Elmec Tools and Devices Pvt. Ltd., Faridabad V. ACIT, Faridabad

ITA 6842/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3374 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R C
• Assessee Lawyers: RAJNEESH BEHARI MATHUR
• Keywords: Proportionate interest; Notional interest

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 6841/DEL/2015 ASSESSMENT YEAR: 2012-13 KOBE SUSPENSION CO. LTD. PLOT NO. 15, SECTION 6, FARIDABAD PAN AABCK4643H VS. DEPUTY COMISSIONER OF INCOME TAX, (CIRCLE-1) FARIDABAD (APPELLANT) (RESPONDENT) ITA NO. 6842/DEL/2015 ASSESSMENT YEAR: 2012-13 ELMEC TOOLS AND DEVICES PVT. LTD. PLOT NO. 257, SECTOR-24 FARIDABAD PAN AABCE6573H VS. ACIT CIRCLE-II FARIDABAD (APPELLANT) (RESPONDENT) O R D E R ASSESSEE BY: SHRI RAJNEESH BEHARI MATHUR, CA DEPARTMENT BY : SHRI R.C. PANDAY, SR. DR DATE OF HEARING 22/08 /2017 DATE OF PRONOUNCEMENT 2 1 /11/ 2017 ITA NOS.6841,6842//DEL/2015 2 PER SUDHANSHU SRIVASTAVA, J.M BOTH THE APPEALS HAVE BEEN FILED BY THE RESPECTIVE ASSESSEES AGAINST ORDERS PASSED BY THE LD. CIT (A) FARIDABAD. THE ASSESSMENT YEAR IN QUESTION IS 2012-13. AS IDENTICAL ISSUES WE RE INVOLVED IN BOTH THE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DIS POSED OFF THROUGH THIS COMMON ORDER. 2. THE BRIEF FACTS OF THE CASE IN KOBE SUS PENSION CO. P. LTD. (ITA NO. 6841/DEL/2015) ARE THAT DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD MADE MAJOR ADDITION OF RS. 85,24,859/- IN THE PLANT AND MACHIN ERY DURING THE YEAR AND THE PAYMENTS OF THE SAME WERE MADE BEFORE THE D ATE OF INSTALLATION ON DIFFERENT DATES. THE AO ASKED THE ASSESSEE TO SH OW CAUSE AS TO WHY PROPORTIONATE INTEREST PAID ON THE LOAN USED FOR AD DITION IN FIXED ASSETS SHOULD NOT BE DISALLOWED. IT WAS THE ASSESSEES SUB MISSION BEFORE THE AO THAT IT HAD ADEQUATE FUNDS IN FORM OF CAPITAL RE SERVE, UNSECURED LOANS FROM DIRECTORS, SECURED LOAN AGAINST MACHINER Y AND ADVANCES FROM CUSTOMERS OUT OF WHICH IT HAS PURCHASED PLANT AND M ACHINERY AND, THEREFORE, NO INTEREST NEEDED TO BE DISALLOWED. HOW EVER, THE AO PROCEEDED TO DISALLOW INTEREST OF RS. 2,03,215/- U/ S 36(I)(III) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT IT PERTAINE D TO NOTIONAL INTEREST ITA NOS.6841,6842//DEL/2015 3 ON THE INTEREST BEARING FUNDS UTILISED FOR THE PURC HASE OF FIXED ASSETS DURING THE YEAR. 2.1 SIMILARLY, IN THE CASE OF M/S. ELMEC TOOLS & DEVICES PVT. LTD. (ITA NO. 6842/DEL/2015), DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE COMPANY HAD PURCHASED AN INDUSTRIAL PLOT AT FARIDABAD ON 30.3.2012 FOR A CONSIDERATION OF RS . 1,59,10,000/-. THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD SECURED / UNSECURED LOANS ON WHICH IT HAD INCURRED FINANCIAL CHARGES OF RS. 6 6,88,128/- AND, ACCORDINGLY, THE ASSESSEE WAS ASKED TO SHOW CAUSE A S TO WHY PROPORTIONATE AMOUNT OF INTEREST NOT BE DISALLOWED U/S 36 (I)(III) OF THE INCOME TAX ACT, 1961 AS INTEREST BEARING FUNDS WERE UTILISED FOR ACQUISITION OF ASSETS WHICH WAS NOT PUT TO USE ON 3 1 ST MARCH, 2012. THEREAFTER, AFTER CONSIDERING THE REPLY OF ASSESSEE , THE AO PROCEEDED TO AN AMOUNT OF RS. 36,493/- TO THE INCOME OF THE ASSE SSEE AS BEING DISALLOWED U/S 36(I)(III) OF THE ACT. 2.2 THE ASSESSEES CARRIED THE MATTER TO THE LD. CIT (A) IN BOTH THE CASES AND CHALLENGED THE DISALLOWANCE OF NOTIONAL I NTEREST. HOWEVER, IN BOTH THE CASES, THE LD. CIT (A) DISMISSED THE ASSES SEES CONTENTIONS. NOW, BOTH THE ASSESSEES HAVE APPROACHED THE ITAT AN D HAVE CHALLENGED THE CONFIRMATION OF DISALLOWANCE BY THE LD. CIT (A) . ITA NOS.6841,6842//DEL/2015 4 3. THE LD. AR SUBMITTED THAT AS FAR AS DISALLOWA NCE OF INTEREST OF RS. 2,03,215/- IN THE CASE OF KOBE SUSPENSION CO. P. LT D. WAS CONCERNED, THE ASSESSEE HAD NOT TAKEN ANY FRESH TERM LOAN FOR THE PURCHASE OF ASSETS AND THE TERM LOAN TAKEN IN EARLIER YEARS WAS SUBSTANTIALLY REDUCED IN THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED T HAT THE TOTAL AMOUNT PAID FOR PURCHASE OF FIXED ASSETS WAS RS. 85,24,859 /- WHEREAS THE INTEREST FREE FUNDS AVAILABLE AS PER THE ASSESSMENT ORDER WERE RS. 2,73,29,423/-. IT WAS ALSO SUBMITTED THAT THERE WAS AN OVERALL REDUCTION IN THE LIABILITIES OF THE COMPANY AS COMPARED TO TH E PREVIOUS YEAR AND, THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE H AD UTILISED BORROWED FUNDS FOR THE PURCHASE OF FIXED ASSETS DURING THE Y EAR UNDER CONSIDERATION. 3.1 SIMILARLY, ON THE ISSUE OF DISALLOWANCE OF INTEREST OF RS. 36,493/- IN THE CASE OF M/S. ELMEC TOOLS & DEVICES PVT. LTD. , THE LD. AR SUBMITTED THAT IN THIS CASE ALSO THE ASSESSEE HAD N OT TAKEN ANY FRESH TERM LOAN FOR THE PURCHASE OF ANY FIXED ASSETS AND FURTHER ON THE DAY THE AMOUNT OF RS. 30,00,000/- WAS PAID FOR ADVANCE FOR PURCHASE OF LAND, AFTER THE DEBIT OF RS. 30,00,000/-, THERE WAS STILL CREDIT BALANCE OF RS. 2,57,944/- IN THE CITIBANK ACCOUNT OF THE ASSESSEE AND, THEREFORE, THE ITA NOS.6841,6842//DEL/2015 5 CONTENTION OF THE AO THAT BORROWED FUNDS HAD BEEN U TILISED WAS NOT CORRECT. 3.2 THE LD. AR ALSO SUBMITTED THAT GROUND NO. 2 I N ITA NO. 6842/DEL/2015 WAS NOT BEING PRESSED OUT TO SMALLNES S OF AMOUNT. 4. THE LD. SR. DR, IN RESPONSE, SUBMITTED TH AT THE ADDITIONS HAD BEEN CONFIRMED BY THE LD. CIT (A) AFTER DUE CONSIDE RATION OF THE FACTS AND CIRCUMSTANCES OF THE CASES AND FURTHER NO DETAI LS, AS PER THE OBSERVATIONS OF THE LD. CIT (A), WERE FILED BY THE ASSESSEES IN SUPPORT OF THEIR CLAIM IN BOTH THE CASES AND, THEREFORE, THE A DDITIONS HAD BEEN RIGHTLY UPHELD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT THE ONLY POINT OF DISPUTE IS AS TO WHETHER THE ASSESSEES HAD SUFFICIENT FUNDS AVAILABL E WITH THEM AND, THEREFORE, WHETHER THE PURCHASE OF PLANT AND MACHIN ERY / LAND WERE FINANCED FROM BORROWED FUNDS. A PERUSAL OF THE IMPU GNED ORDER SHOWS THAT THE LD. CIT (A) HAS PASSED THE IMPUGNED ORDERS ENTIRELY BASED ON THE OBSERVATIONS RECORDED BY THE AO IN THIS REGARD. IT IS EVIDENT THAT THE LD. CIT (A) HAS NOT CARRIED OUT ANY FRESH AND PROPE R EXAMINATION OF THE FACTS WHILE DISMISSING THE ASSESSEES APPEALS. THE FINDINGS RECORDED BY ITA NOS.6841,6842//DEL/2015 6 THE LD. CIT (A) ARE AT BEST CRYPTIC AND IT IS APPAR ENT THAT THE VARIOUS ISSUES AND EVIDENCES WERE NOT PROPERLY EXAMINED BY THE LD. FIRST APPELLATE AUTHORITY. BEFORE US, THE ASSESSEE HAS NOT PRODUCED ANY EVIDEN CES IN SUPPORT OF THEIR CONTENTION AND LD. SR. DR ALSO HAS ONLY RELIED ON T HE ORDERS OF THE LOWER AUTHORITIES. THEREFORE, LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASES, WE ARE OF THE CONSIDERED OPINION THAT IN THE INTERE ST OF JUSTICE, BOTH THE APPEALS SHOULD BE RESTORED TO THE FILE OF THE LD. C IT (A) FOR FRESH ADJUDICATION BY PASSING SPEAKING ORDERS AFTER GIVING DUE OPPORT UNITY TO THE ASSESSEES TO PRESENT THEIR CASE. WE ALSO DIRECT THE ASSESSEES IN BOTH THE APPEALS TO SUBSTANTIATE THEIR CONTENTIONS REGARDING NON UTILIS ATION OF BORROWED FUNDS WITH PROPER EVIDENCES. WE ALSO DIRECT THAT IT WILL BE IN THE FITNESS OF THINGS IF THE LD. CIT (A) OBTAINS REMAND REPORT FROM THE AO IN BOTH T HE CASES BEFORE PROCEEDING WITH THE ADJUDICATION. WE FURTHER DIRECT THAT SHOULD THE ASSESSEES NOT AVAIL THE OPPORTUNITY BEFORE LD. CIT(A) AND NOT FILE THE REQUISITE EVIDENCES, THE LD. CIT(A) WILL BE AT LIBERTY TO PRO CEED WITH THE ADJUDICATION EVEN IN THE ABSENCE OF THE EVIDENCES WHICH THE ASSE SSEES ARE EXPECTED TO FILE. 6. IN THE FINAL RESULT, ITA NO. 6841/DEL/2 015 IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS ITA NO. 6842/DEL/2015 IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ITA NOS.6841,6842//DEL/2015 7 ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER 2017. SD/- SD/- (R.K.PANDA) (SUDH ANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST NOVEMBER, 2017 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI