ACIT, New Delhi V. M/s. Gulshan Sugar & Chemicals Ltd., Delhi

ITA 2048/DEL/2013

• Counselvise Citation: 204820114 RSA 2013
• Duration Of Justice: 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S GILL
• Assessee Lawyers: TARUN KHARBANDA
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.2048/DEL/2013 ASSESSMENT YEAR : 2005-06 ACIT, M/S GULSHAN SUGAR & CHEMICALS CIRCLE-12 (1), LTD., G-81, PREET VIHAR, NEW DELHI. V. DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACG AAACG AAACG AAACG- -- -0485 0485 0485 0485- -- -C CC C APPELLANT BY : SHRI R.S. GILL, CIT-DR. RESPONDENT BY : SHRI TARUN KHARBANDA, C.A. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED 30.1.2013. THE GROUNDS RAISED BY THE RE VENUE ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF IN TEREST OF ` .11,22,000/-. 2. THE APPELLANT CRAVES LEAVE, TO ADD ALTER OR AMEND AN Y GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILE D RETURN OF INCOME ON 29.10.2005 AND THE CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFIC ER OBSERVED THAT ASSESSEE HAS INCURRED EXPENDITURE ON CAPITA L WORK IN ITA NO2048/DEL/2013 2 PROGRESS AND HAD ALSO TRANSFERRED ASSETS AMOUNTING TO ` .305.44 LAKHS OUT OF CAPITAL WORK IN PROGRESS ON WHICH IT HAD CLAI MED DEPRECIATION. THE ASSESSING OFFICER FURTHER OBSERVED THAT ASSESSEE HAD RA ISED LOANS AND INTEREST AMOUNTING TO ` .22.86 LAKHS WAS PAID ON THESE LOANS. HE FURTHER OBSERVED THAT LOANS WERE USED FOR CAPITAL INVE STMENT AS WELL AS FOR THE PURPOSE OF WORKING CAPITAL. HE FORMED AN OPI NION THAT SINCE THE ASSESSEE HAD MADE AN INVESTMENT IN CAPITAL ASSETS AND HAD T AKEN TIME FOR PUTTING THEM TO USE THE INTEREST COMPONENT OF THE FUNDS EMPLOYED ON THIS INVESTMENT UP TO THE DATE OF PUTTING THESE ASSET S TO USE SHOULD HAVE BEEN CAPITALIZED. THEREFORE, THE ASSESSEE WAS SHOW C AUSED TO GIVE DETAILS OF INTEREST RELATING TO THESE CAPITAL ASSET S. THE ASSESSEE IN ITS REPLY SUBMITTED THAT DURING THE YEAR NO INTEREST B EARING FUNDS WERE UTILIZED FOR CAPITAL WORK IN PROGRESS AND RATHER SURP LUS PROFITS OF PRECEDING YEAR AND CURRENT YEAR WERE DEPLOYED FOR T HE CREATION OF FIXED ASSETS. HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF ASSESSEE AND HELD THAT ASSESSEE HAD BEEN MAK ING CONTINUOUS INVESTMENT IN THE FIXED ASSETS FOR WHICH FUN DS HAD BEEN USED OVER THE YEAR INCLUDING THE YEAR UNDER CONSIDERA TION. THEREFORE, HE CALCULATED AN AMOUNT OF ` .20.82 LAKHS AS INTEREST ON LOANS WHICH WAS USED TO FUND CAPITAL ASSET AND FOR WHICH INTEREST NE EDED TO BE CAPITALIZED. HOWEVER, HE ALLOWED DEPRECIATION AMOU NTING TO ` .9.58 LAKHS OUT OF THIS CAPITALIZED PORTION AND MADE A NET ADDITION OF ` .11.22 LAKHS. 3. THE ASSESSEE FILED APPEAL BEFORE THE LD CIT(A) AND S UBMITTED THAT NO TERM LOANS WERE RAISED DURING THE YEAR AND ONLY W ORKING CAPITAL LOAN WAS TAKEN DURING THE YEAR WHICH WAS PURELY FOR W ORKING CAPITAL AND NOT FOR FIXED ASSETS. IT WAS FURTHER SUBMITTED THAT WORKING CAPITAL LOAN WAS TAKEN FROM BANK OF BARODA WHICH COULD NOT B E USED FOR PURCHASE OF LONG TERM ASSET AND THEREFORE NO INTEREST O N THE SAME CAN ITA NO2048/DEL/2013 3 BE CAPITALIZED. REGARDING UNSECURED LOANS IT WAS SUBMI TTED THAT NO INTEREST WAS PAID ON THESE LOANS AND IN RESPECT OF INCO RPORATE DEPOSITS IT WAS SUBMITTED THAT THERE WERE SHORT TERM DEPOSITS WHI CH WERE UTILIZED FOR SHORT TERM NEEDS OF THE COMPANY. IT WAS FURTHER SUBMITTED THAT THERE WAS CASH ACCRUAL OF ` .4.11. CRORES AND ` .4.36 CRORES RESPECTIVELY IN THE PRECEDING YEAR AND IN THE YEAR U NDER CONSIDERATION. THE LD CIT(A) AFTER GONG THROUGH THE SUBMISSIONS OF ASSES SEE DELETED THE ADDITION BY HOLDING AS UNDER:- I HAVE GONE THROUGH THE FACTS OF THE CASE, OBSERVATIO NS OF THE ASSESSING OFFICER SUBMISSIONS OF THE AR OF THE APPELLANT A ND THIS GROUND OF THE APPELLANT IS BEING FINALIZED AFTER MAK ING THE FOLLOWING OBSERVATIONS:- I) ON GOING THROUGH THE FINDINGS OF THE ASSESSING OFFICER I T IS OBSERVED THAT IN THE ASSESSMENT ORDER HE HAS OBSERVED REGARDING VARIOUS LOANS NOT HAVING BEEN ACCOUNTED F OR SEPARATELY AND THEREFORE COMING TO THE CONCLUSION THA T INTEREST BEARING FUNDS WOULD HAVE BEEN USED FOR MAKING INVESTMENT. THE ASSESSING OFFICER HAS ALSO MADE OBSERVATI ONS THAT THERE WAS INVESTMENT IN FIXED ASSETS OUT OF THE LO ANS ON WHICH INTEREST WAS PAID. HOWEVER, ASSESSING OFFICER HAS NO T ANALYZED THE VARIOUS LOANS WHICH WERE TAKEN BY THE A PPELLANT ON DIFFERENT OCCASIONS AND THE NATURE OF THESE LOANS. F URTHER IT HAS ALSO NOT BEEN MENTIONED TO WHAT WERE THE FIXED ASS ETS PROCURED OUT THE INTEREST BEARING FUNDS DURING THE YE AR. THE AR HAS NOTED THAT THE INVESTMENTS DURING THE YEAR WERE MADE OUT OF ITS OWN SURPLUS PROFIT OF THE PRECEDING YEAR. T HIS ASPECT HAS ALSO NOT BEEN MENTIONED IN THE ASSESSMENT ORDER AS TO WHY THE SAME WAS NOT BEEN ACCEPTED. ITA NO2048/DEL/2013 4 II) AFTER CONSIDERING THE SUBMISSIONS OF THE AR OF THE APPEL LANT, IT IS OBSERVED THAT THE APPELLANT HAS TAKEN VARIOUS LOAN S AND DEPOSITS AND ALSO HAD SURPLUS CASH AVAILABLE TO FUND IT S PLANT & MACHINERY DURING THE YEAR. AS PER THE SUBMISSIONS OF T HE AR CONSIDERED ABOVE, IT IS CLEAR THAT THE DIFFERENT L OANS WERE LARGELY IDENTIFIABLE WITH THE PURPOSE FOR WHICH THE SAME HAD BEEN TAKEN. THE AR HAS STRONGLY ARGUED THAT IT HAD SUBSTANTIAL CASH ACCRUAL TO FUND ITS FIXED CAPITAL ASSET S. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAD NOT SPECIFI CALLY IDENTIFIED THESE INTEREST BEARING LOANS USED FOR PURCH ASE OF FIXED ASSETS LIKE PLANT & MACHINERY. AFTER CONSIDERING THE SUBMISSIONS OF AR I AM CONVINCED T HAT NO DIRECT NEXUS COULD BE ESTABLISHED BY THE ASSESSING OFFICER REGARDING THE INTEREST BEARING FUNDS AND ITS UTILIZA TION FOR PURCHASE OF PLANT & MACHINERY. FURTHER THERE WAS ADEQ UATE CASH AVAILABLE WITH THE APPELLANT TO FUND ITS FIXED ASSETS. IN VIEW OF THE CIRCUMSTANCES, I AM INCLINED AGREE THAT THE ARGUM ENTS OF THE AR OF THE APPELLANT. ACCORDINGLY, THIS ADDITION IS DELETED. THIS GROUND IS TREATED AS ALLOWED. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD DR FILED APPLICATION FOR AD JOURNMENT. HOWEVER, AFTER GOING THROUGH THE FILE, WE FOUND THA T IT WAS A SMALL MATTER RELATING TO SMC AND WHICH COULD BE DISPOSED OF F AS LD CIT(A) HAD CLEARLY GIVEN HIS FINDINGS. THEREFORE, WE REJECTE D THE ADJOURNMENT APPLICATION AND LD DR WAS ASKED TO PROCEED WITH HIS AR GUMENTS. 6. THE LD DR THEREFORE RELIED UPON THE ASSESSMENT ORDER WHEREAS THE LD AR RELIED UPON THE ORDER OF LD CIT(A) AND AR GUED THAT LD CIT(A) AFTER GOING THROUGH THE CASE HAS DELETED THE DISALLOWA NCE. ITA NO2048/DEL/2013 5 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT ASSESSEE WAS SANCTIONED A TERM LOAN OF ` .600 LAKHS BY IDBI BANK VIDE SANCTION LETTER DATED 30.6.2002 PLACED AT PAGE 2 OF PAPER BOOK. THE LAST INSTALLMENT OF THIS TERM LOAN WAS AVAILED BY THE A SSESSEE ON 5.3.2003. THE ASSESSEE HAD ALREADY CAPITALIZED AN AMOU NT OF ` .28.31 LAKHS OUT OF INTEREST DURING THE PERIOD ENDING 31.3.2 003 AS IS APPARENT FROM PAPER BOOK PAGE 5. AFTER THIS TERM LOAN THE ASSE SSEE DID NOT TAKE ANY TERM LOAN RATHER IT REPAID A PART OF THIS TERM L OAN AND THE BALANCE OUTSTANDING AS ON 31.3.2005 IS ` .460 LAKHS AS IS APPARENT FROM ANNUAL BALANCE SHEET PLACED IN THE FILE. THE OTHER LOANS TA KEN BY THE ASSESSEE WERE CAR LOANS, THE INTEREST ON WHICH IS DEFINITELY A REVENUE IN NATURE AS THE CARS WERE PUT TO USE IMMEDIATELY. THE ASSESSEE ALSO EARNED CASH ACCRUAL EXCEEDING ` .4 CRORES EACH IN THE PRECEDING YEAR AND IN THE YEAR UNDER CONSIDERATION AS IS APPARENT FROM THE A NNUAL ACCOUNTS PLACED IN THE FILE. BESIDES THE TERM LOAN THE ASSESSEE WA S SANCTIONED WORKING CAPITAL LIMIT FROM BANK OF BARODA VIDE LETT ER DATED 30.6.2005 AND BALANCE OUTSTANDING AS ON 31.3.2005 ON ACCOUNT OF WORKING CAPITAL WAS ` .6,87,00,695/-, THE INTEREST ON WHICH CANNOT BE SAID TO HAVE BEEN INCURRED FOR MAKING INVESTMENT IN CAPITAL ASSETS. IN V IEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF OCTOBER, 2013. SD/- SD/- (RAJPAL YADAV) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 25.10.2013. HMS ITA NO2048/DEL/2013 6 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 10.10.2013 DATE OF DICTATION 21.10.2013 DATE OF TYPING 22.10.2013 DATE OF ORDER SIGNED BY 25.10.2013 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.