M/s Power Drugs Limited, Chandigarh V. Addl. CIT, Chandigarh

ITA 525/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60913 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ATUL MENDHER
• Keywords: Capital asset; Additional evidence; Non-deduction of tax; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI T.R. SOOD, AM AND MS. SUSHMA CHOWLA, JM ITA NO. 525/CHD/2012 ASSESSMENT YEAR: 2007-08 M/S POWER DRUGS LTD. V. ADDL C.I.T. HOUSE NO. 2342 RANGE III, CHANDIGARH SECTOR 23-C CHANDIGARH AABCP 7960 J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ATUL MENDHER RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 26.06.2012 DATE OF PRONOUNCEMENT: 27.06.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING T HREE GROUNDS OUT OF WHICH GROUND NO. 1 WAS STATED TO BE OF GENERAL NATU RE AND THEREFORE, DOES NOT REQUIRE SEPARATE ADJUDICATION. OTHER GROUNDS ARE A S UNDER: 2 THAT THE LD. CIT(A) HAS BEEN UNJUSTIFIED IN PART LY UPHOLDING THE ORDER OF ASSESSING OFFICER WITHOUT APPRECIATING THE FACTS AN D CIRCUMSTANCES OF THE CASE IN ADDING AN AMOUNT OF RS. 16,91, 537/- AS NOTIONAL INTEREST @ 12% ON LOANS ADVANCED TO VARIOUS PARTIES BEING IN VIOLATION OF S ECTION 36(1)(III) OF INCOME-TAX ACT, 1961. THE ADDITION BE DELETED. 3. THAT THE LD. CIT(A) HAS BEEN UNJUSTIFIED IN UPHO LDING THE DISALLOWANCE OF RS. 4,52,968/- ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE IN VIOLATION OF SECTION 40(A)(IA) OF INCOME-TAX ACT, 1961. THE ADD ITION BE DELETED. 2. GROUND NO. 2 - AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THA T DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE INTEREST FREE ADVANCES TO FOLLOWING SIX PARTIE S:- NAME AMOUNT DATE OF PAYMENT SHRI ASHOK ANAND RS. 25,00,000 27.2.2004 MRS. RAJ RANI ANAND RS. 25,00,000 27.2.2004 SHRI AMIT GOYAL RS. 1,33,500 23.1.2007 SHRI SUMIT GOYAL RS. 2,00,000 23.5.2006 M/S PAMVI TISSUES LTD. RS. 78,54,761 B/F (OLD) M/S BANSAL STEEL TUBES RS. 10,45,000 B/F (OLD) 2 IT WAS FURTHER NOTED THAT THE ASSESSEE WAS PAYING I NTEREST TO VARIOUS BANKS ON C.C LIMIT AND TERM LOANS. THE ASSESSEE WAS ASKED T O FILE THE DETAILS AND PURPOSE OF ADVANCE. HOWEVER, THE ASSESSEE COULD NO T PROVE THAT THE ADVANCES WERE FOR BUSINESS PURPOSES. ACCORDINGLY THE ASSES SING OFFICER RELIED ON THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. ABHISHEK INDUSTRIES, 286 ITR 1 AND DETERMINED A SUM OF RS. 1 6,91,537/- IS NOT ALLOWABLE OUT OF INTEREST EXPENDITURE. 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS STATED T HAT THE ADVANCES TO SHRI ASHOK ANAND AND MRS. RAJ RANI ANAND WERE FOR PURCHA SE OF FIXED ASSETS AND OTHER ADVANCES WERE FOR RAW MATERIAL. HOWEVER, SIN CE NO EVIDENCE WAS FILED BEFORE THE LD. CIT(A), THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE ADVANCE TO M/S PAMVI TISSUES LTD WAS BASICALLY FOR PURCHASE OF FIXED ASSETS AND FILED COPY OF SALE DEED, THEREFORE, AT LEAST THIS ADVANCE SHO ULD BE CONSTRUED FOR BUSINESS PURPOSES. HE FAIRLY ADMITTED THAT SINCE THE ASSESS EE HAS NO EXPLANATION FOR OTHER ADVANCES THE SAME MAY BE TREATED AS COVERED B Y THE PRINCIPLES LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF C IT V. ABHISHEK INDUSTRIES (SUPRA). 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE S UBMITTED THAT COPY OF SALE DEED FILED BEFORE THE TRIBUNAL REGARDING PURCH ASE OF LAND WAS NEVER FURNISHED BEFORE THE ASSESSING OFFICER OR THE LD. C IT(A) AND NO APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE HAS BEEN FILED, TH EREFORE, SAME SHOULD BE IGNORED. IN ANY CASE AFTER THE INSERTION OF PROVIS O TO SECTION 36(1)(III) OF THE ACT W.E.F. 1.4.2004 BY FINANCE ACT, 2003 EVEN INTEREST PAID ON ACCOUNT OF CAPITAL BORROWED FOR ACQUISITION OF CAPITAL ASSET IS NOT A LLOWABLE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND FORCE IN THE SUBMISSIONS OF THE LD. DR FOR THE REVENUE. PROVISO TO SECTION 36(1)(III) WHICH WAS AMENDED BY FINANCE ACT, 2003 READS AS UNDER:- 3 36(1)(III) THE AMOUNT OF THE INTEREST 38 PAID IN RESPECT OF CAPITAL 38 BORROWED 38 FOR THE PURPOSES OF THE BUSINESS 38 OR PROFESSION : 39 [ PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTI NG BUSINESS OR PROFESSION (WHETHER CAPITALISED IN THE BOOKS OF ACCOUNT OR NOT ); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION.] THE ABOVE CLEARLY SHOWS THAT THE INTEREST PAID FOR ACQUISITION OF CAPITAL ASSETS FOR EXISTING BUSINESS OR EXPANSION OF BUSINESS IS N OT ALLOWABLE. SINCE THE ACQUISITION OF LAND IS OF CAPITAL NATURE AND THEREF ORE, INTEREST PAID FOR BORROWINGS FOR THE PURPOSE OF PURCHASING OF SUCH LAND IS NOT A LLOWABLE. AS FAR AS OTHER ITEMS ARE CONCERNED, IT WAS STATED THAT NO BUSINESS PURPOSE IS THERE AND THE SAME IS COVERED BY THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. ABHISHEK INDUSTRIES (SUPRA). IN THE SE CIRCUMSTANCES WE UPHOLD THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ADDITIO N ON ACCOUNT OF INTEREST DISALLOWANCE. 7. GROUND NO. 3 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS PAI D VARIOUS SUMS TO A FEW FIRMS ON ACCOUNT OF REPAIR AND MAINTENANCE BUT NO T DS WAS DEDUCTED. THEREFORE, THE ASSESSING OFFICER INVOKED THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT AND MADE ADDITION ON ACCOUNT OF SUCH PAYME NTS AMOUNTING TO RS. 4,52,968/-. 8. ON APPEAL THE ACTION OF THE ASSESSING OFFICER WA S CONFIRMED BY THE LD. CIT(A). 9. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE STRON GLY RELIED ON THE DECISION OF SPECIAL BENCH OF VISHAKHAPATNAM TRIBUNAL IN ACIT V. MERILYN SHIPPING & TRANSPORTS REPORTED IN 140 TTJ 1 (SB) (VISHAKHAPATN AM) WHEREIN IT HAS BEEN HELD THAT IF THE AMOUNT IS ALREADY PAID THEN THE PR OVISION OF SECTION 40(A)(IA) IS NOT APPLICABLE. 10. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE LD. CIT(A). 4 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFICER HAS CLEARLY MENTIONED THAT VARIOUS AMOUNTS HAVE BEE N PAID TO THREE PARTIES NAMELY M/S ARORA MATTHEY LTD. RS. 2,89,168/-, M /S MARUTI CATALYST RS. 1,17,000/- AND TO M/S SETTLERS ENGINEERS (P) LTD RS. 46,800/-. SINCE THE PAYMENTS HAVE ALREADY BEEN PAID, THEREFORE, IN VIE W OF THE DECISION OF SPECIAL BENCH VISHAKHAPATNAM TRIBUNAL IN ACIT V. MERILYN SH IPPING & TRANSPORTS (SUPRA) WHEREIN IT WAS HELD THAT PROVISIONS OF SECT ION 40(A)(IA) IS APPLICABLE ONLY IF THE AMOUNT REMAINS PAYABLE, WE SET ASIDE THE ORD ER OF THE LD. CIT(A) AND DELETE THE ADDITION. 12 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON 27.06. 2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 .06.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 5