Maxmech Equipments Pvt. Ltd., Ahmedabad V. The ACIT(OSD)-1, Circle-4, Ahmedabad

ITA 2336/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9812 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 24-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2336/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) MAXMECH EQUIPMENTS PVT.LTD. PLOT NO.2102 PHASE IV GIDC, VATVA, AHMEDABAD / VS. THE ASST.CIT (OSD)-1 CIRCLE-4 AHMEDABAD $ ./ ./ PAN/GIR NO. : AAECM 8747 R ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI SUNIL TALATI, A.R. ($'*) / RESPONDENT BY : SHRI K. MADHUSUDAN, SR.DR +,*- / DATE OF HEARING 29/01/2016 ./0*- / DATE OF PRONOUNCEMENT 15/12/2016 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VIII, AHMEDABAD [CIT(A) IN SHORT] DATED 24/09/2012 FOR ASSESSMENT YEAR (AY) 20 09-10. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL:- ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 2 - 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) H AS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,25,484/- OUT OF TOTAL ADVANCE SITE EXPENSES CLAIMED OF RS.45,09,670/-. I T IS SUBMITTED THAT FOR THE PURPOSE OF MEETING OF EMPLOY EES LODGING& BOARDING EXPENSES AT SITE, THE ASSESSEE CO MPANY HAD PROVIDED ADVANCE FROM TIME TO TIME. THE STATEMENT SHOWING THE COMPLETE DETAILS OF EXPENSES CLAIMED HAD BEEN FILED BEFORE THE LD.CIT(A). FURTHER IT IS SUBMITTED THAT DISALLOWAN CE MADE BY LD.A.O. AND PARTLY CONFIRMED BY CIT(A) IS WITHOUT A NY BASIS, EVIDENCES OR SPECIFIC FINDINGS. THEREFORE THE SAME BE NOT ACCEPTED AND TOTAL ADVANCE SITE EXPENSES CLAIMED OF RS.45,09,670/- BE ALLOWED NOW AND THE ADDITION SUST AINED OF RS.2,25,484/- BE DELETED. 2. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,11,183/- PER TAINING TO INTEREST EXPENSE OUT OF TOTAL INTEREST EXPENSE CLAI MED. IT IS SUBMITTED THAT TERM LOAN OF RS.78 LACS BEARING RATE OF INTEREST @ 14% HAD BEEN DISBURSED BY THE BANK IN THE F.Y. 20 07-08, ALSO UTILIZED IN THE SAME YEAR AND NOT IN THE YEAR UNDER CONSIDERATION. FURTHER THE LD.CIT(A) HAS COMPLETE LY ERRED IN NOT APPRECIATING THE FACT THAT THE ADVANCES GIVEN F OR PURCHASE OF LAND DURING THE YEAR UNDER CONSIDERATION WERE OU T OF INTERNAL ACCRUALS RECEIVED IN RESPECT OF SALE OF GO ODS ONLY. FURTHER IT IS SUBMITTED THAT THE TOTAL INTEREST EXP ENSES OF RS.56,42,016/- INCURRED BY THE ASSESSEE DURING THE YEAR ARE PURELY IN THE NATURE OF REVENUE AND THUS SAME BE AL LOWED ACCORDINGLY, AND THE ADDITION SUSTAINED OF RS.1,11, 183/- BE DELETED. 3. THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.15,00,000/- PERTA INING TO INTE4REST EXPENDITURE INCURRED FOR THE CONSTRUCTION OF FACTORY BUILDING. THE APPELLANT HAS TO SUBMIT THAT THE SAM E SHOULD BE ALLOWED IRRESPECTIVE OF THE FACT THAT WHETHER THE A SSET IS PUT TO USE DURING FINANCIAL THE YEAR OR NOT IN VIEW OF THE DECISIONS BY ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 3 - VARIOUS COURTS IN THE VARIOUS CASES. IT IS SUBMITT ED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE APPELLANT SUO MOTU OFFERED RS.2,15,500/- AS A DISALLOWANCE WITH REGARD S TO THE INTEREST EXPENDITURE INCURRED TOWARDS THE CONSTRUCT ION OF FACTORY BUILDING. THEREFORE THE AD HOC DISALLOWANC E MADE BY THE A.O. TOWARDS INTEREST EXPENDITURE INCURRED FOR THE CONSTRUCTION OF FACTORY BUILDING BE RESTRICTED TO T HE TUNE OF RS.2,15,500/- AND THE REMAINING ADDITION OF RS.12,8 4,500/- BE DELETED NOW. 4. THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INC OME- TAX(APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROV ISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME BE HELD S O NOW. 3. AS PER GROUND NO.1, THE ASSESSEE HAS ASSAILED TH E DISALLOWANCE OF RS.2,25,484/- OUT OF TOTAL ADVANCE SITE EXPENSES CL AIMED AT RS.45,09,670/-. THE LD.AR FOR THE ASSESSEE SUBMITT ED THAT FOR THE PURPOSE OF MEETING THE EMPLOYEES LODGING AND BOARDI NG EXPENSES AT SITE, THE ASSESSEE-COMPANY HAD PROVIDED ADVANCES FROM TIM E TO TIME. THE STATEMENT SHOWING DETAILS OF EXPENSES HAVE ALSO BEE N FILED BEFORE THE LOWER AUTHORITIES. THE LD.AR THEREFORE CONTENDED TH AT THE ESTIMATION OF DISALLOWANCE AT 10% OF THE TOTAL ADVANCE SITE EXPEN SES WAS SCALED DOWN TO 5% BY THE CIT(A) WITHOUT ANY COGENT BASIS OR ANY SPECIFIC FINDINGS IS SUSTAINABLE IN LAW. HE THEREFORE PRAYED FOR RELIE F AGAINST THE ESTIMATIONS SUSTAINED BY THE CIT(A). 4. THE LD.DR, ON THE OTHER HAND POINTED OUT THAT TH E ASSESSING OFFICER (AO) HAS CATEGORICALLY OBSERVED THAT THE AS SESSEE HAS NOT ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 4 - SUBMITTED THE BILLS FOR VERIFICATION OF AO IN RES PECT OF THE CLAIM OF THE EXPENDITURE. IT WAS CONTENDED THAT THE ASSESSEE HA S MERELY ENCLOSED COPIES OF THE FEW OF THE VOUCHERS. THE LD.DR FURTH ER EMPHASIZED THAT THE ASSESSEE ITSELF HAS CONTENDED THAT IT IS NOT PO SSIBLE TO PRODUCE ALL THE VOUCHERS. THEREFORE, IN THE ABSENCE OF FULL DETAIL S MADE AVAILABLE TO THE AO, ESTIMATIONS SUSTAINED BY THE CIT(A) IS QUITE RE ASONABLE AND NO INTERFERENCE IS CALLED FOR. 5. WE NOTICE THAT THE ASSESSEE HAS ENGAGED IN THE B USINESS OF MANUFACTURING OF CONSTRUCTION RELATED MACHINERIES. FOR THE PURPOSES OF MEETING LODGING AND BOARDING EXPENSES OF THE EMPLOY EES DEPUTED, ADVANCES WERE PROVIDED FROM TIME TO TIME. THESE AD VANCES WERE TRANSLATED INTO CLAIM OF EXPENDITURE AS AND WHEN T HE EXPENSES WERE INCURRED IN THE HANDS OF THE ASSESSEE. WE ARE OF T HE VIEW THAT THE ASSESSEE IS UNDER OBLIGATION TO PROVIDE THE UNDERLY ING DOCUMENTS AND DETAILS FOR CLAIM OF EXPENDITURE IF SO REQUIRED BY THE REVENUE. ADMITTEDLY, THE ASSESSEE HAS FAILED TO PRODUCE ALL THE DOCUMENTARY EVIDENCES TO SUPPORT THE EXPENDITURE CLAIMED ON THE GROUND THAT SUCH BILLS/VOUCHERS ARE PURPORTEDLY VOLUMINOUS. IN THE CIRCUMSTANCES, IN THE ABSENCE OF COMPLETE DETAILS, WE DO NOT FIND ANY PLA USIBLE REASON TO DISCREDIT THE FINDINGS OF THE CIT(A) IN THIS REGARD . ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 5 - 6. THE SECOND GROUND RELATES TO DISALLOWANCE OF RS .1,11,183/- OUT OF INTEREST EXPENDITURE. THE LD.AR FOR THE ASSESSEE S UBMITTED THAT TERM LOAN OF RS.78 LAKHS BEARING INTEREST @ 14% P.A. HA D BEEN DISBURSED BY THE BANK IN FINANCIAL YEAR 2007-08 WHICH WAS UTILIZ ED IN THE SAME YEAR. IT WAS THUS CONTENDED THAT ADVANCES GIVEN FOR PURCH ASE OF LAND DURING THE YEAR UNDER CONSIDERATION WERE OUT OF INTERNAL ACCRU ALS RECEIVED IN ORDINARY COURSE ONLY. IT WAS FURTHER SUBMITTED BY LD.AR THAT TOTAL INTEREST EXPENSES OF RS.56,42,016/- INCURRED BY ASS ESSEE DURING THE YEAR ARE PURELY IN THE NATURE OF REVENUE AND THEREFORE I NTEREST PURPORTEDLY ATTRIBUTABLE TO THE ADVANCE FOR PURCHASE OF LAND CA LCULATED @14% WORKED OUT TO RS.1,11,183/- IS NOT IN SYNC WITH FACTS OF T HE CASE. THE LD.AR, IN THE ALTERNATIVE SUBMITTED THAT IT IS MATTER OF RECO RD THAT ASSESSEE HAS BORROWED SUBSTANTIAL AMOUNT OF UNSECURED LOANS OF RS.6.65 CRORES AT A LOWER RATE OF INTEREST AT 3% P.A. THEREFORE, WITHO UT PREJUDICE, THE CALCULATION OF DISALLOWANCE BE RESTRICTED BY APPLY ING INTEREST RATE OF 3% P.A. INSTEAD OF 14% P.A. APPLIED BY THE AO. THE L D.DR ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BE LOW. 7. ON PERUSAL OF THE RECORD, WE FIND THAT THE ASSES SEE HAS MADE ADVANCES FOR PURCHASE OF LAND DURING THE YEAR TO TH E TUNE OF RS.17.69 LAKHS. THE ASSESSEE HAS ALSO CLAIMED INTEREST EXPE NSES AMOUNTING TO RS.56.42 LAKHS. WE SIMULTANEOUSLY TAKE NOTE OF TH E CLAIM ON BEHALF OF THE ASSESSEE THAT UNSECURED LOAN OF RS.6.65 CRORES BEARING INTEREST @3% ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 6 - P.A. WAS AVAILABLE WITH THE ASSESSEE. THEREFORE, W HILE IN VIEW OF THE PROVISO TO SUB-SECTION (III) OF SECTION 36(1) OF TH E ACT, WE FIND FORCE IN THE ALTERNATE CONTENTION OF THE ASSESSEE THAT INTER EST ATTRIBUTABLE TO THE INVESTMENT IN NEW ASSETS IS REQUIRED TO BE CAPITALI ZED TILL THE DATE THE NEW ASSETS IS PUT TO USE, THE RATE OF INTEREST ATTRIBUT ABLE TO SUCH ADVANCES IS REQUIRED TO BE APPLIED @ 3%P.A. INSTEAD OF 14% P.A. AS PER AO. THE AO IS ACCORDINGLY DIRECTED TO GRANT APPROPRIATE RELIEF BY COMPUTING THE REVISED DISALLOWANCE APPLYING THE RATE AT WHICH THE UNSECURED LOANS HAS BEEN BORROWED BY THE ASSESSEE. THE AO MAY SEEK REQ UIRED DETAILS IN THIS REGARD IF HE SO CONSIDERS IT EXPEDIENT. THE GROUND NO.2 IS THUS TREATED AS PARTLY ALLOWED. 8. GROUND NO.3 CONCERNS DISALLOWANCE OF RS.15 LAKHS OUT OF INTEREST EXPENDITURE ATTRIBUTABLE TO CONSTRUCTION OF THE NEW BUILDING. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SUO MOTU OFFERED RS.2,15,500/- TOWARDS DISALLOWANCE OUT O F INTEREST EXPENDITURE ATTRIBUTABLE TOWARDS CONSTR UCTION OF NEW BUILDING. THE ADHOC DISALLOWANCE OF RS.15 LAKHS OUT OF INTERE ST EXPENDITURE STATED TO BE ATTRIBUTABLE TO CONSTRUCTION OF NEW BUILDING IS NOT IN TUNE WITH THE FACTS. THE LD.DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 7 - 9. IN ORDER TO ADDRESS THE AFORESAID ISSUE, WE NOTE THAT DURING THE YEAR THE ASSESSEE CAPITALIZED CONSTRUCTION COST OF RS.1, 71,98,595/- TOWARDS CONSTRUCTION COST OF NEW BUILDING. IT WAS CONTENDE D BY THE ASSESSEE BEFORE THE AO THAT ASSESSEE HAS NOT TAKEN ANY TERM LOAN FOR THE CONSTRUCTION OF THE SAID BUILDING. THE FUNDS UTILI ZED FOR THE CONSTRUCTION OF THE BUILDING WERE OUT OF INTERNAL APPROVALS AND UNSECURED LOANS PROVIDED BY ITS SHAREHOLDERS AND DIRECTORS. IT WAS CLAIMED THAT THE ASSESSEE HAS PROCURED UNSECURED LOAN TO THE EXTENT OF RS.6.65 CRORES FROM SHAREHOLDERS AND DIRECTORS, AT A CONCESSIONAL RATE OF @3% PER ANNUM. THE INTEREST COST @3% FOR FIVE MONTHS FROM SEPTEMB ER-2008 TO JANUARY-2009 TRANSLATES INTO INTEREST COST OF RS.2, 15,500/- WHICH WAS OFFERED BY THE ASSESSEE TO BE CAPITALIZED WITH THE COST OF THE NEW BUILDING. WE NOTICE THAT THE AO HAS DISPUTED THE A FORESAID PERIOD OF 5 MONTHS FOR THE PURPOSES OF DISALLOWANCE AS WELL AS THE PLEA OF THE ASSESSEE THAT THE TERM LOAN HAS NOT BEEN UTILIZED. FOR THIS PURPOSE, THE AO RELIED UPON THE DIFFERENTIAL FUND FLOW STATEMENT OF THE YEAR AS REFERRED TO BY HIM. 9. HE ACCORDINGLY, APPLIED INTEREST RATE OF 13.5% P .A. ON AVERAGE BASIS ATTRIBUTABLE TO THE INVESTMENTS IN THE BUILDI NG AND CAPITALIZED THE INTEREST AT RS.15 LAKHS AFTER TAKING COGNIZANCE OF THE FACT THAT PAYMENT HAS BEEN MADE FOR CONSTRUCTION OF THE PROPERTY IN T RUNCATED MANNER. WHILE WE AGREE WITH THE ACTION OF THE AO THAT PROVI SO TO SUB-SECTION (III) ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 8 - OF SECTION 36(1) OF THE ACT IS ATTRACTED IN THE CIR CUMSTANCES AS SPELT, THE AO OUGHT TO HAVE APPRECIATED THE OVERALL FUND POSIT ION INSTEAD OF DIFFERENTIAL FUND POSITION. IN VIEW OF THE FACT T HAT UNSECURED LOANS OF RS.6.65 CRORES BEARING INTEREST 3% P.A. IS AVAILABL E WITH THE ASSESSEE AS CLAIMED THE BENEFIT OF LOW RATE OF INTEREST AS CLA IMED BY THE ASSESSEE FOR THE PURPOSE OF CAPITALIZATION OF INTEREST COSTS IN TERMS OF SECTION 36(1)(III) OF THE ACT CANNOT BE DENIED. WE THEREFORE FIND FOR CE IN THE ARGUMENT OF THE ASSESSEE. THE AO IS ACCORDINGLY DIRECTED TO AP PLY THE INTEREST RATE AT WHICH UNSECURED LOAN HAS BEEN BORROWED FOR THE PURP OSE OF CAPITALIZATION OF INTEREST COST IN TERMS OF SECTION 36(1)(III) OF THE ACT. FOR THIS PURPOSE, THE AO WOULD BE ENTITLED TO MAY SEEK REQUISITE INFORMATION FROM THE ASSESSEE. SUBJECT TO ABOVE, THE GROUND N O.3 OF THE ASSESSEES APPEAL STANDS ALLOWED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 15/12/2016 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 15/ 12 /2016 4..+,.+../ T.C. NAIR, SR. PS ITA NO.2336/AHD /2013 MAXMECH EQUIPMENTS PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 9 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-VIII, AHMEDABAD 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 14.12.16 (DICTATION-PAD 16- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15.12.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.15.12.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 16.12.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER