Vishwakarma Ispat Udyog, Ludhiana V. ITO, Ludhiana

ITA 558/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9836 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 11-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 558/CHD/2016 ASSESSMENT YEAR: 2006-07 M/S VISHWAKARMA ISPAT UDYOG, VS THE ITO, VILLAGE KANGANWAL, WARD-III(3), LUDHIANA. LUDHIANA. PAN: AAFFV2484G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARIKSHIT AGGA RWAL RESPONDENT BY : SHRI S.K.MITTAL, DR DATE OF HEARING : 27.06.2016 DATE OF PRONOUNCEMENT : 29.06.2016 O R D E R THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-1 LUDHIANA DATED 31.03.2016 FOR ASSESSMENT YEAR 2006-07. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 3. GROUND NO. 1 IS GENERAL AND NEEDS NO ADJUDICATION. 4. ON GROUND NO. 2, ASSESSEE CHALLENGED THE ADDITION OF RS. 30,246/- UNDER SECTION 36(1)(III) O F THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE 2 ASSESSEE HAD GIVEN ADVANCE TO SHRI MANOHAR LAL AMOUNTING TO RS. 10 LACS BUT NO INTEREST WAS CHARGE D. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE INTEREST @ 12% AMOUNTING TO RS. 30,246/-. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND IT WAS SUBMITTED THAT ADVANCE WAS GIVEN FOR BUSINESS PURPOSES AND WHEN DEAL COULD NOT MATURED, THE AMOUNT WAS RECEIVED BACK ON 10.02.2006 . IT WAS SUBMITTED THAT ASSESSEE FIRM HAS SUFFICIENT NON INTEREST BEARING UNSECURED LOAN OF RS. 26.18 LACS W HICH IS MORE THAN THE ADVANCE OF RS. 10 LACS. 5. THE LD. CIT(APPEALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND DISMISSED THIS GROUN D OF APPEAL. 6. AFTER HEARING RIVAL CONTENTIONS, I AM OF THE VIE W ADDITION IS WHOLLY UNJUSTIFIED. THE LD. COUNSEL FO R THE ASSESSEE HAS POINTED OUT PB-22 TO SHOW THAT PARTNER S CAPITAL IS RS. 1.10 CRORES AT THE END OF THE FINANC IAL YEAR AND PB-23 SHOWS THAT ASSESSEE HAS PROFIT OF RS . 32.79 LACS BEFORE TAX. HE HAS RELIED UPON DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON ASSOCIATES 381 ITR 204 IN WHICH IT WAS HE LD THAT ASSESSEE HAVING SUFFICIENT INTEREST FREE ADVANCE TO COVER INTEREST FREE ADVANCES NO DISALLOWANCE UNDE R SECTION 36(1)(III) OF THE ACT. HE HAS ALSO RELIED UPON DECISION OF THE SUPREME COURT IN THE CASE OF HERO 3 CYCLES PVT. LTD. 379 ITR 347 IN WHICH IT WAS HELD T HAT ASSESSEE HAVING CREDIT BALANCE IN THE BANK ACCOUNT AT THE TIME OF ADVANCE, NO DISALLOWANCE OF INTEREST ON BORROWINGS. 6(I) CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS, IT IS CLEAR THAT ASSESSEE HAS SUFFICIENT INTEREST FREE CAPITAL AS WELL AS PROFITS WHICH ARE MORE THAN THE AMOUNT ADVANCED FOR ALLEGED NON BUSINESS PURPOSES, THEREFORE, DISALLOWANCE OF INTER EST UNDER SECTION 36(1)(III) OF THE ACT IS WHOLLY UNJUS TIFIED. I, ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND DELETE THE ADDITION OF RS. 30,246/-. GRO UND NO. 2 OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. ON GROUND NO. 3, ASSESSEE CHALLENGED THE ADDITION OF RS. 1,30,000/- UNDER SECTION 36(1)(III) OF THE ACT ON ACCOUNT OF INTEREST ON TERM LOAN AVAILED FOR PURCHASE OF MOULDS BY CONSIDERING IT AS CAPITAL EXPENDITURE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER NOTICED THAT ASSESSE E HAD PURCHASED MOULDS AMOUNTING TO RS. 34,05,118/- AND SAME HAD BEEN TREATED BY THE ASSESSEE AS REVENU E EXPENDITURE WHILE THE ASSESSEE HAD TAKEN MACHINERY TERM LOAN AMOUNTING TO RS. 20 LACS FROM J&K BANK LT D. ON 15.09.2005 FOR PURCHASE OF THE SAME AND INTEREST PAID AMOUNTING TO RS. 1,30,000/-. THEREFORE, 4 ASSESSING OFFICER DISALLOWED THE INTEREST AND ADDED TO THE INCOME OF THE ASSESSEE. 7(I) THE ASSESSING OFFICER MADE FURTHER ADDITION OF RS. 61,571/-. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD DEBITED RS. 66,563/- TO THE TRADING ACCOUNT ON ACCOUNT OF USED MOULDS. THE ASSESSEE HA D CLAIMED IT AS CAPITAL ASSET, WHILE THE ASSESSEE HAD UTILIZED ONLY THREE MOULDS OUT OF APPROXIMATELY 150 MOULDS PURCHASED DURING THE YEAR. THE PURPOSE OF BUYING MOULDS BY THE ASSESSEE ON DIFFERENT DATES WA S NOT CLEAR AND THEREFORE, ASSESSEE COULD NOT CLAIM DEPRECIATION ON ALL MOULDS. ACCORDING TO THE ASSES SEE, THE ASSESSING OFFICER DISALLOWED DEPRECIATION AMOUNTING TO RS. 61,571/- AFTER ALLOWING DEPRECIATI ON ON THREE MOULDS. THE ASSESSEE CHALLENGED BOTH THE ADDITIONS BEFORE LD. CIT(APPEALS) WHICH HAVE BEEN CONFIRMED BY DISMISSING THE APPEAL OF THE ASSESSEE. IT MAY BE CLARIFIED HERE THAT ASSESSEE HAS NOT CHALLEN GED THE ADDITION OF RS. 61,571/- IN THE PRESENT APPEAL AND ON GROUND NO. 3, CHALLENGED THE ADDITION OF RS. 1,30,000/- UNDER SECTION 36(1)(III) OF THE ACT ONLY . 8. THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF INTEREST OF RS. 1,30,000/- SUBMITTED BEFORE LD. CIT(APPEALS) THAT ASSESSEE HAS PAID THE INTEREST ON TERM LOAN AVAILED FOR THE PURCHASE OF MOULDS. ALL T HE MOULDS ARE USED TO PRODUCE THE STEEL INGOTS AND ONC E 5 THE MATERIAL/ASSET USED DURING THE YEAR AND THE INTEREST PAID, IT WILL BE CONSIDERED AS REVENUE EXPENDITURE. THE LD. CIT(APPEALS), HOWEVER, DISMIS SED THIS GROUND OF THE ASSESSEE. 9. AFTER CONSIDERING RIVAL SUBMISSIONS, I AM NOT INCLINED TO INTERFERE WITH THE ORDERS OF AUTHORITIE S BELOW. IT IS UNDISPUTED FACT THAT MACHINERY TERM L OAN WAS TAKEN OF RS. 20 LACS ON 15.09.2005 BY THE ASSES SEE FROM J&K BANK LTD., LUDHIANA TO PURCHASE THE MOULDS . THE ASSESSING OFFICER NOTED THAT THE COUNSEL FOR ASSESSEE COULD NOT OFFER ANY CONTENTIONS TO REBUT T HE PROPOSAL TO TREAT THE MOULDS AS CAPITAL ASSETS AND THUS, THE SAME IS TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE DEBITED RS. 66,563/- TO THE TRADING ACCOUN T ON ACCOUNT OF THE USED MOULDS AND THUS, DISALLOWED AND ASSESSEE IS ALLOWED TO TREAT THE SAME AS ITS C APITAL ASSET. THERE IS NO CHALLENGE TO THESE FINDINGS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER ALSO NOTE D THAT MACHINERY TERM LOAN ACCOUNT REVEALED THAT ASSESSEE HAS PAID INTEREST AMOUNTING TO RS. 1,30,00 0/- ON ACCOUNT OF LOAN OBTAINED FOR PURCHASE OF MOULDS. THEREFORE, IT SHOULD BE CAPITALIZED. ONCE THE PROP OSAL OF THE ASSESSING OFFICER TO TREAT MOULDS AS CAPITAL ASSET WAS NOT IN CHALLENGE, THEREFORE, THE SAME INT EREST COULD NOT BE TREATED AS REVENUE EXPENDITURE AT ALL. THE TERM LOAN FOR MACHINERY IS TAKEN FOR PURCHASE OF MOULDS. SINCE MOULDS IS CAPITAL ASSET, THEREFORE, 6 INTEREST PAID THEREON COULD NOT BE TREATED AS REVEN UE EXPENDITURE. THE ASSESSING OFFICER WAS, THEREFORE, JUSTIFIED IN DISALLOWING THE INTEREST OF RS. 1,30,0 00/- ON THE BANK LOAN TAKEN FOR THE PURPOSE OF MOULDS AN D CAPITALIZE IT. THE ASSESSING OFFICER, THEREFORE, R IGHTLY MADE THIS ADDITION. GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY, DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 29 TH JUNE, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT/CHD