DCIT 7(3), MUMBAI V. TAYAL ENERGY P.LTD, MUMBAI

ITA 284/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92915 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Depreciation; Proportionate interest; Tax effect

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO . 284 / MUM/20 1 4 ( / ASSESSMENT YEAR : 200 9 - 10 ) DCIT 7(3), MUMBAI VS. M/S TAYAL ENERGY PVT. LTD., 11/12, RAGHUVANSHI MILL COMPOUND, S.B.MARG, LOWER PAREL, MUMBAI - 400013 ./ ./ PAN/GIR NO. : A A CCT 3462 C ( / APPELL ANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SHRI SALIL KAPOOR / DATE OF HEARING : 1 7 /0 6 / 2015 / DATE OF PRONOUNCEMENT 26 /06 /201 5 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 13 , MUMBAI , DATED 29 - 10 - 2013 FOR THE ASSESSMENT YEAR 200 9 - 10 IN THE MATTER OF IMPOSITION OF PENALTY U/S.271(1)(C) OF THE ACT . 2. RIVAL CONTENTIO NS HAVE BEEN HEARD AND RECORD PERUSED. IN THIS CASE, PENALTY U/S.271(1)(C) WAS IMPOSED BY THE AO WITH REGARD TO THE INTEREST EXPENDITURE CLAIMED IN PROFIT AND LOSS ACCOUNT, WHICH WAS CAPITALIZED DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS AND ON D ISALLOWANCE PENALTY WAS LEVIED U/S.271(1)(C) OF THE ACT. ITA NO. 284 /1 4 2 3. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE PENALTY AFTER OBSERVING AS UNDER : - 3.4 I HAVE GONE THROUGH THE DETAILS. THE AO IN THE REMAND REPORT HAS FURNISHED A COPY OF FORM 3 CD, SCHEDULE OF D EPRECIATION ALONG WITH HIS REPLY. A PERUSAL OF THE SAME MAKES IT CLEAR THAT AO HAS NOT DISPUTED THE FACT THAT THE AUDIT REPORT SHOWED INTEREST DEBITED AN AMOUNT OF RS. 413.76 LAKHS WHICH AS PER APPELLANTS SUBMISSION WAS BALANCE AMOUNT AFTER CAPITALIZING IN TER E ST OF RS. 8,17,63,495/ - OUT OF TOTAL INTEREST TOTALING TO RS. 18,01,88,507/ - PAID TO THE BANK OF INDIA, PUNJAB NATIONAL BANK, UCCO BANK AND STATE BANK OF INDIA. THUS, I FIND THAT APPELLANTS CONTENTIONS ARE FACTUALLY CORRECT THAT THEY HAVE CAPITALIZED P ROPORTIONATE INTEREST IN WORK - IN - PROGRESS THEMSELVES IN THE RETURN OF INCOME FILED AND IN THAT CASE, THERE IS NO INACCURATE PARTICULARS FURNISHED BY THEM. MERELY NO APPEALING AGAINST THE QUANTUM ADDITION DUE TO THE FACT THAT THERE WAS NO TAX EFFECT IN THEI R CASE DUE TO HUGE LOSSES, DOES NOT VALIDATE LEVY OF PENALTY OF RS. 65,30,535/ - ON THIS ACCOUNT U/S.271(1)(C) AUTOMATICALLY. IN VIEW OF THIS PENALTY OF RS. 65,30,535/ - LEVIED U/S.271(1)(C) OUT OF PENALTY LEVIED FOR RS. 65,36,085/ - BEING NOT SUSTAINABLE IS DEL ETED HEREWITH. 4. AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT PENALTY WAS LEVIED WITH REGARD TO THE INTEREST CLAIMED BY THE ASSESSEE, WHICH WAS CAPITALIZED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. FROM THE RECORD WE FOUND THAT ASSESSEE HAS CLAIMED THAT DURING ASSESSMENT PROCEEDINGS IT HAD FILED LETTER DATED 25 - 9 - 2011, FURNISHING THE DETAILS OF SHARE HOLDING PATTERN, SECURED LOANS, UNSECURED LOANS, MANUFACTURING EXPENSE AND DETAILS OF INTEREST PAID. ALONG WITH THIS LETTER, THE ASSESSEE FILED DETAILS OF INTEREST PAID. THEREAFTER THE AO PASSED ORDER U/S.143(3). IN THE SAID ASSESSMENT ORDER, THE AO HAS DISALLOWED THE INTEREST EXPENDITURE OF RS.97 LACS OBSERVING THAT THE ASSESSEE HAD NOT ALLOCATED ANY INTEREST EXPENDITURE AGAINST CAPITAL W IP. THE AO WAS OF THE OPINION ITA NO. 284 /1 4 3 THAT PROPORTIONATE INTEREST EXPENDITURE WAS REQUIRED TO BE CAPITALIZED IN CWIP. THEREFORE, THE AO DISALLOWED PROPORTIONATE INTEREST EXPENDITURE OF RS. 97 LACS BY CAPITALIZING THE SAME TO THE WIP . I N THE WORKING OF SUCH PROPORTIONATE INTEREST CAPITALIZED, THE AO HAS CONSIDERED OPENING BALANCE OF LOAN AT RS.NIL AND CLOSING BALANCE AT RS.221.44 CRORES. THE AVERAGE LOAN FUNDS FOR THE YEAR HAD BEEN CONSIDERED B Y THE AO AT RS.110.72 CRORES. CONSIDERING THE AVERAGE INTER E ST RATE ON 4%, THE AO WORKED OUT DISALLOWANCE OF INTEREST ON RS.97 LACS BY CAPITALIZING THE SAME TO THE WIP. WE FOUND THAT ASSESSEE WAS CARRYING ON VARIETY OF BUSINESS NAMELY, MANUFACTURING AND SA LES OF KNITTING, WEAVING, COMBINING, BLENDING, SPINNING OF COTTON ETC., CARRYING ON BUSINESS GENERATION, TRANSMISSION, DISTRIBUTIONS AND CONSERVATION OF ENERGY, TO RESTRUCTURE, IMPROVE , MAKE IT EFFICIENT AND TO MAINTAIN POWER PLANTS, POWER SYSTEMS, TRANSM ISSION LINES, ETC. THE UTILIZATION OF BORROWED FUNDS WAS PRIMARILY ON PURCHASE OF PLANT AND MACHINERY. SINCE THE CWIP WAS NOT YET PUT TO USE AS PER SCHEDULE OF DEPRECIATION, THEREFORE, HAS NOT BEEN CLAIMED BY THE ASSESSEE ON WIP. THEREFORE, THE INTEREST EX PENSES ATTRIBUTABLE TO SUCH CWIP WERE NOT EXPENSES OF REVENUE IN NATURE AND, THEREFORE, NO ALLOWABLE. ALL THE DETAILS OF INTEREST AND UTILIZATION OF LOAN FUND WAS FORWARDED BY CIT(A) TO THE AO FOR HIS REMAND REPORT AND IN THE REMAND REPORT THE AO HAS ACCEP TED THE FACT THAT ASSESSEE HAS FILED FULL DETAILS OF INTEREST PAID AS ON 31 - 3 - 2009. UNDER THESE CIRCUMSTANCES THE CIT(A) FOUND THAT ASSESSEE HAS FURNISHED ALL THE DETAILS . THUS, THERE WAS A FULL DISCLOSURE ON THE PART OF THE ASSESSEE AND MERELY BECAUSE PRO PORTIONATE INTEREST EXPENDITURE ITA NO. 284 /1 4 4 CAPITALIZED BY THE AO, THE SAME WILL NOT ATTRACT ANY PENALTY. SINCE THERE WAS NO TAX EFFECT FOR SUCH CAPITALIZATION BECAUSE OF THE HUGE LOSSES, THE ASSESSEE HAS NOT FILED ANY APPEAL. UNDER THESE CIRCUMSTANCES, THE CIT(A) HEL D THAT NO PENALTY WAS WARRANTED FOR CAPITALIZATION OF INTEREST. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 6 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 /06 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 26 /06 /201 5 . . /PKM , . / P S / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, M UMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT , MUMBAI 6. / GUARD FILE. //TRUE COPY//