D.C.I.T., Circle-10, Kolkata, Kolkata V. M/s G.I.S.Cotton Mill Ltd., Kolkata

ITA 2626/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1786 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 08-11-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 18-11-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: B K PODDAR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 2626/KOL/20 13 ASSESSMENT YEAR : 2006-0 7 D.C.I.T., CIRCLE-10, -VS.- M/S. G.I.S. C OTTON MILL LTD. KOLKATA KOLKATA [PAN : AABCG 5367 J] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI RAJA T KUMAR KUREEL, JCIT.SR.DR FOR THE RESPONDENT : SHRI B.K.PODDAR, AR DATE OF HEARING : 18.04.2017. DATE OF PRONOUNCEMENT : 03.05.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 07.08.2013 OF C.I.T.(A)-XII, KOLKATA RELATING TO A.Y.2006-07. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READ A S FOLLOWS :- 1. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED I N ALLOWING PROPORTIONATELY THE DISALLOWANCE MADE ON THE INTEREST TAKEN ON LOAN TO THE EXTENT THE BORROWED LOAN WAS USED FOR NON-BUSINESS PURPOSES? 2. WHETHER LD CIT(A)-XII, KOLKATA, WAS JUSTIFIED IN CONFERRING LIBERTY TO THE ASSESSEE BY MERELY TREATING THE EXPENDITURE INCURRE D BEFORE THE SETTING UP OF A BUSINESS CANNOT BE REGARDED AS A DISALLOWANCE MADE U/S 36(1)(III) AND THE SAME SHOULD BE CONSIDERED AS A CAPITAL EXPENDITURE? 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSI NESS OF MANUFACTURING AND SELLING OF YARN MADE OUT OF COTTON/SYNTHETIC FIBRE. THE UND ISPUTED FACTS ARE THAT THE ASSESSEE FOR THE PURPOSE OF EXTENSION OF ITS MANUFACTURING B USINESS BORROWED MONEY FROM THE BANK AS WELL AS ITS HOLDING COMPANY AND PAID INTERE ST ON SUCH BORROWINGS. UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (AC T), INTEREST PAID ON CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE AS DEDUCTI ON. IT IS ALSO NOT IN DISPUTE THAT THE PLANT AND MACHINERY HAD NOT BEEN INSTALLED OR PUT T O USE DURING THE PREVIOUS YEAR. 2 ITA NO.2626/KOL/2013 M/S. G.I.S. COTTON MILL LTD. A.YR.2006-07 2 UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT, INSERTED BY FINANCE ACT, 2003 W.E.F. 01.04.2004, INTEREST PAID IN RESPECT OF CAPITAL BOR ROWED FOR ACQUISITION OF AN ASSET OF AN EXISTING BUSINESS OR PROFESSION AFTER THE PERIOD PR IOR TO THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCT ION. THE ASSESSEE HAD WHILE COMPUTING ITS INCOME FROM BUSINESS CLAIMED INTEREST PAID ON BORROWINGS FOR ACQUISITION OF MACHINERY AND EXPANSION OF ITS EXIST ING BUSINESS AS A DEDUCTION AND AS A REVENUE EXPENDITURE WHILE COMPUTING THE INCOME. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION BY PLACING RELIANCE ON THE P ROVISO TO SECTION 36(1)(III) OF THE ACT REFERRED TO EARLIER AS ADMITTEDLY THE MACHINERY WAS NOT PUT TO USE DURING THE PREVIOUS YEAR. THE ORDER OF THE AO WAS CONFIRMED BY THE CI T(A). 4. BEFORE CIT(A) THE ASSESSEE MADE A SUBMISSION THAT IF THE INTEREST EXPENDITURE IS DISALLOWED THEN THE SAID AMOUNT SHOULD BE CAPITALIZ ED FOR THE PURPOSE OF CLAIMING DEPRECIATION IN FUTURE. THIS ALTERNATIVE CLAIM WAS ALLOWED BY CIT(A). THE REVENUE IS AGGRIEVED BY THE ACTION OF CIT(A) IN ALLOWING THE A LTERNATIVE CLAIM MADE BY THE ASSESSEE AND HAS THEREFORE PREFERRED THE PRESENT A PPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE O F THE VIEW THAT THERE IS NO MERIT IN THIS APPEAL FILED BY THE REVENUE. THE PLEA OF THE A SSESSEE FOR CAPITALIZATION OF THE INTEREST DISALLOWED AS ABOVE FINDS SUPPORT FROM THE RATIO LAID DOWN IN THE FOLLOWING TWO DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US: (I) SHEETAL DRAPE (INDIA)LTD. VS ACIT (2012) 21 TAXMANN .COM 288 (MUM) (II) BREEZE CONSTRUCTIONS (P)LTD VS ITO (2012) 21 TAXMAN N.COM 114 (DELHI) 6. FOLLOWING THE VIEW EXPRESSED IN THE AFORESAID DECISIONS THAT WHERE INTEREST IS DISALLOWED BECAUSE OF THE NON USER OF THE ASSET THE N THE DISALLOWED PART OF THE INTEREST SHOULD BE ALLOWED TO BE CAPITALIZED, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL BY THE REVENUE. 3 ITA NO.2626/KOL/2013 M/S. G.I.S. COTTON MILL LTD. A.YR.2006-07 3 7. IN THE RESULT THE APPEAL BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE COURT ON 03.05.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 03.05.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. G.I.S. COTTON MILL LTD., C-4, GILANDER HOUS E, N.S.ROAD, KOLKATA-700001. 2. D.C.I.T., CIRCLE-10, KOLKATA. 3. CIT(A)-XII, KOLKATA 4. C.I.T.-IV, KOLKATA . 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES