DCIT 15(3)(2), MUMBAI V. SATKAR ROAD LINKERS INDIA P.LTD, NAVI MUMBAI

ITA 725/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5537 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: RAMESH JAIN
• Keywords: Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.725/M/2016 ASSESSMENT YEAR: 2010-11 DCIT 15(3)(2), ROOM NO.451, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 VS. M/S. SATKAR ROAD LINKERS INDIA PVT. LTD., 275-277, CENTRAL FACILITY BUILDING-2, SECTOR 19, VASHI, NAVI MUMBAI 400 705 PAN: AAICS0741H (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAMESH JAIN, A.R. REVENUE BY : SHRI V. JUSTIN, D.R. DATE OF HEARING : 25.06.2018 DATE OF PRONOUNCEMENT : 24.07.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 13.11.2015 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A ) WAS JUSTIFIED IN DIRECTING TO ALLOW OF INTEREST AND FINANCIAL CHARGES OF RS.24,63,703/- AND DEPRECIATION OF RS. 6,49,069/- I N RESPECT OF CAPITAL WIP. THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON TH E ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. ITA NO.725/M/2016 M/S. SATKAR ROAD LINKERS INDIA PVT. LTD. 2 3. THE REVENUE HAS CHALLENGED THE DELETION OF ADDIT ION BY CIT(A) OF RS.24,63,703/- ON ACCOUNT OF INTEREST AN D FINANCIAL CHARGES AND RS.6,49,069/- ON ACCOUNT OF DEPRECIATION I N RESPECT OF WIP BY REVERSING ORDER OF AO ON THIS ISS UE. 4. THE FACTS IN BRIEF ARE THAT THE AO DURING THE AS SESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS PURCHASE D TRUCKS IN TWO PHASES ONE OF RS.59 LAKHS AND 2 ND OF RS.43,27,128/-. OUT OF THE SAID TRUCKS THE TRUCKS COSTING RS.59 LAK HS WAS TREATED AS WIP WHEREAS WITH REGARD TO THE 2 ND LOT OF TRUCKS NO DETAILS WERE FILED BY THE ASSESSEE SUCH AS INVOICE, DATE OF PUTTING TO USE ETC. AND ACCORDINGLY THE AO DISALLOW ED THE TOTAL INTEREST AND FINANCIAL CHARGES OF RS.24,63,703/- WHICH WAS CHARGED BY THE ASSESSEE UNDER THE HEAD INTEREST AND FINANCIAL CHARGES IN THE P&L ACCOUNT. AO ALSO DISALLOWED THE DEPRECIATION CLAIM BY THE ASSESSEE OF RS.6,49,069/- O N THE GROUND THAT NO PROOFS OF THE PURCHASE AND DATE ON W HICH THE SAID TRUCKS WERE PUT TO USE WAS NOT FILED BY THE AS SESSEE. 5. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSE E BY OBSERVING AND HOLDING AS UNDER: 2.4.18 ON WEIGHING THE PROS AND CONS, I FIND THAT THERE WAS FINANCE EXPENDITURE IN RESPECT OF FIRST TRUCK, SUPP ORTING BANK STATEMENTS WERE FURNISHED BEFORE LD.AO AND AS THE FINANCE CHAR GES WERE RELATED TO THE CASH CREDIT LIMIT WHICH WAS TAKEN FOR FUNDING THE W ORKING CAPITAL OF BUSINESS, IT WAS A BUSINESS EXPENDITURE WHICH COULD NOT BE DISAL LOWED. THE BUSINESS PURSUED BY THE APPELLANT WAS CONTINUING AND THEREFO RE, IT COULD NOT BE HELD THAT FINANCE COST ON FUNDING THE WORKING CAPIT AL OF BUSINESS WAS CAPITAL IN NATURE. INTEREST EXPENDITURE ON TERM LOA N WHICH WAS USED TO ACQUIRE IMMOVABLE PROPERTY FOR PRE-SCHOOL BUSINESS OF THE ASSESSEE, WAS HELD ALLOWABLE IN THE CASE OF ACIT VS MS. GEETA BHA TIA 120151 68 SOT 50 (MUM TRIB) (URO). 2.4.19 AS FAR AS THE SECOND TRUCK IS CONCERNED, NO WHERE IT HAS BEEN BROUGHT ON RECORD THAT THE SAME WAS NOT USED FOR BU SINESS PURPOSE AND ITA NO.725/M/2016 M/S. SATKAR ROAD LINKERS INDIA PVT. LTD. 3 THESE FACTS HAVE ALSO BEEN MENTIONED IN THE APPELLA NT'S STATEMENT OF FACTS, A COPY OF WHICH HAS BEEN FURNISHED TO LD. AO. HOWEVER , NO REBUTTAL OF THE SAME HAS BEEN RECEIVED AND, THEREFORE, IT IS PRESUM ED THAT THESE STATEMENT OF FACTS ARE CORRECT AND, HENCE, DEPRECIA TION ON THE SECOND TRUCK COULD NOT HAVE BEEN DISALLOWED. IN VIEW OF TH E ABOVE, GROUND NO. 5 IS ALLOWED. 6. THE LD. D.R. VEHEMENTLY SUBMITTED BEFORE US THAT THE DEPRECIATION ON 2 ND LOT OF TRUCKS WAS NOT ALLOWABLE AS THE SAME WERE NOT PUT TO USE BY REFERRING TO THE OBSERVATION MADE BY THE AO. THE LD. D.R. SUBMITTED THAT THE ASSESSEE H IMSELF TREATED THE PURCHASE OF TRUCKS AS WIP AND THEREFORE THE REASONING AS GIVEN BY LD. CIT(A) IN THE APPELLATE O RDER WHILE DELETING THE ADDITION IS WRONG. AS REGARDS THE DISA LLOWANCE OF RS.24,63,703/-, THE LD. D.R. SUBMITTED THAT THE SAME WAS RIGHTLY DISALLOWED BY THE AO AS THE ASSESSEE HAS TR EATED THE TRUCKS AS WIP AND THEREFORE INTEREST CHARGES, PROCE SSING CHARGES AND OTHER INCIDENTAL CHARGES HAVE TO BE DIS ALLOWED. 7. PER CONTRA, THE LD. A.R. SUBMITTED BY REFERRING TO PAGE NO.46 OF THE PAPER BOOK WHICH IS A STATEMENT OF DEP RECIATION FOR THE INSTANT YEAR THAT THE ASSESSEE HAS NOT CHAR GED ANY DEPRECIATION ON THE TRUCKS WHICH WERE TREATED AS WI P WHEREAS AS REGARDS THE 2 ND LOT OF TRUCKS WHICH WAS PUT TO USE, THE DEPRECIATION WAS CHARGED @ 30% WHICH WAS RIGHTLY CH ARGED BY THE ASSESSEE AS THE SAME WAS PUT TO USE DURING T HE YEAR. 8. AS REGARDS THE 2 ND ISSUE OF DISALLOWANCE OF INTEREST AND INCIDENTAL CHARGES OF RS.24,63,703/- THE LD. A.R. SUB MITTED THAT OUT OF THE TOTAL TERM LOAN OF RS.2,39,63,354/-, ONL Y RS.80,56,527/- REPRESENTED THE TERM LOAN AGAINST TH E HYPOTHECATION OF TRUCKS AND THE REMAINING WAS CASH CREDIT ITA NO.725/M/2016 M/S. SATKAR ROAD LINKERS INDIA PVT. LTD. 4 LIMIT FROM BANK OF BARODA OF RS.1,55,04,827/- AND RS .4 LAKH BY WAY OF UNSECURED LOANS. THE LD. A.R. WHILE TAKIN G US THROUGH THE SCHEDULES OF SECURED AND UNSECURED LOAN S IN SCHEDULE C AND INTEREST AND FINANCIAL CHARGES SUB MITTED THAT THE TOTAL OF SAID EXPENSES COMPRISED OF BANK INTER EST AND FINANCIAL CHARGES OF RS.21,49,910/- WHICH REPRESENT S THE INTEREST CHARGE ON CASH CREDIT LIMIT, BANK CHARGES O F RS.1,38,117/- AND INTEREST ON FINANCE OF RS.1,75,676/- . THE LD. A.R. WHILE REFERRING TO PAGE NO.55 TO 57 OF THE PA PER BOOK SUBMITTED THAT THE INTEREST CHARGE OF RS.21,49,910/ - WAS INCURRED AS INTEREST CHARGES ON THE CASH CREDIT LIM IT WHICH IS COMING OVER FROM THE EARLIER YEARS. THE LD. A.R. WH ILE REFERRING TO PAGE NO.58 TO 60 SUBMITTED THAT THE BA NK CHARGES WERE INCURRED IN CONNECTION WITH THE BUSINESS OF TH E ASSESSEE AND NOT IN CONNECTION WITH THE PURCHASE OF TRUCKS A ND THUS HAS NOTHING TO DO WITH THE TRUCKS PURCHASED BY THE ASSE SSEE. THE LD. A.R. ALSO TOOK US THROUGH THE REPAYMENT DETAILS O F LOANS TAKEN IN CONNECTION WITH THE PURCHASE OF TWO TRUCKS AND CLEARLY DREW DISTINCTION BETWEEN THE TRUCKS WHICH W AS CAPITALIZED IN THE WIP AND THE ONE WHICH WAS PUT TO USE DURING THE YEAR. WHILE REFERRING TO PAGE NO.72, THE LD. A.R. SUBMITTED THAT THE EMI WAS PAID ON 23.03.2010 WHICH COMPRISED OF INTEREST ELEMENT OF RS.9,875/- AND THERE FORE, THE INTEREST DISALLOWANCE IS ONLY TO THE EXTENT OF RS.9 ,875/- AS AGAINST THE TOTAL DISALLOWANCE OF RS.24,63,703/-. A S REGARDS THE 2 ND LOT OF TRUCKS THE LD. A.R. REFERRED TO PAGE NO.66 O F THE PAPER BOOK TO EXPLAIN THAT THE INTEREST ELEMENT IN THE 4 INSTALLMENTS FALLING DURING THE CURRENT FINANCIAL Y EAR WHICH WAS CAPITALIZED AND NOT CHARGED TO THE P&L ACCOUNT. IN VIEW OF ITA NO.725/M/2016 M/S. SATKAR ROAD LINKERS INDIA PVT. LTD. 5 THESE FACTS, THE LD. A.R. SUBMITTED THAT THE LD. CIT (A) HAS TAKEN A CORRECT VIEW OF THE MATTER AFTER EXAMINING ALL THE EVIDENCES AS REGARDS THE PURCHASE OF VEHICLES, THE DATE OF PUTTING THEM TO USE, CLASSIFICATION BETWEEN NORMAL B USINESS USE AND INTO WIP AND ALSO EXAMINING THE COMPREHENSI VE DETAILS AS REGARDS THE BORROWINGS FOR THE PURPOSE O F BUSINESS OF THE ASSESSEE AND ALSO AS REGARDS THE TWO TRUCKS. THE LD. A.R. PRAYED BEFORE THE BENCH THAT IN VIEW OF THE SAID FACTS THE APPEAL OF THE REVENUE SHOULD BE DISMISSED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AFTER EXAMININ G THE RECORDS AND RIVAL ARGUMENTS, WE FIND THAT THE ASSES SEE HAS CLASSIFIED THE PURCHASE OF TRUCKS INTO TWO BLOCKS; ONE AS REGARDS THOSE TRUCKS WHICH WERE PURCHASED IN NOVEMB ER 2009 AND WERE PUT TO USE BEFORE 31.03.2010 ON WHICH THE A SSESSEE HAS CLAIMED DEPRECIATION. AS REGARDS THE TRUCKS WH ICH WERE TREATED AS WIP THE COST WHEREOF AGGREGATED TO RS.59 LAKHS, THE ASSESSEE PURCHASED THESE TRUCKS ON 26.02.2010 A ND SHOWN AS WIP ON WHICH NO DEPRECIATION HAS BEEN CLAI MED AS THE SAME WERE NOT CAPITALIZED. SIMILAR FINDING HAS BEEN RECORDED BY THE LD. CIT(A) IN HIS ORDER AT PAGE NO.9 & 10. SO FAR AS THE DELETION OF DISALLOWANCE ON ACCOUNT OF D EPRECIATION IS CONCERNED, WE CONCUR WITH THE FINDING OF THE FIR ST APPELLATE AUTHORITY. SO FAR AS THE DISALLOWANCE OF INTEREST A ND FINANCIAL CHARGED TO THE TUNE OF RS.24,63,703/- IS CONCERNED , WE OBSERVE FROM THE RECORDS BEFORE US THAT THE SUBSTAN TIAL PART OF THE EXPENDITURE WAS INCURRED BY WAY OF INTEREST ON CASH CREDIT LIMIT OF RS.21,49,910/-, BANK CHARGES OF RS.1,38,117/- AND ITA NO.725/M/2016 M/S. SATKAR ROAD LINKERS INDIA PVT. LTD. 6 INTEREST ON FINANCE OF RS.1,75,676/- ALL AGGREGATING T O RS.24,63,706/-. WE HAVE GONE THROUGH THE COPIES OF LEDGER ACCOUNTS AS REGARDS THE INTEREST CHARGES, BANK CHARG ES AND INTEREST ON FINANCE AND FOUND THAT THE AO WAS TOTAL LY WRONG IN MAKING THE SAID DISALLOWANCE. WE OBSERVE FROM THE L OAN STATEMENTS THAT ASSESSEE HAS RIGHTLY CHARGED THE IN TEREST ON TRUCK LOANS IN THE P&L ACCOUNT AS IS CLEAR FROM PAG E NO.66 TO 78 WHICH REPRESENTED THE LOAN STATEMENTS FILED BY T HE ASSESSEE IN THE PAPER BOOK. KEEPING IN VIEW OF THE FACTS DISCUSSED HEREINABOVE , WE ARE OF THE VIEW THAT THE ORDER WAS PASSED BY THE LD. CIT(A) IS CORRECT AND NEEDS NO INT ERFERENCE AND ACCORDINGLY AFFIRMED BY DISMISSING THE APPEAL O F THE REVENUE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 24.07.2018. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24.07.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.