M/s. MAHENDRA UGINE STEEL CO. LTD.(NOW MERGED WITH MAHINDRA CIE AUTOMOTIVE LIMITED), MUMBAI V. DCIT CIR.-6(3), MUMBAI

ITA 5617/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7633 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 04-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 PAGE 1 OF 5 INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH, MUMBAI [CORAM: JUSTICE P.P BHATT (PRESIDENT)] AND PRAMOD KUMAR (VICE PRESIDENT)] ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 MAHINDRA UGINE STEEL COMPANY LTD., .. APPELLANT ( NOW MERGED WITH MAHINDRA CIE AUTOMOTIVE LTD., ) MAHINDRA TOWERS, P.K KUNE CHOWK, WORLI, MUMBAI 400018 [PAN: AAACM4998G] VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 6(3) MUMBAI. .. RESPONDENT APPEARANCES: H D MAHAJAN FOR THE APPELLANT BHARAT ANDH A LE FOR THE RESPONDENT DATE OF CONCL UDING THE HEARING: : DECEMBER 21 , 2021 DATE OF P RONOUNCEMENT : MARCH 0 3 , 2021 O R D E R PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 23 RD FEBRUARY 2016, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2011 - 12 . 2. THIS APPEAL IS TIME BARRED BY 482 DAYS BUT THE ASSESSEE HAS MOVED A PETITION SEEKING CONDONATION OF DELAY, DULY SUPPORTED BY AFFIDAVIT DATED 8 TH MARCH 2019, WHICH STATES AS FOLLOWS: - I, MR. HEMANT LUTHRA, SON OF MR. HANS RAJ LUTHRA, AGED 69 YEARS, DIRECTOR OF MAHINDRA CIE AUTOMOTIVE LIMITED (SU CCESSOR IN THE INTEREST OF MAHINDRA UGINE STEEL COMPNAY LIMITED) (THE APPELLANT) IN THE CONTEXT OF ITA NO. 5617/M/2017 BEING APPEAL FILED IN RESPECT OF THE ERSTWHILE MAHINDRA UGINE STEEL COMPANY LIMITED (MUSCO), DO HEREBY SOLEMNLY AFFIRM: ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 PAGE 2 OF 5 1. I AM WORKI NG AS DIRECTOR WITH THE APPELLANT, WHICH IS A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AND WHOSE REGISTERED OFFICE IS SITUATED AT MAHINDRA TOWER, P.K KURNE CHOWK, WORLI, MUMBAI 400018. 2. MAHINDRA UGINE STEEL COMPANY LIMITED ('MUSCO') A LISTED PUBLIC COMPANY HAS MERGED WITH MAHINDRA CIE AUTOMOTIVE LIMITED W.E.F. 1ST OCTOBER, 2013 AS PER HON'BLE BOMBAY HIGH COURT ORDER DATED 31ST OCTOBER, 2014. 3. ON 12TH MARCH, 2016 MUSCO HAD RECEIVED A CIT( A) ORDER FOR A.Y. 2011 - 12. THE PERIOD FOR FILING AN APPEAL BEFORE HON'BLE ITAT ENDED ON 10TH MAY, 2016. THE APPEAL HAS BEEN PREFERRED ON 4TH SEPTEMBER, 2017 WITH A DELAY OF 482 DAYS. 4. THE INCOME TAX MATTERS OF MUSCO WERE EARLIER HANDLED BY MR. SUNIL SHETTY, HEAD TAXATION WHO WAS DULY APPOINTED BY THE COMPANY TO DO SO ON BEHALF OF THE COMPANY AND WHO LEFT THE GROUP ON 14TH MAY, 2016, WITHOUT COMPLETE DISCUSSION AND HANDING OVER OF ALL MATTER PENDING WITH HIM RELATING TO THE COMPANY'S INCOME TAX. THIS R ESULTED IN NON APPEARANCE BEFORE THE CIT(A) AND OMISSION TO FILE APPEAL WITH THE TRIBUNAL. 5. THIS INADVERTENT OMISSION TO FILE THE''APPEAL WAS NOTICED WHILE REVIEWING THE POSITION OF PENDING MATTERS BY PRICE WATERHOUSE, CHARTERED ACCOUNTANTS, LLP IN TH E QUARTER ENDED 30TH JUNE 2017. THIS FACT WAS CONFIRMED ON FURTHER INQUIRY AND THEREAFTER STEPS WERE TAKEN TO TRACE ALL THE RELEVANT PAPERS AND BELATED FILE THE APPEAL I SAY THAT WHATEVER IS STATED HEREIN ABOVE IS TRUE TO THE BEST OF MY KNOWLEDGE AND I BE LIEVE THE SAME TO BE TRUE. SOLEMNLY DECLARED AT MUMBAI ON THIS 6 TH MARCH 2019. IDENTIFIED BY ME, SD/ - MR. HEMANT LUTHRA DIRECTOR 3. HAVING HEARD THE RIVAL CONTENTIONS ON THE CONDONATION PETITION, AND HAVING DULY CONSIDERED THE MATERIAL ON RECORD, WE ARE INCLINED TO CONDONE THE DELAY, AS WE ARE SATISFIED THAT DELAY IS PRIMA - FACIE BONAFIDE AND REASONABLY EXPLAINED. ACCORDINGLY, WE PROCEED TO TAKE UP THE APPEAL FOR ADJUDICATION ON MERITS. 4. GRIEVANCES RAISED BY APPELLANT ARE AS FOLLOWS: - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF AO OF DISALLOWING INTEREST OF RS. 1,74,73,440 U/S 36(L)(III), REJECTING THE CONTENTION OF THE APPELLANT THAT THE COMPANY HAD SUFFICIENT GENERATION OF INTERNAL CASH ACCRUALS TO FUND ITS 'CAPITAL EXPENDITURE/ CAPITAL WORK IN PROGRESS' AND HENCE NO INTEREST EXPENSES WAS ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 PAGE 3 OF 5 ATTRIBUTABLE TO CAPITAL ASSET; AND HENCE ENTIRE INTEREST EXPENSES BE ALLOWED AS BUSINESS EXPENSES. THE DISALLOWANCE BE DELETED OR, WITHOUT PREJUDICE SUITABLY REDUCED 2. THE LEARNED CIT(A) ERRED IN CONFIRMING, WITHOUT ANY BASIS, THE ACTION OF THE AO OF FURTHER DISALLOWING A SUM OF RS 5,00,000, U/S 37(1) BEING ESTIMATED ADMINISTRATIVE EXPENS ES INCURRED TOWARDS THE SAID 'CAPITAL WORK IN PROGRESS' THE DISALLOWAN CE BE DELETED OR, WITHOUT PREJUDICE SUITABLY REDUCED 5 . BRIEFLY STATED, RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT AS AGAINST THE WORK IN PROGRESS OF RS. 1.47 CRORES AS ON 01.04.2010, THE WORK IN PROGRESS AT THE END OF THE YEAR WAS RS. 14.16 CRORES. IT WAS IN THIS BACKGROUND THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO POINT OUT RELATED INTERES T EXPENSES FOR THE FUNDS USED IN THE CAPITAL WORK IN PROGRESS AS ALSO RELATABLE ADMINISTRATIVE EXPENSES. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE HAD SUFFICIENT NON INTEREST HEARING FUNDS AND, ACCORDINGLY NO PART OF INTEREST COULD BE ATTRIBUTED T O CAPITAL WORK IN PROGRESS. THIS EXPLANATION WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAD MIXED FUNDS AND IT WAS NOT POSSIBLE TO DISTINGUISH THEIR EXACT USE. NOTING THAT AVE RAGE COST OF FUNDS, BY INTEREST, @12.34%. THE ASSESSING OFFICER COMPUTED RELATED DISALLOWABLE INTEREST AT RS. 1.71 CRORES. THE ASSESSING OFFICER FURTHER ESTIMATED THE ACTUAL EXPENSES ON ACCOUNT OF TRAVE LLING, CONVEYANCE ETC AT RS 5,00,000/ - AND DISALLOWED THE SAME AS WELL. AGGRIEVED, ASSESSEE CARR IED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) CONFIRMED THE ACTIONS OF THE ASSESSING OFFICER AND OBSERVED AS FOLLOWS: - 5. DECISION - I HAVE CAREFULLY CONSIDERED THE AO'S ORDER. IT IS CLEAR FROM THE ORDER THAT APPELLANT HAS NOT BOLSTERE D ITS ARGUMENTS WITH ANY DOCUMENTARY PROOF WHATSOEVER, IT IS CLEAR THAT THERE WAS A SUBSTANTIAL NET INCREASE IN THE TOTAL LOAN LIABILITY ACROSS THE PERIOD UNDER CONSIDERATION, IT IS ALSO CLEAR THAT THE APPELLANT'S BANK BALANCE HAD ALWAYS BEEN IN THE NEGATI VE. AS SUCH ONLY OPERATING FUNDS COULD HAVE BEEN UTILISED FOR ADDITIONS IN THE CWIP. THE AO'S REJECTION OF THE APPELLANT'S CONTENTION THAT ITS OWN OPERATING CASH SURPLUS HAD BEEN UTILIZED IS HENCE FACTUALLY CORRECT. THE APPELLANT ALSO HAS NO COUNTER TO OFF ER AS TO THE AO'S OBSERVATION THAT THE FUNDS IN QUESTION HAVE ALWAYS BEEN MIXED AND COULD NOT BE SEGREGATED. ACCORDINGLY HIS DISALLOWANCE OF RS 1,74,73,440/ - BY WAY OF INTEREST COST @ 12.34% IS UPHELD. COMING TO THE ADMINISTRATIVE COSTS, ONCE MORE, THE APP ELLANT HAS NO DOCUMENTARY PROOF TO DEMONSTRATE ANY MONITORING BY THE STAFF AT THE EXISTING PLANT. IN FACT, THERE IS NO PROOF EVEN TO DEMONSTRATE THAT THE NEW PLANT WAS ANYWHERE CLOSE TO THE EXISTING PLANT. IN ANY CASE, NO EXPLANATION IS SEEN TO BE FORTHCOM ING ON THE ISSUE OF TRAVELLING, CONVEYANCE AND INVOLVEMENT OF THE SUPERVISORS AT THE NEW PLANT. COMING TO THE QUANTUM OF THE CWIP, IN THE ABSENCE OF ANY DETAILS FROM THE APPELLANTS SIDE, THE ESTIMATE OF THE AO OF RS. 5,00,000/ - IS SEEN TO BE REASONABLE AN D IS HENCE UPHELD. 6. IN THE RESULT, THE TOTAL DISALLOWANCE MADE BY THE AO OF RS. 1,79,73,440/ - AND ITS CAPITALIZATION TO THE CWIP IS CONFIRMED. ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 PAGE 4 OF 5 6. THE ASSESSEE IS NOT SATISFIED IS IN FURTHER APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 8. WE FIND THAT, AS HELD BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIE S & POWER LTD [(2009) 313 ITR 340 (BOM)] , WHEN ASSESSEE HAS MIXED FUNDS, I.E. INTEREST FREE AND INTEREST BEARING FUNDS, THE PRESUMPTION WOULD ARISE THAT INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE IN TEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. BY THEIR LOGIC, WHICH HAS APPROVAL OF HONBLE JURISD ICTIONAL HIGH COURT, THE PRESUMPTION FOR INVESTMENT IN CAPITAL WORK IN PROGRESS ALSO HAS TO BE ON THE SAME LINES. VIEWED THUS, AND HAVING NOTED THAT INVESTMENTS IN WORK IN PROGRESS ARE WELL WITHIN THE AVAILABLE INTEREST FREE FUNDS, WE SEE NO MERITS IN THE DISALLOWANCE OF INTEREST OF RS. 1.71 CRORES BY THE ASSESSING OFFICER. THE DISALLOWANCE FOR ADMINISTRATIVE EXPENSES IN ANY WAY ON THE BASIS OF PU RE SURMISES AND CONJECTURES, AND THERE IS NO EVIDENCE WHATSOEVER TO SUPPORT THE SAME. 9. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IM PUGNED DISALLOWANCE OF RS. 1.71 CRORES AND RS. 5 LAKHS. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 10. GROUND NOS 1 & 2 ARE THUS ALLOWED. 11 . IN THE RESULT APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 0 3 R D MARCH , 2021. S D / - S D / - JUSTICE P.P BHATT PRAMOD KUMAR (PRESIDENT) (VICE PRESIDENT) MUMBAI, DATED THE 0 3 R D DAY OF MARCH 2021. COPIES TO: (1) THE APPLICANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE ITA NO. 5617/MUM/2017 ASSESSMENT YEAR: 2011 - 12 PAGE 5 OF 5 BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI