M/s A.B. Grains Spirits (P) Ltd., Chandigarh V. JCIT (OSD), Chandigarh

ITA 652/CHANDI/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6148 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Notional interest
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 652/CHD/2013 ASSESSMENT YEARS : 2009-10 M/S AB GRAINS SPIRITS (P) LTD V J.C.I.T. (OSD) # 77, SECTOR 11 CIRCLE 1 CHANDIGARH CHANDIGARH AAFCA 4588 D (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY JAIN RESPONDENT BY: SHRI MANJIT SINGH DATE OF HEARING 29.5.2014 DATE OF PRONOUNCEMENT 09.06.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 25. 3.2013 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 1 THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE DISAL LOWANCE OF PART OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 60,53,043/- ON ACCOUNT OF NOTIONAL INTEREST TO THE EXTENT OF FUN DS GIVEN TO M/S CHADDA PORTFOLIO PVT LTD AND M/S CHADDA SUGAR AND I NDUSTRIES LTD. 2 THAT THE LD. CIT(A) WRONGLY CAPITALIZED PART OF I NTEREST U/S 36(1)(III) AMOUNTING TO RS. 2375256/- ON CAPITAL WO RK IN PROGRESS AND ADDITION TO FIXED ASSETS. 3 GROUND NO. 1- AFTER HEARING BOTH THE PARTIES WE F IND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTED THAT SOM E AMOUNTS WERE GIVEN TO SISTER CONCERN M/S CHADDA POR TFOLLIOS (P) 2 LTD AND M/S CHADDA SUGAR AND INDUSTRIES LTD. THE AS SESSEE COULD NOT SHOW ANY BUSINESS PURPOSE FOR GIVING SUCH LOANS. THEREFORE THE ASSESSING OFFICER IN VIEW OF THE DEC ISION OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN CASE OF ABHISHEK INDUSTRIES, 286 ITR 1 HELD THAT INTEREST HAS TO BE DISALLOWED TO THE EXTENT OF FUNDS DIVERTED BY THE ASSESSEE. THERE AFTER HE CALCULATED THE DISALLOWANCE @ 12.5% WHICH WAS ACCOR DING TO HIM WAS AVERAGE RATE OF INTEREST. 4 ON APPEAL ACTION OF THE ASSESSING OFFICER WAS CON FIRMED BY THE LD. CIT(A). 5 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE IS HAVING INTEREST FREE AND INTEREST B EARING FUNDS. ONCE THE ASSESSEE HAS MIXED FUNDS THEN ONLY AVERAGE RATE OF INTEREST SHOULD HAVE BEEN DISALLOWED. IN THIS REGAR D HE REFERRED TO THE COPY OF ASSESSMENT ORDER FOR AY 2010-11 AND 2011-12 FILED AT PAGE 11 TO 16 AND 17 TO 23 IN THE PAPER B OOK. HE POINTED OUT THAT IN AY 2010-11 THIS DISALLOWANCE WA S MADE @ 5.95% AND IN AY 2011-12 SUCH DISALLOWANCE WAS MADE @ 4.67%, THEREFORE THE ASSESSING OFFICER MAY BE DIRECTED TO DISALLOW ONLY AVERAGE RATE OF INTEREST. 6 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 7 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT IN THE LATTER YEARS THE INTEREST HAS BEEN DISALLOWED ON TH E BASIS OF AVERAGE RATE BECAUSE THE ASSESSEE IS HAVING MIXED F UNDS. THE 3 DISALLOWANCE HAS BEEN MADE @ 5.95% IN 2010-11 AND @ 4.67 IN AY 2011-12. THEREFORE WE FIND NO REASON THAT IN THE PRESENT YEAR, DISALLOWANCE IS TO BE MADE AT 12.5%. ACCORDI NGLY WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK TO FILE OF ASSESSING OFFICER THAT THE DISALLOWANCE OF INTEREST SHOULD BE MADE ON THE BASIS OF AVERAGE RATE OF INTEREST. 8 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS SHOWN CLOSING WORK IN PROGRESS AM OUNTING TO RS. 60078604/-. IT WAS FURTHER NOTICED THAT INTERE ST ON SUCH WORK IN PROGRESS HAS NOT BEEN CAPITALIZED. ACCORDI NGLY HE CAPITALIZED INTEREST @ 7.91% WHICH WAS CALCULATED A S UNDER: DISALLOWANCE U/S 36(1)((III) FOR INTEREST ON CWIP 1 TOTAL INTEREST CLAIMED DURING THE YEAR 113458053 OPENING CWIP NIL (THE OPENING CWIP AS ON 1.4.2008 WAS CAPITALIZED ON 13.4.2008 AND HENCE OPENING CWIP IS TAKEN AS NIL) CLOSING CWIP 60078604 2 AVERAGE CWIP (OPENING CWIP + CLOSING CWIP/2) 30039302 OPENING TOTAL ASSETS 1169002051 CLOSING TOTAL ASSETS 1700751812 3 AVERAGE TOTAL ASSTS (OPENING TOTAL ASSETS + CLOSING TOTAL ASSETS/2) 1434876932 INTEREST X AVERAGE CW P/AVERAGE TOTAL ASSETS = 2375256 IN VIEW OF ABOVE CALCULATION A SUM OF RS. 2375256/- WAS DISALLOWED OUT OF INTEREST WHICH WAS DIRECTED TO BE CAPITALIZED. 4 9 ON APPEAL ACTION OF THE ASSESSING OFFICER WAS CON FIRMED BY THE LD. CIT(A). 10 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE IS HAVING ASSETS OF MORE THAN 100 CROR ES AND ONLY A SMALL PORTION IS SHOWN AS CAPITAL WORK IN PROGRES S AND THEREFORE IT CANNOT BE CALLED A CASE OF EXTENSION O F BUSINESS AND ACCORDINGLY DISALLOWANCE OF INTEREST WAS NOT J USTIFIED. IN THIS REGARD HE RELIED ON THE DECISION OF THE TRI IN CASE OF A.B SUGAR LTD V ADDL CIT, ITA NO. 650 & 651/CHD/2013, A .Y 2008-9 & 2009-10. 11 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 12 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IN CASE OF A.B SUGAR LTD V ADDL CIT (SUPRA) THIS ISSUE WAS ADJUDICATED VIDE PARA 24 WHICH READS AS UNDER: 24 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT PROVISO TO SEC 36(1)(III) READ S AS UNDER: PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EX TENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZE D IN THE BOOKS OF ACCOUNTS OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISIT ION OF THE ASST TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PU T TO USE, SHALL NOT BE ALLOWED AS DEDUCTION). PLAIN READING OF ABOVE CLEARLY SHOWS THAT DISALLOWA NCE FROM INTEREST CAN BE MADE IN RESPECT OF BORROWINGS FOR A CQUISITION OF EXPANSION OF BUSINESS OR PROFESSION. THIS MEANS WH EN THE ASSESSEE IS TRYING TO EXPAND THE BUSINESS THEN DISA LLOWANCE CAN BE MADE. IF THE ASSESSEE HAS ALREADY PUT UP A UNIT CO STING MORE THAN RS. 200 CRORES AND A SMALL SUM OF RS. 1.41 CORES IS SPENT TOWARDS SOME MINOR CAPITAL INVESTMENT THEN IT CANNOT BE SAI D THAT THE SAME IS FOR THE PURPOSE OF EXPANSION OF BUSINESS. THERE FORE IN OUR OPINION, THIS DISALLOWANCE IS NOT JUSTIFIED AND ACC ORDINGLY WE DELETE THE DISALLOWANCE OUT OF INTEREST UNDER THIS HEAD. A CCORDINGLY ASSESSEES APPEAL IS PARTLY ALLOWED. 5 A READING OF ABOVE CLEARLY SHOW THAT IN THAT CASE T OTAL ASSETS WERE MORE THAN RS. 200 CRORES AND ONLY A SUM OF RS. 1.41 CRORES WAS THERE AS CAPITAL WORK IN PROGRESS AND TH EREFORE IT WAS OBSERVED THAT SAME CANNOT BE FOR THE PURPOSE OF EXTENSION OF BUSINESS BUT IN CASE BEFORE US, THE CAPITAL WORK IN PROGRESS IS ALSO A SUBSTANTIAL AMOUNT AND NO DETAILS HAVE BE EN GIVEN BEFORE US AND WHAT WERE THE ITEMS OF CAPITAL WORK I N PROGRESS. THEREFORE WE FIND NOTHING WRONG IN THE ORDER OF CIT (A) AND CONFIRM THE SAME. 13 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09.06.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09.06.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR