K.YLCONTINENTAL INTERIORS (P) LIMITED, Jaipur V. ITO, Jaipur

ITA 595/JPR/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99588 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O P BHATEJA ADD CIT DHK
• Keywords: Depreciation; Opportunity of being heard; Capital expenditure
• Section: 143(3); 133A; 131; 2

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA -@ ITA NO. 595/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2009-10 M/S K.Y. CONTINENTAL INTERIORS (P) LIMITED, E-46A, ROAD NO. 18, VKI, JAIPUR. CUKE VS. INCOME TAX OFFICER, WARD 4(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AABCK 6337 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI O.P. BHATEJA (ADD.CIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 17/11/2015. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 14/12/2015. VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 22/03/2013 OF THE LEARNED CIT(A)-II, JAIPUR FOR A.Y. 2009-10. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- 1. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN CON FIRMING THE ACTION OF A.O. IN REJECTING THE BOOKS OF ACCOUN T BY APPLYING THE PROVISIONS OF SECTION 145(3). 2 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO 2. THE LD CIT(A) HAS ERRED IN FACTS AND IN LAW IN CONF IRMING THE TRADING ADDITION OF RS. 12,14,417/- BY ESTIMATI NG THE TURNOVER AT RS. 5,50,00,000/- AS AGAINST RS. 4,99,5 4,718/- DECLARED BY THE ASSESSEE. 3. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONF IRMING THE DISALLOWANCE OF RS. 3,21,952/- U/S 40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE OUT OF INTEREST E XPENSES. 4. THE LD CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONF IRMING THE DISALLOWANCE OF RS. 27,81,388/- OUT OF INTEREST EXPENSES BY TREATING IT AS CAPITAL EXPENDITURE AS A GAINST THE DISALLOWANCE MADE BY A.O. U/S 40(A)(IA) WHICH IS OTHERWISE NOT DISALLOWABLE UNDER THAT SECTION. 2. GROUNDS NO. 1 AND 2 OF THE APPEAL ARE AGAINST RE JECTION OF BOOKS OF ACCOUNT U/S 145(3) OF THE INCOME TAX ACT, 1961 (IN S HORT THE ACT) AND CONFIRMING THE TRADING ADDITION OF RS. 12,14,417 BY ESTIMATING THE TURNOVER AT RS. 5.50 CRORES AS AGAINST RS. 4,99,54,718/- DEC LARED BY THE ASSESSEE. THE ASSESSEE DERIVED INCOME FROM BUSINESS OF MANUFAC TURING AND TRADING OF WOODEN FURNITURE.. THE ASSESSEE FILED ITS RETURN O N 30/09/2009 DECLARING TOTAL INCOME OF RS. 16,94,920/-. THE CASE WAS SCRUTI NIZED U/S 143(3) OF THE ACT. THE LD ASSESSING OFFICER OBSERVED THAT A SURVEY WAS CONDUCTED U/S 133A OF THE ACT ON 12/09/2008 AND A DIARY, MARKED A S ANNEXURE A-8 WAS IMPOUNDED DURING SURVEY PROCEEDINGS. IN THIS DIARY THERE WERE CERTAIN TRANSACTIONS IN WHICH NAME OF THE PARTY AND DETAILS OF FURNITURE HAD BEEN MENTIONED. THE NOTINGS MENTIONED IN THIS DIARY WERE IN THE HANDWRITING OF 3 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO SMT. SNEH GUPTA, ONE OF THE DIRECTOR OF ASSESSEE CO MPANY. THE LD ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BE ING HEARD ON THESE ENTRIES WRITTEN IN THE DIARY, WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 22/12/2011. IT WAS SUBMITTED BY THE ASSESSEE T HAT SOME ORDERS WERE EXECUTED SOME PARTIES WERE NOT PURCHASED GOODS. THE A SSESSEE ISSUED CHALLAN/BILLS FOR THE GOODS SOLD BY US AND SOME ORD ERS OF PERSONS WERE NOT EXECUTED DUE TO NOT RECEIVING ADVANCES OR PAYMENTS. HENCE IT WAS CLAIMED THAT GOODS WERE NOT SOLD TO THEM AND BILLS AND CHALL AN COULD NOT BE ISSUED. THE LD ASSESSING OFFICER AFTER CONSIDERING THE ASSES SEES REPLY HAS HELD THAT A PERUSAL OF THE DIARY SHOWED THAT THESE WERE DETAILS OR ORDERS OF THE CUSTOMERS TO WHOM GOODS HAD BEEN SOLD AND DISPATCHED .. THERE WAS A CLEAR MENTION OF DETAILS OF GOODS SOLD, HOWEVER, THE RE WAS NO INDICATION OF SALE PRICE. ON VERIFICATION WITH BILLS IT WAS SEEN TH AT SALE BILLS HAD NOT BEEN ISSUED IN RESPECT OF ALL THESE SALES OF GOODS. IT I S GENERAL PRACTICE IN THIS LINE OF TRADE TO SALE THE GOODS WITHOUT RAISING BILL S FOR THE SAME BECAUSE OF HIGH RATE OF SALES TAX/VAT. AN EXERCISE HAD BEEN DO NE AND VERIFICATION OF EACH ENTRY OF DIARY HAD BEEN MADE WITH THE SALE BILL S BY THE ASSESSING OFFICER. IT WAS NOTICED THAT BILLS HAD NOT BEEN ISSU ED IN RESPECT OF FOLLOWING NOTINGS OF THE SALE, WHICH IS AS UNDER:- 4 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO DATE DESCRIPTION OF GOODS SOLD QUANTITY IN NUMBER 01/04/2008 DINING TABLE CHAIR 2 02/04/2008 BED SET 1 03/04/2008 BED SET 1 05/04/2008 BED SET STUDY TABLE DRESSING TABLE OFFICE TABLE OFFICE CHAIR WITH COVER 1 2 1 1 1 08/04/2008 MIRROR HAND CABINET 1 6 25/04/2008 BED SET MIRROR 1 1 01/05/2008 SOFA L SHAPE CENTER TABLE 1 1 05/05/2008 SHOE ROCK SIDE TABLE 1 1 06/05/2008 EXECUTIVE CHAIN VISITOR CHAIR 1 3 27/05/2008 DINING TABLE 1 11/06/2008 SOFA 2 SEATER SOFA CHAIR PED TABLE STUDY CHAIR 2 2 1 1 28/06/2008 BED SET STUDY TABLE STUDY CHAIR DRESSING TABLE MIRROR FRAME PEG TABLE SOFA 3 SEATER 1 1 1 1 1 1 1 04/07/2008 SHOE RACK FIRE PLACE SET OF TABLE 2 2 2 08/07/2008 SOFA 3+2+2 CENTER TABLE 3 1 21/07/2008 WARD ROBE BATHROOM MIRROR STUDY CHAIR 1 1 2 5 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO STUDY TABLE 1 05/09/2008 SOFA 2 SEATER SOFA CHAIR STUDY CHAIR 14 14 7 06/09/2008 T.V. UNIT LUGGAGE RACK PEG TABLE FIRE PLACE STUDY TABLE 7 7 6 7 7 11/09/2008 SOFA 4+2 24 HE FURTHER HELD THAT THE ASSESSEE COMPANY WAS ENGAGE D IN THE SALES OUTSIDE THE BOOKS OF ACCOUNT. SHRI SUDHIR GUPTA, DI RECTOR OF THE ASSESSEE COMPANY ADMITTED IN REPLY TO QUESTION NO. 3 OF HIS STATEMENT RECORDED DURING SURVEY PROCEEDINGS THAT STOCK REGISTER HAD N OT BEEN MAINTAINED IN RESPECT OF BUSINESS OF THE ASSESSEE COMPANY FURTHER IN REPLY TO QUESTION NOS. 7 TO 11, HE ACCEPTED THAT VALUATION OF CLOSING STOCK IS MADE ON THE BASIS OF AVERAGE RATES OF A PARTICULAR ITEM AND THE RE WAS NO PERFECT BASIS OR EVIDENCE FOR ADOPTING A PARTICULAR RATE FOR A PARTI CULAR ITEM. THE LD ASSESSING OFFICER ON THE BASIS OF THESE DISCREPANCI ES HAS HELD THAT BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE AND PROVIS IONS OF SECTION 145(3) IS SQUARELY APPLICABLE. THEREFORE, HE REJECTED THE BOOK RESULT. THE TOTAL TURNOVER OF THE ASSESSEE WAS ESTIMATED AT 5.5 CRORES AGAINST RS. 4,99,54,718/- SHOWN BY THE ASSESSEE AND GP RATE HAS BEEN APPLIED @ 24.12%, WHICH HAS BEEN DISCLOSED DURING THE YEAR. TH IS GAVE GROSS PROFIT 6 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO OF RS. 1,32,66,000/- AS AGAINST GROSS PROFIT OF RS. 1,20,51,583/- SHOWN BY THE ASSESSEE. THE DIFFERENCE OF RS. 12,14,417/- WAS A DDED BY THE ASSESSING OFFICER IN THE TRADING ACCOUNT. 3. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- 5. AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEE N THAT SO MANY JOTTINGS IN THE DIARY FOUND DURING SURVEY WOULD NOT JUST BE OF THE FURNITURE ORDERS NOT EXECUTED. THERE ARE SPECIFI C DATES, SPECIFIC DESCRIPTION OF THE FURNITURE LIKE DINING T ABLE, SOFA SET, HAND CABINET, OFFICE TABLE AND SO ON AND SO FORTH WITH SPECIFIC QUANTITY MENTIONED AGAINST DIFFERENT DATES. PLEASE REFER TO THE LIST REPRODUCED IN THE ASSESSMENT ORDER. IN THE ABS ENCE OF STOCK REGISTER IT IS NOT OPEN FOR VERIFICATION THAT BECAUSE NO SALE BILLS WERE ISSUED SO FURNITURE FOUND RECORDED I N THE DIARY WAS NOT SOLD. THEREFORE THE A.OS CONTENTION THAT THE IMPOUNDED DIARY SHOWS SALES WITHOUT RAISING BILLS CA NNOT JUST BE BRUSHED ASIDE, ESPECIALLY WHEN DURING APPELLATE PROCEEDINGS NO NEW EVIDENCE IN THE FORM OF ANY CONFI RMATION FROM ANY PARTY WHO POSTED THE ORDER BUT CANCELLED I T LATER WAS BROUGHT ON RECORD. AND, THEREFORE, AN ESTIMATION OF SALES OUTSIDE BOOKS HAD TO BE MADE WHICH WAS QUITE REASONAB LE AT RS. 5,50,00,000/- AS AGAINST RS. 4,99,54,718 SHOWN BY THE ASSESSEE. THE A.O. HAS APPLIED GP RATE SHOWN BY THE 7 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO APPELLANT OF 24.12% ONLY, THEREFORE, IN VIEW OF THE AFOREMENTIONED DISCUSSION TRADING ADDITION OF RS. 1 2,14,417/- IS UPHELD. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE IN SURVEY DATED 12/09/2008, EXCESS STOCK OF RS. 27,38,820/- WAS FOUND WHICH WAS SURRENDERED BY THE DIR ECTOR OF ASSESSEE COMPANY IN HIS STATEMENT RECORDED U/S 131 IN REPLY TO QUESTION NO. 38. THE DIRECTOR ADMITTED THAT THE SOURCE OF EXCESS STOC K IS OUT OF THE UNRECORDED SALES MADE DURING THE YEAR. THEREFORE, SE PARATE ADDITION OF RS. 12,14,417/- MADE BY THE A.O. BY ESTIMATING THE HIGH ER SALES AND APPLYING A G.P. RATE OF 24.12% THEREON HAS RESULTED INTO DOU BLE ADDITION. THE CIT(A) HAS NOT GIVEN ANY FINDING ON THIS CONTENTION OF THE ASSESSEE AND THEREFORE HE HAS ERRED IN CONFIRMING THE TRADING ADDITION WITH OUT ALLOWING SET OFF OF THE SAME AGAINST THE EXCESS STOCK OFFERED FOR TAX. HE FURTHER SUBMITTED THAT IN THE DIARY MARKED ANNEXURE A-8, THE ORDERS R ECEIVED TOWARDS SUPPLY OF THE FURNITURE IS NOTED. IT IS BUT NATURAL THAT I N BUSINESS ALL THE ORDERS MAY NOT BE EXECUTED. THE A.O. HAS VERIFIED EACH OF THE O RDER BOOKED WITH THE SALES INVOICE. ONLY IN RESPECT OF 18 ORDERS, THE SA LES INVOICE IS NOT ISSUED AS NO GOODS WERE SUPPLIED AGAINST THESE ORDERS SINCE TH E SAME WAS NOT EXECUTED. THE LOWER AUTHORITIES HAVE NO MATERIAL TO P RESUME THAT GOODS 8 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO WERE SUPPLIED AGAINST THESE ORDERS. THEREFORE, ESTIMA TING THE TURNOVER OF THE ASSESSEE AT RS. 5,50,00,000/- AS AGAINST RS. 4, 99,54,718/- DECLARED BY THE ASSESSEE IS ARBITRARY AND WITHOUT ANY BASIS. EVE N IF IT IS ASSUMED THAT GOODS WERE SUPPLIED AGAINST THESE ORDERS, THE FAIR S ALES VALUE OF SUCH ITEM IS ONLY AT RS. 11,67,000/-. THEREFORE, ESTIMATING TH E SALES AT RS. 5,50,00,000/- IS EXCESSIVE AND UNREASONABLE. THE LD AR HAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS APPLIED GP RATE OF 24.12% ON THE SALES ESTIMATED BY HIM. THE G.P. RATE OF 24.12% IS A FTER CONSIDERING THE EXCESS STOCK. AFTER EXCLUDING THE EXCESS STOCK, THE G.P. RATE IS 18.64%. THEREFORE, ADDITION MADE BY A.O. ARE CONFIRMED BY TH E LD CIT(A) BY APPLYING G.P. RATE OF 24.12% AS AGAINST 18.64% IS U NJUSTIFIED. 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LD CIT(A) AND ARGUED THAT UNACCOUNTED TRANSACTIONS WE RE MADE IN THE DIARY, WHICH WAS VERIFIED BY THE ASSESSING OFFICER AN D THE ASSESSEE WAS NOT MAINTAINING STOCK REGISTER TO VERIFY THE ACTUAL INC OME OF THE ASSESSEE. HE FURTHER ARGUED THAT THE OPENING STOCK AND CLOSING S TOCK ALSO NOT VERIFIABLE IN ABSENCE OF STOCK REGISTER. THEREFORE, THE LD ASS ESSING OFFICER RIGHTLY APPLIED SECTION 145(3) OF THE ACT AND ESTIMATION MA DE BY THE ASSESSING OFFICER IS REASONABLE WHICH HAS BEEN CONFIRMED BY TH E LD CIT(A). THUS, HE PRAYED TO CONFIRM THE ORDER OF THE LD CIT(A). 9 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. DURING THE C OURSE OF SURVEY, THE DIARY AS ANNEXURE A-8 WAS FOUND AND IMPOUNDED BY THE LD A SSESSING OFFICER WHERE NUMBER OF TRANSACTIONS WERE FOUND UNRECORDED. TH E STOCK REGISTER HAS NOT BEEN MAINTAINED BY THE ASSESSEE. THEREFORE, CORRECT INCOME OF THE BUSINESS CANNOT BE DEDUCED IN ABSENCE OF REJECTION OF BOOKS OF ACCOUNT. ACCORDINGLY, THE ASSESSING OFFICER WAS RIGHT IN APPL YING SECTION 145(3) OF THE ACT. AFTER REJECTING THE BOOKS OF ACCOUNT, THE LD ASSESSING OFFICER ESTIMATED THE SALE AT RS. 5.5 CRORES AGAINST RS. 4, 99,54,718/- AND APPLIED THE SAME G.P. RATE, WHICH HAS BEEN DISCLOSED BY THE ASSESSEE, WHICH IS REASONABLE AND ESTIMATED ON THE BASIS OF DISCREPANC IES FOUND DURING THE COURSE OF SURVEY. THE ASSESSEES ALTERNATIVE ARGUMEN T IS ALSO NOT ACCEPTABLE AS THE ASSESSEE HAS NOT CORRELATED WITH T HE DISCLOSURE OF EXCESS STOCK WITH THE ENTRIES MADE IN THE ANNEXURE-A-8. THE EXCESS STOCK WAS IN FORM OF FURNITURE. HOWEVER, THIS WAS THE DISCREPANCY ON UNACCOUNTED SALE MADE BY THE ASSESSEE. THERE WAS NO DISCLOSURE ON ACCO UNT OF EXCESS CASH DURING THE COURSE OF SURVEY. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD CIT(A) ON BOTH THE GROUNDS. ACCORDINGLY, GROUNDS NO. 1 AND 2 OF THE APPEAL ARE DISMISSED. 10 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO 7. THE GROUNDS NO. 3 AND 4 OF THE ASSESSEES APPEAL ARE AGAINST DISALLOWANCE U/S 40 (A)(IA) OF THE ACT AT RS. 3,21,9 52/- AND RS. 27,81,388/- . THE LD ASSESSING OFFICER OBSERVED THAT THE INTERES T PAID TO THE VARIOUS PRIVATE BANKS AT RS. 63,75,651/-. IT IS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON FOLLOWING AMOUNT . 1. GE MONEY FINANCE LTD. RS. 10096/- 2. INDIA BULLS BANK LTD. RS. 2781388/- 3. CHOLAMANDLAM DBS FIN. LTD. RS. 77508/- 4. RELIANCE CAPITAL LTD. RS. 110478/- 5. TATA CAPITAL RS. 123870/- TOTAL RS. 31,03,340/- THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BUT HE WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE, THEREFORE HE MADE DISALLOWANCE U/S 40(A)(IA) OF THE ACT AND MADE ADDITION OF RS. 31,03,340/-. 8. BEING AGGRIEVED BY THE ORDER OF THE LD ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- 9. AS SECTION 40(A)(IA) IS VERY CLEAR THAT WHERE TH E AMOUNT IS DEBITED IN THE P&L ACCOUNT BUT NO TDS HAS BEEN DEDU CTED, 11 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO DEDUCTION OF THAT AMOUNT CANNOT BE ALLOWED. IT IS NO T DISPUTED BY THE APPELLANT THAT TDS WAS NOT DEDUCTED ON INTERE ST DEBITED IN THE P&L ACCOUNT CLAIMED AS DEDUCTIONS. TH E APPELLANT HAS RELIED UPON HONBLE ITAT SPECIAL BENCH VISAKHAPATNAM DECISION IN THE CASE OF M/S MERILYN S HIPPING & TRANSPORT VS ACIT (2012) 16 ITR (TRIB) 1 (VISAKHA) IN S UPPORT OF THE ARGUMENT THAT WHERE THE AMOUNT IS PAYABLE ON 31 ST MARCH THAT EXPENDITURE CANNOT BE DISALLOWED AS IT HA S ALREADY BEEN PAID DURING THE PREVIOUS YEAR WITHOUT DEDUCTING TAX AT SOURCE. HOWEVER, OPERATION OF HONBLE VISAKHAPATNAM SPECIAL BENCH DECISION IN THE CASE OF M/S MERILYN SHIPPING & TRANSPORT VS ACIT (2012) 16 ITR (TRIB) 1 (VISAKHA) HAS SINCE BEE N SUSPENDED BY HONBLE ANDHRA PRADESH HIGH COURT DECI SION THROUGH ORDER DATED OCTOBER 8, 2012 REPORTED IN TAXINDIAONLINE.COM-2012-TIOL-971-SC-AP-IT IN ITA MP NO. 908 OF 2012 AND ITA NO. 384 OF 2012 IN THE CASE OF CIT-1, VISAKHAPATNAM VS M/S MERILYN SHIPPING & TRANSPORT VS ACIT. AS THE OPERATION OF SPECIAL BENCH DECISION HAS BEEN SUSPENDED BY HON'BLE ANDHRA PRADESH HIGH COURT SPECIAL BENCH DECISION IN MY HUMBLE HONBLE ITAT VISHAKHAPATNAM SPECIAL BEN CH DECISION IN MY VIEW CANNOT BE APPLIED. IT IS SEEN THAT INTEREST OF RS. 27,81,388 WAS PAID TO INDIA BULLS BANK LTD. FOR PURCHASE OF MACHINERY, WHICH WAS INFORM ED ADDED TO FIXED ASSETS DURING THE YEAR BY THE LD AR DURING APPELLATE PROCEEDINGS, THEREFORE, THIS INTEREST BEI NG PART OF COST OF MACHINERY ADDED FRESH DURING THE YEAR OUGHT TO BE 12 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO CAPITALIZED AS IT WAS PAID ALONGWITH PRINCIPAL, THERE FORE THE DISALLOWANCE OF INTEREST PAYMENTS OF RS. 27,81,388 I S UPHELD AS CAPITAL EXPENDITURE BUT DEPRECIATION AVAILABLE O N PLANT AND MACHINERY WILL BE ALLOWED ON THIS AMOUNT. OTHER INTER EST OF RS. 3,21,952 (RS. 31,03,340/-- RS 27,81,388) IS UPHELD DISALLOWED U/S 40(A)(IA) AS NO TDS HAS BEEN DEDUCTED ON THE INT EREST AMOUNT. ALOS BECAUSE NO INTEREST BEING NOT PAYABLE ON 31 ST MARCH ISSUE WHERE HONBLE ITAT SPECIAL BENCH VISAKHA PATNAM DECISION IN THE CASE OF M/S MERILYN SHIPPING & TRANS PORT VS ACIT (2012) 16 ITR (TRIB) 1 (VISAKHA) IS BEING REFERR ED TO CANNOT BE APPLIED BECAUSE OPERATION OF THIS DECISIO N OF HONBLE ITAT SPECIAL BENCH VISAKHAPATNAM HAS SINCE BEEN SUSP ENDED BY THE HON'BLE ANDHRA PRADESH HIGH COURT THROUGH DE CISION DATED 08 TH OCTOBER, 2012. AND AS HON'BLE HIGH COURT HAS SUSPENDED TRIBUNAL SPECIAL BENCH DECISION, ANY HONB LE ITAT DECISION IS NOT APPLICABLE TILL THE ISSUE ATTAINS C LARITY. THUS OUT OF RS. 31,03,340 INTEREST OF RS. 3,21,952/ - IS UPHELD DISALLOWED U/S 40(A)(IA) AND BALANCE RS. 27,81,388 I S DISALLOWED AS CAPITAL EXPENDITURE ALLOWING DEPRECIATI ON AVAILABLE ON PLANT AND MACHINERY TO IT. THE A.O. TO COMPUTE ACCORDINGLY. 9. NOW THE ASSESSEE IN APPEAL BEFORE US. THE LD AR O F THE ASSESSEE HAS SUBMITTED THAT THE LD ASSESSING OFFICER MADE TOTAL DISALLOWANCE OF RS. 31,03,340/- U/S 40(A)(IA) OF THE ACT. HOWEVER, THE LD CIT(A) CONFIRMED THE 13 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO ADDITION OF RS. 3,21,952/- U/S 40(A)(IA) OF THE ACT AND BALANCE AMOUNT OF RS. 27,81,388/- PAID TO INDIA BULLS BANK LTD. BY TR EATING IT AS CAPITAL EXPENDITURE ON THE GROUND THAT THE SAME IS FOR THE PURCHASE OF MACHINERY. THEREFORE, IT IS TO BE ADDED TO THE COST OF MACHINER Y. HE FURTHER ARGUED THAT SPECIAL BENCH OF ITAT IN THE CASE OF M/S MERILY N SHIPPING & TRANSPORT VS ACIT (2012) 16 ITR (TRIB) 1 HAS HELD THAT SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED IN RESPECT OF AMOUNT ACTUALLY PAI D WITHIN PREVIOUS YEAR WITHOUT DEDUCTION OF TAX AT SOURCE. AFTER THIS DECIS ION, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS SIKANDAR KHAN N TUN VAR 357 ITR 312 AND CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE 94 DTR 81 HAS HELD THAT SECTION 40(A)(IA) WOULD COVER NO T ONLY TO THE AMOUNTS WHICH ARE PAYABLE AS ON 31 ST MARCH OF THE PARTICULAR YEAR BUT ALSO WHICH ARE PAYABLE AT ANY TIME DURING THE YEAR. HOWEVE R, THE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS VECTOR SHIPPING SE RVICES (P) LTD. 94 DTR 101/357 ITR 642 HELD THAT IT IS ONLY THE AMOUNT WHICH IS PAYABLE AND NOT THAT WHICH HAS BEEN ALREADY PAID BY THE END OF THE Y EAR THAT CAN BE DISALLOWED U/S 40(A)(IA). AGAINST THE SAID DECISION OF ALLAHABAD HIGH COURT, THE DEPARTMENT FILED A SPECIAL LEAVE PETITION (SLP) IN THE HON'BLE SUPREME COURT WHICH WAS DISMISSED BY THE HON'BLE SUPREME COU RT VIDE ITS ORDER DATED 02/07/2014. THE ISSUE OF APPLICABILITY OF SEC. 40(A)(IA) ON THE 14 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO AMOUNT WHICH IS PAID DURING THE YEAR ITSELF HAS BEEN DECIDED BY THE HONBLE BENCH AND VARIOUS OTHER BENCHES. HE RELIED ON THE FOLLOWING CASE LAWS: (I) ACIT VS GIRDHARI LAL BARGOTI ITA NO. 757/JP/12 A.Y. 09-10 ORDER DATED 10/04/2015. (II) DCIT VS ANANDA MARAKALA (2014) 150 ITD 323 (BA NG.) (TRIB). (III) ITO VS M/S THEEKATHIR PRESS (CHENNAI)(TRIB) ITA NO. 2076(MDS)2012 DT. 18/09/2013. HE FURTHER ARGUED THAT THE LD CIT(A) HAS DISALLOWED RS. 27,81,388/- OUT OF THE ABOVE AMOUNT ON THE GROUND THAT PAYMENT OF INTE REST MADE TO INDIA BULLS CREDIT SERVICES IS FOR PURCHASE OF MACHINERY AND THEREFORE THE SAME IS CAPITAL EXPENDITURE. THIS IS INCORRECT. THE ALLOWABILI TY OF INTEREST ON BORROWED CAPITAL IS GOVERNED BY SEC 36(1)(III). THIS SECTION ALLOWS THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORRO WED FOR THE PURPOSE OF BUSINESS. THE PROVISO TO THIS SECTION REQUIRES THAT INTEREST PAID ON CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION O F THE EXISTING BUSINESS SHALL NOT BE ALLOWED AS DEDUCTION TILL THE DATE ON WH ICH SUCH ASSET WAS FIRST PUT TO USE. THE ASSESSEE HAS PURCHASED THE MACHINERI ES IN REGULAR COURSE 15 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO OF BUSINESS AND NOT IN CONNECTION WITH ANY EXTENSION OF THE EXISTING BUSINESS. FURTHER, THE MACHINERIES PURCHASED DURING THE YEAR WERE IMMEDIATELY PUT TO USE AND THE LD CIT(A) WITHOUT CON SIDERING THIS FACT HAS HELD THAT THE ENTIRE INTEREST PAYMENT TO INDIA BULL S CREDIT SERVICES IS CAPITAL EXPENDITURE. THEREFORE, DISALLOWANCE OF RS. 27,81,388 /- MADE BY THE CIT(A) BY HOLDING IT TO BE CAPITAL EXPENDITURE IS NO T AS PER LAW. THEREFORE, HE PRAYED TO DELETE THE ADDITION. 10. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORT ED THE ORDER OF THE LD CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE INTEREST OF RS. 3,21,952/- WAS NOT PAYABLE AS ON 31/3/2009, THEREFORE, THE CASE LAWS RE FERRED BY THE ASSESSEE IS SQUARELY APPLICABLE. HOWEVER, REMAINING INTEREST AMOUNT OF RS. 27,81,388 WAS PAID TO M/S INDIA BULLS BANK LTD. AGAI NST THE PURCHASE OF MACHINERY. THE LD CIT(A) HAD RIGHTLY CAPITALIZED THE INTEREST PAYMENT WITH THE COST OF PLANT AND MACHINERY AND ACCORDINGLY, WAS ALLOWED DEPRECIATION ON IT. THE ASSESSEES ARGUMENT THAT THERE WAS NO EXTE NSION OF EXISTING BUSINESS DURING THE YEAR IS NOT SUBSTANTIATED WITH A NY EVIDENCE WHEN INTEREST COST IS 27.81 LACS, THEN ADDITION OF ASSET S IS IN CRORES, THEREFORE, IT IS EXTENSION OF BUSINESS. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD CIT(A). 16 ITA NO. 595/JP/2013 M/S KY CONTINENTAL INTERIORS P LTD. VS. ITO 12. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2015. SD/- SD/- YFYR DQEKJ VH-VKJ-EHUK (LALIET KUMAR) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 14 TH DECEMBER, 2015 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S K.Y. CONTINENTAL INTERIORS (P) LI MITED, JAIPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD 4(2) JAIPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 595/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR