Sanghi Infrastructure Ltd., Ahmedabad V. The Dy.CIT, Circle-8, Ahmedabad

ITA 2925/AHD/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6670 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 19-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Proportionate interest; Initiation of penalty proceedings
• Section: 271(1)(c); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER 1. ./ I.T.A. NO.2925/AHD/2015 2. ./ I.T.A. NO.942/AHD/2016 ( / ASSESSMENT YEARS : 2010-11 & 2011-12 RESPECTIVELY ) SANGHVI INFRASTRUCTURE LTD. 10 TH FLOOR, KATARIA ARCADE OFF:S.G.HIGHWAY MAKARBA,AHMEDABAD-380 051 / VS. THE DY.CIT CIRCLE-8 AHMEDABAD # ./ ./ PAN/GIR NO. : AALCS 2163A ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) #&( / APPELLANT BY : SHRI P.M. MEHTA, AR '#& )( / RESPONDENT BY : SHRI LALIT P.JAIN, SR.DR *+ ), / DATE OF HEARING 26/02/2019 -./0 ), / DATE OF PRONOUNCEMENT 28/ 02/2019 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INST ANCE OF THE ASSESSEE AGAINST THE SEPARATE APPELLATE ORDERS OF T HE COMMISSIONER OF INCOME TAX(APPEALS)-9/4, AHMEDABAD [CIT(A) IN SHORT] DATED 15/08/2015 AND 04/03/2016 ARISING IN THE ASSESSMENT ORDERS PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 2 - 'THE ACT') DATED 22/03/2013 AND 20/03/2014 RELEVAN T TO ASSESSMENT YEARS (AYS) 2010-11 & 2011-12 RESPECTIVELY. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER:- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A)HAS GROSSLY ERRED IN SUSTAI NING DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF R S.93,88,884 (OUT OF DISALLOWANCE OF RS.2,53,26,078 MADE IN THE ASSESSMENT ORDER IMPUGNED BEFORE HIM). 2. IN VIEW AND IN THE FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN ALTOG ETHER OMITTING TO CONSIDER GROUNDS NO.3 AND 4 OF THE APPE LLANTS APPEAL BEFORE HIM READING AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED ASSESSING OFFICER ERRED IN INITIATING PENAL TY PROCEEDINGS U/S.271(1)(C) OF THE I.T.ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED ASSESSING OFFICER ERRED IN CHARGING INTEREST UNDER SECTIONS 234A, 234B, 234C AND 234D OF THE I.T. ACT. 3. BRIEFLY STATED, FACTS ARE THAT THE ASSESSEE-COMP ANY IS ENGAGED IN THE BUSINESS OF PROVIDING DREDGER AND OTHER INFRAST RUCTURE FACILITIES. THERE WERE ADDITION OF RS.21,10,50,561/- TO THE TOT AL ASSET WHICH COMPRISE OF CAPITAL WORK-IN-PROGRESS OF RS.16,47,56 ,851/- AND ADDITION OF RS.4,60,84,210/- TO DREDGER AND RS.2,02,090/- TO FURNITURE AND FIXTURE. THE ASSESSEE HAS TAKEN TERM LOAN OF RS.25,00,00,000 /- AND ACCORDINGLY ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 3 - INTEREST OF RS.2,53,26,078/- WAS HELD BY THE ASSESS ING OFFICER TO BE CAPITALIZED U/S.36(1)(III) AT 12% ON ADDITION TO TO TAL ASSET OF RS.21,10,50,561/-. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF INTEREST U/S.36(1)(III) ON THE PRESUMPTION THAT BOR ROWED FUNDS ARE UTILIZED FOR PURCHASE OF DREDGER WHICH IS NOT PUT TO USE. ON CONSIDERATION OF ENQUIRE FACTS IT IS APPRECIATED THAT ADDITION OF RS .21,10,50,561/- TO THE FIXED ASSET, INCLUDES ADDITION OF RS.4,60,84,210/- MADE TO PERTUIS II DREDGER WHICH IS ALREADY PUT TO USE AND THE FACTS T HAT DEPRECIATION ON THIS DREDGER WAS ALLOWED IN EARLIER YEAR FURTHER SUPPORT S THE ARGUMENT OF THE ASSESSEE THAT THE DREDGER PERTUIS II IS ALREADY PUT TO USE AND HENCE CAPITALIZATION OF INTEREST U/S.36(1)(III) ON ADDITI ON MADE TO THIS DREDGER IS NOT JUSTIFIED. FURTHER, THE ADDITION TO TOTAL ASSE T INCLUDES ADDITION OF RS.2,02,090/- TO FURNITURE AND FIXTURE WHICH CANNOT BE CONSIDERED FOR CAPITALIZATION OF INTEREST EXPENDITURE U/S.36(1)(II I). THUS, CAPITALIZATION OF INTEREST EXPENDITURE U/S.36(1)(III) IS RESTRICTE D ON ADDITION TO CAPITAL WIP OF RS.16,47,56,851/-. FURTHER, THE FACT THAT T HE ASSESSEE HAS TAKEN LOAN OF RS.25 CRORE FROM YES BANK ON 23/10/2009 AN D PAID INTEREST OF RS.1,42,46,575/- ON SUCH LOAN. THE DISALLOWANCE OF PROPORTIONATE INTEREST EXPENSES ON CAPITAL WIP OF RS.16,47,56,851 /- IS RESTRICTED FROM THE DATE OF SANCTION OF LOAN TO THE BALANCE SHEET D ATE AS AGAINST THE DISALLOWANCE MADE FOR THE WHOLE YEAR WHILE PASSING ASSESSMENT ORDER. THUS CAPITALIZATION OF INTEREST U/S.36(1)(III) IS R ESTRICTED TO RS.93,88,884/- ON THE ADDITION TO CAPITAL WIP OF RS.16,47,56,851/- FROM THE DATE OF ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 4 - SANCTION OF LOAN AS AGAINST DISALLOWANCE MADE FOR T HE WHOLE YEAR IN THE ASSESSMENT ORDER. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), ASSESSE E IS NOW IN APPEAL BEFORE US. 5. WE HAVE HEARD THE LD. REPRESENTATIVES APPEARING FOR THE RESPECTIVE PARTIES. WE HAVE PERUSED THE RELEVANT M ATERIAL AVAILABLE ON RECORD. ASSESSEE IS ENGAGED IN THE BUSINESS OF PRO VIDING DREDGER AND OTHER INFRASTRUCTURE FACILITIES. IN THE YEAR UNDE R CONSIDERATION, THE LD.CIT(A) CAPITALIZATION OF INTEREST U/S.36(1)(III) WAS RESTRICTED TO RS.93,88,884/- ON THE ADDITION TO CAPITAL WIP OF RS .16,47,56,851/- FROM THE DATE OF SANCTION OF LOAN AS AGAINST DISALLOWANC E MADE FOR THE WHOLE YEAR IN THE ASSESSMENT ORDER. 6. THE QUESTION BEFORE US IS WHETHER AN AMOUNT OF R S.93,88,884/- CAN BE ADDED TO THE INCOME OF THE ASSESSEE OR NOT. IN THIS REGARD, WE DRAW SUPPORT FROM THE ORDER OF THE HONBLE SUPREME COURT IN THE MATTER OF DCIT V/S. CORE HEALTHCARE LTD. (2008) 298 ITR 194 ( SC), WHEREIN IT IS HELD THAT INTEREST ON BORROWED CAPITAL TO BE ALLOWE D AND MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO ACQUIRE A CAP ITAL OR A REVENUE ASSET AND SECTION 36(1)(III) REQUIRES THAT ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORROWING MUST BE FOR BUSINESS W HICH IS CARRIED ON BY ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 5 - THE ASSESSEE IN THE YEAR OF ACCOUNT. UNLIKE, SECTI ON 37 WHICH EXPRESSLY EXCLUDES AN EXPENSE OF A CAPITAL NATURE, SECTION 36 (1)(III) EMPHASIZES IS THE USER OF THE CAPITAL AND NOT THE USER OF THE ASS ET WHICH CASE INTO EXISTENCE AS A RESULT OF BORROWED CAPITAL. THE L EGISLATURE HAS, THEREFORE. MADE NO DISTINCTION IN SECTION 36(1)(III) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE AND CAPITAL BORROWED FOR A CAPIT AL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM ON BORROWED CAPITAL P ROVIDED THAT CAPITAL IS USED FOR BUSINESS IRRESPECTIVE OF WHAT MAY BE THE RESULT OF USING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. FURTHER , THE WORDS ACTUAL COST DO NOT FIND PLACE IN SECTION 36(1)(III) OF TH E ACT. 7. IN THE MATTER OF VARDHAMAN POLYTEC LTD. VS. CIT (1979) 118 ITR 200 (SC). THE HONBLE SUPREME COURT HAS HELD THAT WE NEED TO SEE NEXUS BETWEEN THE ADVANCING OF FUNDS AND BUSINESS I NTEREST AND THERE ARE THREE INGREDIENTS: (I) THE MONEY, I.E. CAPITAL MUST HAVE BEEN BORROW ED BY THE ASSESSEE. (II) IT MUST HAVE BEEN BORROWED FOR BUSINESS PURP OSE. (III) THE ASSESSEE MUST HAVE PAID INTEREST ON BOR ROWED AMOUNT THAT HE HAD SHOWN THE SAME AS ITEM OF EXPENDITURE. 8. IN THIS CASE, ASSESSEE HAS TAKEN LOAN FROM BANK/ FINANCIAL INSTITUTION AND PAID INTEREST AND THE SAME IS REFLECTING IN THE BALANCE-SHEET OF THE ASSESSEE. ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 6 - 9. THEREFORE, WE ARE OF THE OPINION THAT RELIEF SHO ULD BE GRANTED TO THE ASSESSEE/APPELLANT. 12. SO FAR AS NEXT GROUNDS FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT AND CHARGING OF INTEREST U/S.234-A, 234-B, 234-C & 234-D OF THE ACT ARE CONCERNED, THE SAME ARE CONSEQUENTIAL SINCE WE HAVE GRANTED RELIEF TO THE ASSESSEE. THEREFORE, WE DO NOT WANT TO ADJUDICATE SEPARATELY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.2925/AHD/2015 FOR AY 2010-11 IS ALLOWED. ITA NO.94/AHD/2016 FOR AY 2011-12 12. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APP EAL: 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE A PPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMI SSING GROUND NO.1 OF THE APPELLANTS APPEAL CHALLENGING T HE VALIDITY OF THE ASSESSMENT ORDER IMPUGNED BEFORE HIM, ON THE GROUND THAT IT WAS GENERAL IN NATURE NO REQUIRING HIS CONS IDERATION. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN SUSTA INING DISALLOWANCE OF INTEREST EXPENSE TO THE EXTENT OF R S.2,51,62,174 (OUT OF DISALLOWANCE OF RS.2,70,79,651 MADE IN THE ASSESSMENT ORDER IMPUGNED BEFORE HIM) MADE IN PURSUANCE OF THE PROVISO TO SECTION 36(1)9III) OF THE INCOME-TAX ACT, 1961. HE OUGHT TO HAVE APPRECIATED, INTER ALIA, THAT THE SAID PROVISO COULD BE INVOKED ONLY WHERE THE ACQUISITION OF ASSET/S WAS M ADE FOR THE ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 7 - PURPOSE OF EXTENSION OF E4XISTING BUSINESS WHICH WA S NOT THE CASE WITH THE APPELLANT. 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN DISMI SSING GROUND NO.7 OF THE APPELLANTS APPEAL BEFORE HIM CH ALLENGING THE INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) , AS PREMATURE. HE OUGHT TO HAVE APPRECIATED, INTER ALI A, THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THERE BEING ABSOLUTELY NO WARRANT/JUSTIFICATION FOR INITI ATING THE PENALTY PROCEEDINGS, HE OUGHT TO HAVE ORDERED FOR T HEIR BEING DROPPED, THEREBY SAVING BOTH THE APPELLANT AND THE DEPARTMENT FROM LONG DRAWN UNNECESSARY LITIGATION. 13. SINCE RELIEF HAS BEEN GRANTED BY US IN THE CONN ECTING APPEAL OF THE ASSESSEE(SUPRA) AND IN THIS APPEAL ONLY ASSESSMENT YEAR AND AMOUNT IS DIFFERENT. THUS, FOR PARITY OF REASONS NOTED ABOVE , OUR VIEW IN ITA NO.2925/RJT/2015 FOR AY 2010-11 ABOVE SHALL APPLY MUTATIS MUTANDIS TO THE APPEAL CAPTIONED ABOVE. AS A RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.942/RJT/2016 FOR AY 2011-12 IS ALLOWED . 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28 / 0 2 /201 9 SD/- SD/- ( PRADIP KUMAR KEDIA) ( M AHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/ 02 /2019 2..*,.*../ T.C. NAIR, SR. PS ITA NOS.2925/AH D/2015 & 942/AHD/2016 SANGHI INFRASTRUCTURE LTD. VS. DCIT ASST.YEARS 2010-11 & 2011-12 - 8 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 345, 6, / CONCERNED CIT 4. 6, ( ) / THE CIT(A)-9, AHMEDABAD 5. 9:;,*45 , 45 0 , 3 / DR, ITAT, AHMEDABAD 6. ;<+ / GUARD FILE. / BY ORDER, '9,, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..26.2.19 (DICTATION-PAD 18-P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 27.2.2019 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.28.2.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.2.19 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