Udaipur Sahakari Uphokta Thok Bhandar Ltd., Udaipur V. ACIT, Circle-2, Udaipur

ITA 441/JODH/2018

AI Insights

The case involves Udaipur Sahakari Upbhokta Thok Bhandar Ltd., a consumer cooperative store, appealing against the order of the CIT(A)-1, Udaipur, which sustained the disallowance of interest on loans amounting to Rs.4,33,408. The loans were taken for the construction and extension of godowns and supermarkets, which the AO and CIT(A) deemed as capital expenditures, thus not allowable as revenue expenses under section 36(1)(iii) of the Income Tax Act. The assessee argued that the loans were used for regular business expenditures, making the interest allowable. The ITAT, after hearing both parties, decided to restore the matter to the AO for a fresh decision, emphasizing the need for a thorough examination of the loan utilization.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122754 (ITAT-JODHPUR)
• Duration Of Justice: 4 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 19-03-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 09-09-2018
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Reason to believe
• Section: 143(2); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER 441/Jodh/2018 (ASSESSMENT YEAR- 2014-15) Udaipur Sahakari Upbhokta Thok Bhandar Ltd. Ist Floor, Shastri Circle, Udaipur Vs The ACIT Circle-2 Uddaipur (Appellant) (Respondent) PAN NO. AAAAU 0159 K Assessee By Shri Arun Chordia, CA Revenue By Shri S.M. Joshi, JCIT-DR Date of hearing 20/03/2023 Date of Pronouncement 22/03/2023 O R D E R PER: SHRI MANISH BORAD, AM This is an appeal filed by the assessee against the order of the ld. CIT(A)-1, Udaipur dated 26-07-2018 for the assessment year 2014-15 raising therein following grounds of appeal. 2 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR ‘’1. On the facts and in the circumstances of the case the learned appellate authority has erred in sustaining disallowances of interest to the extent of Rs.4,33,408/- on the ground that the loans have been granted for construction of new godown and extension of existing stores and as such the same is not allowable. 2. On the facts and in the circumstances of the case the disallowance of interest of Rs.4,33,408/- is bad in law as the loans have been utilized for the purpose of business and as such the interest was allowable u/s 36(1)(iii) of the I.T. Act.’’ 2.1 Brief facts of the case are that the assessee furnished its e-return on 28-11-2014 declaring total income at Rs.79,80,300/-. The case of the assessee was selected for scrutiny through CASS for which the AO issued notice u/s 143(2) dated 3-09-2015 and served upon the same by fixing the case for hearing on09-09-2015. The ld. AR of the assessee attended hearing from time to time and furnished requisite details and documents before the AO. The AO noted from the records that the assessee is a consumer cooperative store dealing in various goods of daily use. The AO further noted that the assessee had debited interest on loans received from Integral Cooperative Development Project (ICDP) which has been sanctioned by ICDP for the following specific purpose. 3 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR S.N. Date Amount Purpose Interest paid 1. 10-07-2021 1,50,000/- Godown Repairs 19,500/- 2. 14-08-2012 8,75,000/- Construction of godown at Pratapnagar 1,13,750 3. 2209102013 1,00,00,000/- Extension of super market building at Pratapnagar` 1,30,000/- 4. 11-04-2013 15,00,000 Extension of super market building at Shastri Circle & HO 1,89,658/- Total 4,52,908 The AO required the assesee to justify allowability of interest on the above loans for which the assesseee submitted that the loan was not used for the purpose it was sanctioned but for regular expenditure and was therefore allowable u/s 36(1)(iii) of the Act. The AO thus noted that the assessee had failed to show that the loan was not used for the purpose it was sanctioned. The AO further noted that unless the assessee had utilized the first instalment of loan for the purpose the loan was sanctioned, the subsequent instalment would not have been sanctioned. Therefore, the AO concluded that the loan was utilized as sanctioned i.e. for the purpose of Godown repair/ construction of godown/ extension of super market which had enduring benefits and since a capital asset was being formed, interest expenses incurred on such loan did not qualify to be debited as revenue expenses and thus the AO disallowed claim of interest of Rs.4,52,908/-. 4 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR 2.2 In first appeal, the ld. CIT(A), partly disallowed interest of Rs.4,33,408/- by observing as under:- ‘’10 I have considered the submission of the appellant and the relevant findings of the AO. 10.1 The loans on which interest has been claimed by the assessee have been sactioned by ICDP for specific purpose details of which are as under:- S.N. Date Amount Purpose Interest paid 1. 10-07-2021 1,50,000/- Godown Repairs 19,500/- 2. 14-08-2012 8,75,000/- Construction of godown at Pratapnagar 1,13,750 3. 2209102013 1,00,00,000/- Extension of super market building at Pratapnagar` 1,30,000/- 4. 11-04-2013 15,00,000 Extension of super market building at Shastri Circle & HO 1,89,658/- Total 4,52,908 Although the assessee contended that the loan was not used for the purpose for which it was sanctioned but was instead used for regular business expenditure, the assessee has failed to establish with actual fund flow the utilization of loan sanctioned by ICDP. Therefore, there is no reason to believe the apparent, that loan was not utilized for the purpose for which it was sanctioned, as real. Particularly, considering that unless the assessee had utilized the first instalment of loan for the purpose for which loan was sanctioned, subsequent instalments would not have been sanctioned. 10.2 The proviso to section 36(1)(iii), as applicable in the year under appeal, reads as under:- 5 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR ‘’Provided that any amount of the instalment paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not) for any period beginning from the date on which the capital was borrowed for acquisition of the assets till the date on which asset was first put to use shall not be allowed as deduction.’’ Thus, as per the above proviso to section 36(1)(iii), the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, is not allowable. The interest of Rs.19,500/- paid by the assessee on loan used for godown repairs is not hit by the above proviso. However, the remaining interest of Rs.4,33,408/- paid on loans taken for construction of new godown, extension of existing store, are hit by the above proviso, as these loans have been taken for extension of the existing business and hence not allowable. Accordingly, out of disallowance of interest of Rs.4,52,908/- made by the AO, disallowance of Rs.4,33,408/- is upheld. The ground of appeal is thus partly allowed.’’ 2.3 During the course of hearing, the ld. AR of the assessee submitted that the loan obtained by the assessee society has been exclusively utilized in the regular business and consequently the claim of interest of Rs.4,33,408/- thereon is also spent wholly and exclusively for the purpose of business and thus the ld. AR further submitted that the assessee society has completely satisfied all the 6 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR conditions laid down for allowability of an expenditure i.e. interest of Rs.4,33,408/- in the instant case which should be allowed. 2.4 On the other hand, the ld. DR supported the order of the ld.CIT(A). 2.5 We have heard both the parties and perused the materials available on record. The crux of the issue as to disallowance of interest amount of Rs.4,52,908/- by the AO on the ground that the loan was received by the assessee for the purpose of specific project and the assessee has not complied with the conditions of the loan for the purpose it was sanctioned by the ICDP which in first appeal was reduced to Rs.4,33,408 by the ld. CIT(A) by holding as under:-. ‘’...Thus, as per the above proviso to section 36(1)(iii), the interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, is not allowable. The interest of Rs.19,500/- paid by the assessee on loan used for godown repairs is not hit by the above proviso. However, the remaining interest of Rs.4,33,408/- paid on loans taken for construction of new godown, extension of existing store, are hit by the above proviso, as these loans have been taken for extension of the existing business and hence not allowable. Accordingly, out of disallowance of interest of Rs.4,52,908/- made by the AO, disallowance of Rs.4,33,408/- is upheld. The ground of appeal is thus partly allowed.’’ However, during the course of hearing, the ld. AR prayed that the loan obtained by the assessee society had been exclusively utilizied in 7 ITA NO. 441/JODH/2018 UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS ACIT, CIRCLE-2, UDAIPUR the regular is spent wholly and exclusively for the purpose of business which should be allowed. The Bench feels that in the interest of equity and justice the issue in question is restored to the file of the AO to decide it afresh by providing adequate opportunity of being heard to the assessee and the assessee is also directed to submit the papers / written submission before the AO for adjudication. Thus the appeal of the assessee is allowed for statistical purposes. 3.0 In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 22 /03/2023. Sd/- Sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 22/03/2023 *Mishra Copy to: 1. The Appellant` 2. The Respondent 3. The CIT 4. The DR 5. Guard File Assistant Registrar Jodhpur Bench