M/s Vardhman Polytex Ltd., Ludhiana V. ACIT, Ludhiana

ITA 444/CHANDI/2012

• Counselvise Citation: 44421514 RSA 2012
• Duration Of Justice: 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-09-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 18-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 444/CHD/2012 ASSESSMENT YEAR: 1999-2000 M/S VARDHMAN POLYTEX LTD., VS THE ACIT, CHANDIGARH ROAD CIRCLE 1, LUDHIANA LUDHIANA PAN NO. AAACV5821H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 27.09.2012 DATE OF PRONOUNCEMENT : 28.09.2012 ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, LUDHIANA DATED 29.2.2012 RELATING TO ASSESSMENT YEAR 1999-20 00 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE LD. CIT(A)-II HAS ERRED IN CONFIRMING A DISALLOWANCE OF INTEREST OF RS. 26,25,000/- U/S 36( 1)(III) OF THE INCOME TAX ACT INCURRED ON MONEY BORROWED FOR EXPANSION OF EXISTING BUSINESS. 2. THAT THE SAID ORDER OF THE LD. CIT(A)-II IS CO NTRARY TO THE ORDER OF THE HON'BLE TRIBUNAL RELATING OT ASSESSMEN T YEARS 2000-2001 & 20001-2002 COMPLETELY DISREGARDING THE OBSERVATIONS OF THE HON'BLE TRIBUNAL. 2 3. THAT IN ANY CASE THE DISALLOWANCE IS AGAINST THE LAWS AND THE FACTS OF THE CASE. 4. THAT THE APPELLANT CRAVES LEAVE FOR PERMISSION T O ADD, AMEND OR ALTER ANY GROUND OF APPEAL AT THE TIME OF HEARIN G. 3. THE LD. AR FOR THE ASSESSEE AT THE OUTSET STATED THAT THE ISSUE IN THE PRESENT APPEAL STANDS COVERED BY THE ORDER OF HON'B LE SUPREME COURT IN ASSESSEES OWN CASE IN CIVIL APPEAL NO. 6438 OF 2 102 (ARISING OUT OF SLP (C) NO. 15125 OF 2008) DATE OF JUDGMENT 12.9.2012. 4. THE LD. AR FURTHER POINTED OUT THAT THE ISSUE ST ANDS COVERED BY THE ORDER OF CHANDIGARH BENCH OF THE TRIBUNAL IN ASSESSEES O WN CASE RELATING TO ASSESSMENT YEARS 2000-01 AND 2001-02 IN ITA NOS. 82 1 & 822/CHD/2009 IN THE APPEALS FILED BY THE REVENUE, WHICH WAS DECIDED ALO NGWITH THE APPEAL OF THE ASSESSEE IN ITA NO.758/CHD/2009 RELATING TO ASSESSM ENT YEAR 2001-02, VIDE ORDER DATED 25.11.2011. THE ISSUE WAS ALSO DECIDED IN ITA NO. 1002/CHD/2009 RELATING TO ASSESSMENT YEAR 1998-99 IN ASSESSEES O WN CASE BY THE TRIBUNAL VIDE ORDER DATED 17.9.2012. 5. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS RELATING TO DISALLOWANCE U/S 36(1)(III) OF THE ACT. THE ASSESSEE HAS SET UP A N EW UNIT AT BADDI OUT OF BORROWED FUNDS AND THE ISSUE RAISED WAS THE ALLOWAB ILITY OF THE INTEREST EXPENDITURE IN RELATION TO SUCH LOANS UTILIZED FOR SETTING UP OF THE NEW UNIT BY THE ASSESSEE. THE ISSUE STANDS SQUARELY COVERED BY THE JUDGMENT OF THE HON'BLE APEX COURT IN ASSESSEES OWN CASE WHEREIN THE HON'B LE SUPREME COURT HAD HELD THAT THE INTEREST PAID ON BORROWING FOR ACQUISITION OF CAPITAL ASSETS, NOT PUT TO USE IN THE CONCERNED FINANCIAL YEAR, IS ALLOWABLE D EDUCTION U/S 36(I)(III) OF THE ACT. THE HON'BLE SUPREME COURT HAD IN TURN FOLLOWE D THE RATIO LAID DOWN IN DCIT V CORE HEALTHCARE LTD [(2008) 298 ITR 194 (SC) ]. THE TRIBUNAL VIDE 3 ORDER (SUPRA), RELATING TO ASSESSMENT YEARS 2000-01 AND 2001-02 VIDE PARA 25 HAD HELD AS UNDER:- 25. WE FIND THAT THE ISSUE RAISED BEFORE US IS ALL OWABILITY OF INTEREST ON BORROWED CAPITAL WHICH WAS UTILIZED FOR SETTING UP OF THE UNITS AT BADDI AND BHATINDA IN ASSESSMENT YEARS 2000-01 AND 2001-02 RE SPECTIVELY, WHICH WERE ESTABLISHED IN EXTENSION OF THE MANUFACTURING ACTIV ITIES ALREADY CARRIED ON BY THE ASSESSEE. THE INTEREST EXPENDITURE RELATABLE T O SUCH BORROWED FUNDS IS TO BE ALLOWED AS REVENUE EXPENDITURE IN VIEW OF THE RA TIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CORE HEALTH CARE LTD. (SUP RA). THE TRIBUNAL IN THE EARLIER ROUND OF APPEALS IN ASSESSEES ONW CASE REL ATING TO ASSESSMENT YEARS 2000-01 AND 2001-02 HAD HELD THAT THE BORROWED CAPI TALS WERE UTILIZED FOR EXPANSION OF EXISTING BUSINESS OF THE ASSESSEE. HO WEVER, THE MATTER WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN ACCORDANCE WITH THE OUTCOME OF ASSESSEES APPEAL PE NDING BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. ADMITTEDLY, THE HON'BLE HIGH COURT VIDE ITS DECISION REPORTED AT 299 ITR 152 (P&H) HAD HELD THA T THE PROVISO TO SECTION 36(1)(III) OF THE ACT INSERTED BY THE FINANCE ACT 2 003 WAS MERELY CLARIFICATORY AND INTEREST PAID ON THE CAPITALS BORROWED EVEN FOR EXPANSION OF EXISTING BUSINESS COULD NOT BE ALLOWED AS REVENUE EXPENDITUR E UP TO THE DATE WHEN IT WAS FIRST PUT TO USE. HOWEVER, THE HON'BLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) HAVE LAID DOWN THE PROPOSI TION THAT THE PROVISO TO SECTION 36(1)(III) ADDED BY THE FINANCE ACT 2003, I S APPLICABLE FROM THE ASSESSMENT YEAR 2004-05 ONLY AND THAT SHALL BE PROS PECTIVE. THE HON'BLE SUPREME COURT HAS FURTHER OBSERVED IN THIS CASE THA T SECTION 36(1)(III) OF THE ACT WAS A CODE BY ITSELF AND DETERMINATION OF ACTUA L COST OF AN ASSET U/S 43(1) HAD NO RELEVANCY TO SECTION 36(1)(III). THE JURISD ICTIONAL HIGH COURT IN CIT VS. HIGHWAY CYCLE INDS. LTD. (SUPRA) HAVE FOLLOWED THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CORE HEALTH CARE LTD.(SUPR A) AND HELD THAT THE PROVISO TO SECTION 36(1)(III) OF THE ACT WOULD APPL Y PROSPECTIVELY. THE ASSESSMENT YEARS INVOLVED BEFORE US ARE ASSESSMENT YEARS 2000-01 AND 2001- 02 THAT IS PRIOR TO ASSESSMENT YEAR 2004-05. FOLLO WING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CORE HEALTH CARE LTD.( SUPRA) AND THE HON'BLE PUNJAB & HARYANA HIGH COURT IN HIGHWAY CYCLE INDS. LTD. (SUPRA), WE UPHOLD THE ORDER OF THE CIT (APPEALS) IN ALLOWING THE CLAI M OF INTEREST ON BORROWED CAPITAL AS REVENUE EXPENDITURE, WHERE SUCH BORROWED CAPITALS WERE UTILIZED FOR EXPANSION OF EXISTING BUSINESS OF THE ASSESSEE. TH E GROUND NO.1 RAISED BY THE REVENUE IN ASSESSMENT YEARS 2000-01 AND 2001-02 ARE THUS DISMISSED. 4 6. FOLLOWING THE ABOVE SAID RATIO LAID DOWN IN ASSE SSEES OWN CASE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITU RE OF RS. 26,25,000/- U/S 36(I)(III) OF THE ACT. THE GROUNDS OF APPEAL RAISE D BY THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29 TH SEPTEMBER, 2012 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR