CIL Nova Petrochemicals Ltd., Ahmedabad V. Dy.Commissioner of Income Tax,Circle-1(1)(2), Ahmedabad

ITA 388/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4108 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 18-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Depreciation; Proportionate interest; Notional interest; Unabsorbed depreciation

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO. 388/AHD/2016 / ASSESSMENT YEAR: 2012-13 CIL NOVA PEROCHEMICALS LTD. 391/396, MORAIYA VILLAGE SARKHEJ-BHAVLA HIGHWAY SANAND, AHMEDABAD 382 210. PAN : AADCN 0932 G VS DCIT, RANGE-1 AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR, AR REVENUE BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING : 10/08/2018 /DATE OF PRONOUNCEMENT : 13 /08/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)- 1, AHMEDABAD DATED 10.12.2015 FOR THE ASSESSMENT YEAR 2012-13. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.39,90,874/- WHICH HAS BEE N ADDED BY THE AO UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 196 1. ITA NO.388/AHD/2016 - 2 - 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY AT THE RELEVANT TIME WAS ENGAGED IN MANUFACTURING OF VERY FINE PROD UCE (DENIER) IN POY, FDY, DTY AND TRADING OF FABRICS. IT HAS FILED ITS RETURN OF INCOME ELECTRONICALLY 22.9.2012 DECLARING TOTAL INCOME AT RS.NIL AFTER SETTING OFF BROUGHT FORWARD UNABSORBED DEPRECIATION. ON SCRUTI NY OF THE ACCOUNTS, THE LD.AO NOTICED THAT THE ASSESSEE HAS SHOWN CLOSING S TOCK OF WORK-IN- PROGRESS (WIP FOR SHORT) AT RS.4,79,83,831/-. HE FURTHER NOTICED THAT INTEREST EXPENDITURE OF RS.42,06,30,534/-. THE AO WAS OF THE OPINION THAT PROPORTIONATE INTEREST TO THE ADDITION MADE TO CAPI TAL WIP OUGHT TO BE CALCULATED AND SHOULD BE CAPITALIZED IN WIP. HE AC CORDINGLY CALCULATED SUCH INTEREST RELATABLE TO CAPITAL WIP AT RS.49,11, 845/- AND MADE ADDITION. ON APPEAL, THELD.CIT(A) HAD ALLOWED IT PARTLY. 4. BEFORE US, THE LD.COUSNEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAS NOT TAKEN ANY FRESH LOANS REPRESENTING WORK CAR RIED OUT IN THE CAPITAL FIELD. IT WAS ALSO CONTENDED THAT THE ASSESSEE HAS FAR MORE INTEREST FREE FUNDS THAN THE ONE ALLEGED TO BE USED FOR CAPITAL W IP. IT WAS ALSO CONTENDED THAT INTEREST WAS CHARGED AT THE RATE OF 9.75% AS AGAINST RATE ESTIMATED BY THE AO AT 12%. AS OBSERVED EARLIER, TH E LD.CIT(A) HAS PARTLY ACCEPTED THIS CONTENTION AND CALCULATED THE NOTIONA L INTEREST REPRESENTING THE ALLEGED WIP AT 9.75%. THIS HAS REDUCED QUANTUM OF INTEREST DISALLOWED BY THE AO VIS--VIS CONFIRMED BY THE LD. CIT(A). THE LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE AO. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS PLACED ON R ECORD ANNUAL REPORT CONTAINING THE BALANCE SHEET AND OTHER DETAILS. TH E ASSESSEE HAS RESERVES AND SURPLUS OF MORE THAN RS.48 CRORES. IT HAS INTE RNAL ACCRUAL DURING THE ITA NO.388/AHD/2016 - 3 - YEAR WHICH CAN TAKE CARE OF SUCH INVESTMENTS. THE LD.COUNSEL FOR THE ASSESSEE TOOK US THROUGH NET CASH FLOW FROM OPERATI ONS AVAILABLE ON PAGE NO.20 OF THE ANNUAL REPORT WHICH SUGGEST THAT THE A SSESSEE HAS NET CASH FLOW RS.16,55,474/-. THUS, CONSIDERING INTEREST FR EE FUNDS AVAILABLE WITH THE ASSESSEE IN THE SHAPE OF SHARE CAPITAL, RESERVE S AND SURPLUS, AS WELL AS NET REVENUE FROM OPERATIONS, WE ARE OF THE VIEW THA T ALLEGED INVESTMENT IN WIP COULD BE ASSUMED AS CARRIED FROM THESE SURPLUS FUNDS. NO NOTIONAL INTEREST OUGHT TO BE CALCULATED FOR CAPITALIZATION. IN ORDER TO FORTIFY OURSELVES, WE WOULD LIKE TO REFER TO THE DECISION O F HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & P OWER LTD., 313 ITR 340 (BOM). IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 13 TH AUGUST, 2018. SD/- (WASEEM AHMED) ACCOUNTANT MEMBER SD/- (RAJPAL YADAV) JUDICIAL MEMBER