Appeal Details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 9886 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 1 month(s) 3 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-06-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
19-11-2015
Assessment Year
2009-2010
Appeal Filed On
13-05-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.515/CHD/2015 (ASSESSMENT YEAR : 2009-10) M/S HIGHWAY INDUSTRIES LTD., VS. THE A.C.I.T., NANDPUR G. ROAD, CIRCLE V, LUDHIANA. LUDHIANA. PAN: AABCH4072M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHAS AGGARWAL RESPONDENT BY : SHRI SUSHIL KUMAL, CIT DR DATE OF HEARING : 02.05.2016 DATE OF PRONOUNCEMENT : 16.06.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA DATED 16.3.2015, RELATING TO ASSESSMENT YEAR 2009-10, PASSED UNDER SECTION 250(6 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDER : 1. THAT THE LEARNED CIT(A)-II HAS ERRED IN CONFIRMING THE DISALLOWANCE U/S 14A/RULE 8D (RS.7,22,565/- UNDER R ULE 2 8D(2)(II) AND RS.65,594/- UNDER RULE 8D(2)(III) SUB JECT TO NETTING OF INTEREST). 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN INVESTMENT OF RS.2,39,90,799/-, WHICH WAS THE SAME AS AT THE END OF THE PREVIOUS YEAR. DURING THE YEAR, AN AMOUNT OF RS.20,47,190/- BEING DIVIDEND INCOME WAS CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESS EE HAD ALSO CLAIMED AN AMOUNT OF RS.14,294/- BEING INTERES T EXPENDITURE. A SUO-MOTO DISALLOWANCE UNDER SECTION 14A OF THE ACT, AMOUNTING TO RS.50,000/- WAS MADE BY ASSESSEE AS WAS CONFIRMED BY THE CIT (APPEALS) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06. T HE ASSESSING OFFICER INVOKING THE PROVISIONS OF RULE 8 D OF THE INCOME TAX RULES, COMPUTED THE DISALLOWANCE AT RS.8,42,519/- AND AFTER GIVING RELIEF OF THE SUO-MO TO DISALLOWANCE OF RS.50,000/- MADE AN ADDITION OF RS.7,92,519/-. 4. BEFORE THE CIT (APPEALS), SUBMISSIONS WERE MADE MANIFOLD. IT WAS STATED THAT THE ASSESSEE HAD NOT INVSTED ANY AMOUNT ON PURCHASE OR SALE OF SHARES/MUTUAL FUN DS DURING THE YEAR. THESE WERE OLD INVESTMENTS, THAT TOO IN GROUP CONCERNS ONLY. NO BORROWING WERE MADE TO INV EST AS DURING THE YEAR SHARE CAPITAL OF THE ASSESSEE WA S RS.1.74 CRORES AND RESERVES AND SURPLUS WERE RS.61. 42 CRORES, MAKING THE OWNED FUNDS TO THE EXTENT OF RS. 63.16 CRORES. THE POSITION OF INVESTMENTS HELD BY THE AS SESSEE 3 COMPANY IN DIFFERENT YEARS WAS EXPLAINED. THE MAIN ARGUMENT OF THE ASSESSEE WAS THAT IN THE PRESENCE O F ENOUGH OWNED FUND, NO DISALLOWANCE OF INTEREST CAN BE MADE, SINCE THE PRESUMPTION IS THAT IN SUCH A SCENA RIO THE INVESTMENTS ARE PRESUMED TO BE MADE OUT OF OWNED FUNDS. AFTER MAKING A DETAILED ANALYSIS ON THE SUBMISSIONS OF THE ASSESSEE AFTER GIVING RELIEF OF COMPUTATIONAL ERROR, THE CIT (APPEALS) CONFIRMED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE HAD DRAWN OUR ATTENTION TO THE PAPER BOOK TO SHOW T HAT THE ASSESSEE HAD OWNED FUNDS TO THE TUNE OF RS.63,16,41,169/- WHILE THE INVESTMENTS WERE RS.2,39,90,799/-, WHICH WERE ALSO THE SAME AS AT TH E END OF THE EARLIER YEAR. IN VIEW OF THIS, THE SUBMISSI ONS WERE MADE THAT THE DISALLOWANCE ON ACCOUNT OF INTEREST C ANNOT BE MADE. RELIANCE WAS PLACED ON THE ORDER OF THE I .T.A.T., CHANDIGARH BENCH IN THE CASE OF HERO CYCLES LTD. I N ITA NO.192/CHD/2013, DATED 29.10.2015. 6. THE LEARNED D.R. VEHEMENTLY ARGUED AGAINST THE STANCE TAKEN BY THE LEARNED COUNSEL FOR THE ASSESSE E AND FILED A DETAILED WRITTEN SUBMISSIONS BASICALLY OPPO SING THE RELIANCE PLACED BY THE ASSESSEE ON THE ORDER OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF HERO CYC LES LTD. (SUPRA). FURTHER, HE POINTED OUT A NUMBER OF INFIRMITIES IN THIS ORDER OF THE I.T.A.T., CHANDIGA RH BENCH. 4 HE PRAYED TO PLACE RELIANCE ON THE JUDGMENT OF HON' BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF AVON CY CLES LTD. VS. CIT (2015) 53 TAXMANN.COM 297 (P&H), DATED 20.8.2014 FOR THE PROPOSITION THAT IN CASE OF MIXED FUNDS, DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS TO BE MADE AS PER RULE 8D (I) OF THE INCOME TAX RULES. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. IN VIEW OF THE ORDER OF THE I.T.A.T., CHANDIGARH BE NCH IN THE CASE OF HERO CYCLES LTD. (SUPRA), THE FACTS OF THE CASE BEING IDENTICAL, RESPECTFULLY FOLLOWING THE SAME, W E ARE INCLINED TO HOLD THAT IN THE PRESENCE OF HUGE OWNED FUNDS, IT HAS TO BE PRESUMED THAT THE INVESTMENTS HAVE BEE N MADE NOT OUT OF BORROWED FUNDS AND NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE. AS REGARDS THE EXPENDITURE PART OF THE DISALLOWANCE, WE OBSERVE TH AT THE ASSESSEE HAD SUO-MOTO DISALLOWED AN AMOUNT OF RS.50,000/- ON THIS COUNT. IN THE ABSENCE OF ANY SATISFACTION IN THIS REGARD AS TO HOW THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE IS NOT CORRECT IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT VS. DEEPAK M ITTAL (2014) 361 ITR 131 (P&H), THE DISALLOWANCE IN THIS REGARD IS NOT TENABLE. THE LEARNED D.R. IN HIS WRITTEN SUBMISSIONS HAS STATED THAT AT PARA 4.11 OF HIS ORD ER THE ASSESSING OFFICER HAS RECORDED SUCH SATISFACTION, H OWEVER, 5 ON PERUSAL OF THE SAME, WE DO NOT FIND ANY SUCH SATISFACTION HAVING BEEN RECORDED. 8. NOW, WE WOULD LIKE TO DEAL WITH THE DETAILED WRITTEN SUBMISSIONS FILED BY THE LEARNED D.R., WHIC H SEEM TO BE MADE VERY ARDUOUSLY. IT HAS BEEN STATED AT T HE OUTSET THAT THE UNDISPUTED FACTS OF THE CASE ARE TH AT IT IS A CASE OF MIXED FUNDS AND BORROWED FUNDS AS WELL AS OWN FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS, INCOME FROM WHICH ARE EXEMPT. THE RELIANCE PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF THE I.T.A.T., CHANDIGARH BENCH IN THE CASE OF HERO CYC LES LTD. (SUPRA) WAS VEHEMENTLY OBJECTED TO. RELIANCE WAS PLACED BY THE I.T.A.T. ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRIS ES PVT. LTD., IN ITA NO.624 OF 2013 (O&M), DATED 24.7.2015. CERTAIN INFIRMITIES IN THE ORDER OF THE TRIBUNAL IN THE CASE OF HERO CYCLES LTD. (SUPRA) WERE LISTED THEREAFTER . AT THE END, IT WAS STATED THAT THE TRIBUNAL HAS ERRED IN N OT FOLLOWING THE ESTABLISHED RULE OF BINDING NATURE OF JUDICIAL PRECEDENTS BY NOT FOLLOWING THE PUNJAB & HARYANA HI GH COURT IN THE CASE OF AVON CYCLES LTD. (SUPRA). TH E JUDGMENTS IN THE CASE OF BRIGHT ENTERPRISES PVT. L TD. (SUPRA) AND CIT VS, KAPSONS ASSOCIATES, 381 ITR 204 (P&H) ARE STATED TO BE OUT OF PLACE, AS THE SAME WE RE RENDERED IN THE CONTEXT OF SECTION 36(1)(III) AND N OT IN THE CONTEXT OF SECTION 14A OF THE ACT. 6 9. THOUGH WE ARE NOT INCLINED TO COMMENT ON THE INFIRMITY POINTED OUT BY THE LEARNED D.R. ON THE OR DER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AVON CYCLES LTD. (SUPRA), HOWEVER, WE ARE GOING TO ANALY ZE THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF AVON CYCLES LTD. (SUPRA) AS RELIED ON BY THE LEARNE D D.R. IN THE CASE OF AVON CYCLES LTD. (SUPRA), THE HON'B LE PUNJAB & HARYANA HIGH COURT , INFERRED FROM THE REA DING OF A PARAGRAPH FROM THE ORDER OF THE I.T.A.T., WHIC H HAS BEEN REPRODUCED AT PARA 5 OF THE JUDGMENT, THAT THE RE IS A FINDING OF FACT THAT IN THIS CASE, THE ASSESSEE ITS ELF HAD DISALLOWED AN AMOUNT OF RS.10,49,851/- BEING THE IN TEREST SO RELATABLE TO THE EARNINGS OF EXEMPT INCOME. THE PLEA OF THE ASSESSEE WAS THAT NO DISALLOWANCE OF INTEREST A T ALL IS CALLED FOR IN VIEW OF THE FACT THAT AFTER SETTING O FF THE INTEREST PAID OUT OF INTEREST RECEIVED, THERE IS NO INTEREST PAID LEFT. WE MUST BEAR IN MIND THAT THE ASSESSEE S PRAYER WAS TO MAKE NO DISALLOWANCE OF INTEREST, DES PITE ITSELF SUO-MOTO DISALLOWING INTEREST AT RS.10,49,85 1/-. IN VIEW OF THIS FACT SITUATION, THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO CONFIRM THE DISALLOWANCE TO TH E EXTENT OF RS.10,49,851/-, BEING THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE ON ACCOUNT OF INTEREST. STILL AGGR IEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE HON'BLE HIGH COURT. 10. IN PARA 7 OF THE JUDGMENT OF THE HON'BLE HIGH COURT ANALYZED THE JUDGMENT OF BOMBAY HIGH COURT IN THE 7 CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) ST ATING THAT IN THAT CASE, THERE WAS A CLEAR FINDING OF FAC T THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF ITS OWN WHICH H AD BEEN GENERATED IN THE YEAR IN QUESTION, WHICH HAS B EEN INVESTED FOR EARNING EXEMPT INCOME. THIS WAS HELD BY HE BOMBAY HIGH COURT NEGATING THE ARGUMENT OF THE REVE NUE THAT SHAREHOLDERS FUNDS TO THE TUNE OF OVER RS.172 CRORES WERE UTILIZED FOR THE PURPOSES OF FIXED ASSETS IN T ERM OF THE BALANCE SHEET. 11. IN PARA 8, THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA) , WAS ANALYSED AND IS STATED THAT IN THAT CASE ALSO THE T RIBUNAL HAD HELD THAT INTEREST WAS SET OFF AGAINST THE INCO ME FROM INTEREST AND THE INVESTMENT IN SHARE AND FUNDS WERE OUT OF DIVIDEND PROCEEDS. IN THIS FINDING OF FACT, DIS ALLOWANCE UNDER SECTION 14A OF THE ACT WAS HELD NOT TO BE TEN ABLE BY THE I.T.A.T. THE HON'BLE HIGH COURT IN A VERY CLEA R TERMS HAD HELD THAT WHETHER ANY EXPENDITURE WAS INCURRED, IN A GIVEN SITUATION, IS A PURE QUESTION OF FACT. 11. IN VIEW OF ALL THIS, THE HON'BLE HIGH COURT HE LD THAT NO SUBSTANTIAL QUESTION OF LAW ARISEN OUT OF T HE ORDER OF THE I.T.A.T. (IN THE CASE OF AVON CYCLES LTD.). FROM THE READING OF THE SAID FINDING OF FACT GIVEN BY THE I. T.A.T., AS REPRODUCED IN PARA 5 OF THE JUDGMENT, WE SEE THAT I N VIEW OF THE FACT THAT AS PER THE WORKING OF THE ASSESSEE ITSELF, THE INTEREST EXPENDITURE FOR EARNING EXEMPT INCOME IS TO 8 THE TUNE OF RS.10,49,851/-, THE ASSESSING OFFICER W AS DIRECTED TO DISALLOW THE SAME. 13. FROM THE ABOVE ANALYSIS, IT IS QUITE CLEAR THA T THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE JUDG MENT OF AVON CYCLES LTD. (SUPRA), WHICH IS DATED 20.8.20 14, NOWHERE A PROPOSITION HAS BEEN LAID OUT WITH REGARD TO THE QUANTUM OF INTEREST EXPENDITURE IN CASE OF MIXED FU NDS. WE ARE AWARE OF THE RULES OF BINDING PRECEDENTS AND BOW BEFORE THE JUDGMENT OF THE HON'BLE JURISDICTIONAL P UNJAB & HARYANA HIGH COURT. IN THIS BACKGROUND, WE WOULD LIKE TO RELY ON A LATER JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA), WHICH IS DATED 24.7.2015, WHEREBY A CLEAR MANDATE H AS BEEN GIVEN AS REGARDS THE ISSUE IN QUESTION, AT PAR A 6 WHICH READS AS UNDER : 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUDGMENT OF THE BOMBA Y HIGH COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES & POWER LTD ., (2009) 313 ITR 340, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE A PRESUMP TION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF THE INTER EST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 14. WE ARE AWARE OF THE FACT THAT THE HON'BLE COUR T WAS DEALING WITH THE ISSUE OF DISALLOWANCE UNDER SE CTION 36(1)(III) OF THE ACT, HOWEVER, WE INTEND TO BORROW ONLY THE 9 PROPOSITION LAID DOWN I.E. IF THERE ARE INTEREST FR EE FUNDS AVAILABLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE. THI S VIEW HAS ALSO BEEN ENDORSED BY THE BOMBAY HIGH COURT IN A LATEST JUDGMENT IN THE CASE OF HDFC BANK LTD. VS. DCIT (2016) 383 ITR 529(BOM), WHICH WAS RENDERED IN THE CONTEXT OF DISALLOWANCE UNDER SECTION 14A OF THE AC T. INTERESTINGLY, IN THIS CASE THE HIGH COURT HAS REPR IMANDED THE TRIBUNAL IN NOT FOLLOWING AN EARLIER JUDGMENT O F THE COURT IN THE CASE OF CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM), WHICH IN TURN RELYING ON THE JUDGMEN T OF RELIANCE UTILITIES & POWER LTD. (SUPRA), HAS HELD T HAT OWNED FUNDS BEING MORE THAN INVESTMENTS, IT IS TO B E PRESUMED THAT THESE WERE MADE OUT OF OWNED FUNDS. IRONICALLY, ALL THE LANDMARK JUDGMENTS RELIED ON TH IS CASE DO NOT RELATE TO THE ISSUE OF SECTION 14A OF THE AC T. 15. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION MADE UNDER SECTION 14A OF THE ACT. THE GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 16. THE LEARNED COUNSEL FOR THE ASSESSEE PREFERRED NOT TO PRESS GROUND NOS.2 AND 3, THEREFORE, THE SAM E ARE DISMISSED AS NOT PRESSED. 17. THE GROUND NO.4 IS GENERAL IN NATURE AND, HENC E NEEDS NO ADJUDICATION. 10 18. THE GROUND NO.5 RAISED BY THE ASSESSEE READS A S UNDER : 5. THAT THE LEARNED CIT(A) HAS ERRED IN CAPITALIZING INTEREST OF RS.1,14,096/- TOWARDS MACHINERY UNDER INSTALLATION ACCOUNT AND RS. 7,55,888/- TOWARDS BUILDING UNDER CONSTRUCTION IGNORING THE FACTS THAT HE HE APPELLANT HAD ALREADY CAPITALIZED THE INTEREST IN T HE RESPECTIVE HEADS AND NO FURTHER DISALLOWANCE WAS CA LLED FOR AND EVEN OTHERWISE THE INVESTMENT WAS OUT OF OWN INCOME OF THE YEAR. 19. BRIEFLY, THE FACTS ARE THT THE ASSESSEE HAD SH OWN IN ITS BALANCE SHEET AN AMOUNT OF RS.3,08,22,637/- AND RS.1,06,16,141/- BEING MACHINERY UNDER INSTALLATION AND BUILDING UNDER CONSTRUCTION. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD TAKEN SECURED LOAN OF RS.23,11,33,892/- ON WHICH INTEREST EXPENDITURE OF RS.2,75,14,294/-/- WAS INCURRED. THE ASSESSEE EXPL AINED THAT OUT OF THE MACHINERY OF RS.3,08,22,637/- ON MACHINERY WORTH RS.2,54,24,957/- HAS BEEN CAPITALIZ ED AT RS.3,34,477/-. REGARDING BUILDING, IT WAS STATED T HAT AN AMOUNT OF RS.4,64,968/- HAS BEEN CAPITALIZED. FURT HER, THERE WERE TWO FLATS PURCHASED BY THE ASSESSEE AT HARIDWAR FOR RS.59,42,698/-. THESE WERE COMPLETED DURING THE YEAR AND THE FINAL PAYMENTS WERE MADE FO R THE SAME, THEREFORE, NO INTEREST WAS CAPITALIZED. SINC E FLATS WERE NOT USED, THE SAME WERE SHOWN AS CAPITAL WORK IN PROGRESS. AFTER CONSIDERING THE ASSESSEES REPLY, THE ASSESSING OFFICER FURTHER CAPITALIZED THE INTEREST ON MACHINERY AT RS.1,14,096/- AND ON BUILDING UNDER 11 CONSTRUCTION AT RS.12,20,856/-. SINCE THE ASSESSEE HIMSELF HAS CAPITALIZED RS.4,64,968/- ON BUILDING U NDER CONSTRUCTION, THE ASSESSING OFFICER CAPITALIZED AN AMOUNT OF RS.7,55,888/- ON BUILDING UNDER CONSTRUCTION. T HUS, TOTAL AMOUNT OF RS.8,69,984/- WAS CAPITALIZED. 20. BEFORE THE CIT (APPEALS), THE ASSESSEE SUBMITT ED THAT THE BIFURCATION OF BUILDING UNDER CONSTRUCTION AT RS.1,06,16,141/- IS AS UNDER : (I) OPENING BALANCE RS.31,53,645/- ADDITIONS DURING THE YEAR RS.10,54,830/- RS.42,08,475/- INTEREST CAPITALIZED @ 11% RS. 4,64,968/- RS.46,73,443/- (II) FLAT AT HARIDWAR OPENING BALANCE RS.55,83,823/- PAYMENT DURING THE YEAR RS. 3,58,875/- RS.59,42,698/- TOTAL RS.1,06,16,141/- 21. IN THIS WAY, IT WAS STATED THAT THE ASSESSEE H AD CAPITALIZED THE INTEREST @ 11% ON BUILDING CONSTRUC TION AT SAHNEWAL. REGARDING THE FLAT AT HARIDWAR, THE POSS ESSION WAS GIVEN ON 3.9.2008 WHEN THE FINAL PAYMENT WAS MA DE. IT WAS FURTHER STRESSED THAT THE ASSESSING OFFICER HAS RECALCULATED THE INTEREST @ 11.5% ON TOTAL AMOUNT O F RS.1,06,16,141/- WHICH INCLUDES THE INTEREST ALREAD Y CAPITALIZED AT RS.4,64,968/-. FURTHER, IT WAS ALSO ARGUED 12 THAT THE OWNED FUNDS OF THE ASSESSEE DURING THE YEA R ARE MUCH MORE THAN THE AMOUNT OUTSTANDING UNDER THE HEA D BUILDING UNDER CONSTRUCTION & ADDITIONS TO FIXED A SSETS ON WHICH INTEREST HAS BEEN CAPITALIZED BY THE ASSES SING OFFICER. HOWEVER, REJECTING THE CONTENTION OF THE ASSESSEE, THE CIT (APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE ASS ESSING OFFICER HAD CLEARLY BROUGHT OUT IN THE ASSESSMENT O RDER THAT THE ASSESSEE HAS RECEIVED SECURED LOANS AMOUNT ING TO RS.23,11,892/- ON WHICH IT HAS PAID INTEREST. THE CLAIM OF THE ASSESSEE THAT IT HAD NOT BORROWED ANY MONEY FOR ADDITION TO PLANT & MACHINERY IS MERE SELF-SERVING. AS REGARDS BUILDING UNDER CONSTRUCTION, HE STATED THAT AS PER EXPLANATION-8 TO SECTION 43(1), THE INTEREST IS TO BE CAPITALIZED TILL THE DATE THE ASSET IS PUT TO USE. THE ASSESSEE ITSELF HAS ADMITTED THAT THESE FLATS WERE NOT USED DURING THE YEAR, THEREFORE, THE ASSESSING OFFICER W AS JUSTIFIED IN CAPITALIZING THE INTEREST PERTAINING T O THESE FLATS. 22. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE EESS REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WHILE THE LEARNED D.R. RELIED ON THE O RDER OF THE CIT(APPEALS). 23. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. 13 THE UNDISPUTED FACTS ARE THAT THERE WERE CERTAIN MACHINERY & BUILDING UNDER CONSTRUCTION DURING THE YEAR. THE ASSESSEE HAD CAPITALIZED CERTAIN INTEREST ON ACQUISITION OF THE SAME CLAIMING THAT TO AN EXTENT THE AMOUNT WAS BORROWED FOR ACQUISITION OF THESE. WE A RE OF THE CONSIDERED VIEW THAT IN CASE THE ASSESSEE HAS G IVEN A PLAUSIBLE EXPLANATION WITH REGARD TO THE EXTENT OF INTEREST BEING CAPITALIZED BY IT SUO-MOTO, THE ASSESSING OFF ICER CANNOT MAKE FURTHER ADDITION WITHOUT BRINGING ON RE CORD ANY MATERIAL TO SHOW THE NEXUS BETWEEN THE AMOUNT BORROWED AND UTILIZED FOR ACQUISITION OR CONSTRUCTI ON OF SUCH ASSET. NOWHERE IN HIS ORDER THE ASSESSING OFF ICER HAD BEEN ABLE TO SUBSTANTIATE THAT THE AMOUNT OF IN TEREST CAPITALIZED BY THE ASSESSEE ITSELF IS NOT CORRECT. FURTHER, THE EXPLANATION GIVEN BY THE ASSESSEE THAT IT HAS H UGE OWNED FUNDS TO ACQUIRE SUCH ASSTS ALSO HAS A BEARIN G ON THE ISSUE. IN VIEW OF THIS, WE DIRECT THE ASSESSIN G OFFICER TO DELETE THE DISALLOWANCE. 23. GROUND NO.6 RAISED BY THE ASSESSEE READS AS UNDER : 6. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING T HE DISALLOWANCE OF INTEREST OF RS.6,083/- ON ADVANCES GIVEN TO TWO PARTIES. 24. THE ASSESSEE HAD GIVEN INTEREST FREE LOANS TO TWO PERSONS, NAMELY, CHARU GOEL AND JATIN GOEL AND EXPL AINED TO THE ASSESSING OFFICER THAT THESE WERE GIVEN FOR BUSINESS 14 PURPOSES. THE ASSESSING OFFICER MADE A DISALLOWANC E OF RS.6083/- UNDER SECTION 36(1)(III) OF THE ACT. 25. BEFORE THE CIT (APPEALS), IT WAS CONTENDED THA T ADVANCES WERE GIVEN FOR SUPPLY OF MATERIAL AND SINC E THE AMOUNT COULD NOT BE RECOVERED, THE ASSESSEE HAD TO WRITE OFF THESE BALANCES SUBSEQUENTLY. FURTHER, THE ASSE SSEE HAD ENOUGH OWN FUNDS, THEREFORE, NO DISALLOWANCE OF INTEREST IS CALLED FOR. THE CIT (APPEALS) DISMISSE D THE GROUND OF THE ASSESSEE STATING THAT THE BUSINESS FU NDS WERE DIVERTED IN THESE CASES. 26. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, WHILE THE LEARNED D.R. RELIED ON THE O RDER OF THE CIT (APPEALS). 27. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE FINDINGS OF THE CIT (APPEALS) IN THIS REGARD AR E AT PARA 5.3 OF HIS ORDER. ON PERUSAL OF THE SAME, WE DO NO T FIND ANY INFIRMITY AS EVEN BEFORE US, NO EVIDENCE TO SHO W THE BUSINESS EXPEDIENCY FOR THESE ADVANCES COULD BE FIL ED. HOWEVER, WE MUST ALSO ADD THAT FROM THE READING OF THE BALANCE SHEET OF THE ASSESSEE, IT IS QUITE CLEAR TH AT THE ASSESSEE POSSESSES HUGE OWN FUNDS, THEREFORE, RELYI NG ON THE PROPOSITION LAID DOWN BY THE JURISDICTIONAL PUN JAB & 15 HARYANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRIS ES PVT. LTD. (SUPRA), WE ARE INCLINED TO HOLD THAT PRESUMIN G IN SUCH FACT SITUATION THAT THE MONEY HAS BEEN LENT OU T OF OWNED FUNDS, NO DISALLOWANCE OF INTEREST IS CALLED FOR. THE GROUND NO.6 OF APPEAL IS DECIDED IN FAVOUR OF T HE ASSESSEE. 28. THE GROUND NO.7 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND, HENCE NEEDS NO ADJUDICATION. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JUNE, 2016. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 16 TH JUNE, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH
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