTENSION OF BUSINESS. IT HAS ALSO PLACED RELIANCE ON THE JUDGEMENT OF HONOURABLE GUJARAT HIGH COURT IN THE CASE OF ARVIND POLYCOT LTD (SUPRA). ON A CAREFUL CONSIDERATION OF ENTIRE FACTS OF THE C ASE, IT IS NOTED THAT THE CLAIM OF THE APPELLANT THAT THE SECTION 36(1)(III) DEALS WITH 'EXTENSION' OF BUSINESS AND NOT 'EXPANSION' OF BUSINESS IS MISPLACED. THE L ANGUAGE OF THE ACT IS VERY CLEAR AND THE FACTS ALSO SHOW THAT THE APPELLANT WA S IN THE PROCESS OF INSTALLING A NEW UNIT IN GOA FOR WHICH THE NEW PLAN T AND MACHINERY WERE PURCHASED. THE AO HAS SUITABLY DEALT WITH THE SIMIL AR CLAIM OF THE APPELLANT IN THE ASSESSMENT PROCEEDINGS AND I AM IN FULL AGREEME NT WITH HIM. THE INSTALLATION OF NEW UNIT AT GOA AND PURCHASE OF PLA NT AND MACHINERY FOR THE SAME IS CLEARLY AN EXTENSION OF BUSINESS. IN VIEW OF THE ABOVE DISCUSSION, I AM IN COMPLETE A GREEMENT WITH THE FINDINGS GIVEN BY THE AO ON THE ISSUE AND THE DISALLOWANCE M ADE BY HIM IS THEREFORE, UPHELD. 11. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 12. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. ITA NO. 2023/AHD/2015 MARCK BIOSCIENCES LTD VS. DCIT ASSESSMENT YEAR : 2011-12 PAGE 4 OF 5 13. WE FIND THAT THE CASH GENERATED FROM OPERATIONS , DURING THE YEAR, AGGREGATES TO RS.38,09,16,422/- AND PROCEEDS FROM ISSUE OF SHA RE CAPITAL AND PREMIUM AGGREGATES TO RS.3,32,50,000/-. THESE DETAILS ARE CLEARLY DISCERNIBLE FROM FINANCIAL STATEMENTS, AT PAGE NO. 3 OF THE PAPER-BOOK, AND, A S AGAINST THIS, THE TOTAL INVESTMENT IN THE CAPITAL WORK IN PROGRESS IS RS.16 ,13,19,445/-. WE HAVE ALSO NOTED THAT THE FUNDS USED IN THE CAPITAL WORK IN PROGRESS WERE FROM CASH CREDIT ACCOUNT WHICH HAD MIXED FUNDS. ON THESE FACTS, IN OUR CONS IDERED VIEW, THAT THERE IS INSUFFICIENT MATERIAL TO COME TO THE CONCLUSION THA T THERE WAS DIVERSION OF INTEREST BEARING FUNDS TO THE CAPITAL WORK IN PROGRESS. IN ANY CASE, THE INTEREST COMPUTATION ON PURELY ADHOC BASIS. THE VERY FOUNDATIONAL FACTS ARE, HOWEVER, FAR FROM HAVING BEEN ESTABLISHED FAIRLY. HAVING HELD SO, WE HAVE A LSO NOTED THAT THE ASSESSEE HAS NOT FURNISHED COMPLETE DETAILS ABOUT SOURCE OF FUND ING THE CAPITAL WORK IN PROGRESS AND THE NATURE THEREOF. 14. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARING I N MIND ENTIRETY OF THE CASE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE F ILE OF THE ASSESSING OFFICER FOR EXAMINATION DE NOVO AFTER GIVING YET ANOTHER OPPORTUNITY OF HEARING IN ACCORDANCE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. WE OR DER SO. 15. GROUND NO. 3 IS THUS ALLOWED FOR STATISTICAL PU RPOSES. 16. GROUND NOS. 4 AND 5 ARE NOT PRESSED AND ARE DIS MISSED AS SUCH. 17. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 28 TH FEBRUARY, 2019. SD/- SD/- MS. MADHUMITA ROY PRA MOD KUMAR (JUDICIAL MEMBER) (VICE PRESIDENT) AHMEDABAD, THE 28 TH DAY OF FEBRUARY, 2019 *BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD