DCIT, Ludhiana V. M/s Nexo Industries Pvt. Ltd., Ludhiana

ITA 73/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68600 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 24-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JASWINDER SINGH
• Keywords: Capital asset; Depreciation; Earning of tax free income; Commercial expediency
• Section: 143(3)

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.1343/CHD/2012 ASSESSMENT YEAR : 2008-09 M/S NEXO INDUSTRIES LTD., VS THE A.C.I.T., 585 OVERLOCK ROAD, CIRCLE V, LUDHIANA. LUDHIANA. PAN : AABCN0558L & ITA NO. 69/CHD/2013 ASSESSMENT YEAR : 2009-10 M/S NEXO INDUSTRIES (P)LTD., VS THE ADDL. CIT 585 OVERLOCK ROAD, RANGE V LUDHIANA. LUDHIANA. & ITA NO. 73/CHD/2013 ASSESSMENT YEAR : 2009-10 THE DY. COMMISSIONER OF VS M/S NEXO INDUSTRIES (P) LTD., INCOME TAX, 585 OVERLOCK ROAD, CIRCLE V, LUDHIANA. LUDHIANA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JASWINDER SINGH DEPARTMENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 03.12.2013 DATE OF PRONOUNCEMENT : 23.12.2013 O R D E R PER SUSHMA CHOWLA, JM OUT OF THESE THREE APPEALS, ONE APPEAL IS BY THE ASSESSEE AGAINST THE ORDER OF CIT(APPEALS) DATED 15.11.2012 RELATING TO ASSESSMENT YEARS 2008-09 AGAINST THE ORDER PASSED UNDER SECTION 143( 3) OF THE INCOME TAX 2 ACT, 1961 (IN SHORT 'THE ACT') AND ALSO CROSS APPEA LS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE CIT(APPEAL S) DATED 19.11.2012 RELATING TO ASSESSMENT YEARS 2009-10 AGAINST THE OR DER PASSED UNDER SECTION 143(3) OF THE ACT. 2. ALL THE THREE APPEALS RELATING TO THE SAME ASSES SEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLID ATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1343/CHD/2012 :: ASSESSEE'S APPEAL 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THAT THE ORDER OF THE LEARNED ASSESSING OFFICER IS ILLEGAL, ARBITRARY AND AGAINST LAW AND THE FACTS OF THE CASE. 2. THAT THE LD. ASSESSING OFFICER HAS ACTED M OST ARBITRARILY AND ILLEGALLY BY DISALLOWING INTEREST UNDER SECTION 36( 1)(III) ON INTEREST FREE ADVANCES GIVEN TO S.BALDEV SINGH WHEN SUCH AMO UNT HAD DIRECT NEXUS TO THE INTEREST FREE AMOUNTS RECEIVED FROM TH E SONS OF S.BALDEV SINGH. RATHER THE AMOUNT RECEIVED FROM THE SONS OF S.BALDEV SINGH WERE MUCH MORE THAN THE AMOUNT GIVEN TO S. BALDEV S INGH. 3. THAT THE LD. ASSESSING OFFICER HAS WRONGLY ALLOW ED DEPRECIATION ON ELECTRIC FITTINGS @ 10% AS AGAINST 15% RIGHTLY CLAI MED. 4. THE ISSUE RAISED IN THE PRESENT APPEAL VIDE GROU ND NO. 2 IS AGAINST THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) OF T HE ACT. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSEE HAD MADE CERTAIN BORROWINGS WHICH WERE INTEREST BEARING. TH E ASSESSING OFFICER, ON THE OTHER HAND, NOTED THAT THE ASSESSEE HAD MADE CERTAIN INTEREST FEE ADVANCES TO SHRI BALDEV SINGH ON WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. THE ASSESSING OFFICER INVOKED THE PROVIS IONS OF SECTION 36(1)(III) OF THE ACT TO DISALLOW THE INTEREST RELA TABLE TO SUCH INTEREST FREE ADVANCES. 3 6. THE CIT(APPEALS) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 36(1)(III) OF THE ACT. THE AS SESSEE IS IN APPEAL AGAINST THE SAME. 7. THE CONTENTION OF THE LD. AR FOR THE ASSESSEE WA S THAT BECAUSE OF CERTAIN FAMILY DISPUTES, MONEY WAS ADVANCED TO SHRI BALDEV SINGH WHICH WAS NOT ADJUSTED AS NO SETTLEMENT COULD BE REACHED BETWEEN THE PARTIES. IT WAS FURTHER POINTED OUT BY THE LD. AR FOR THE AS SESSEE THAT LOANS WERE RAISED FROM THE SONS OF THE ASSESSEE ON WHICH INITI ALLY THE ASSESSEE COMPANY WAS PAYING INTEREST WHICH WAS STOPPED LATER ON AND NO SUCH INTEREST WAS PAID DURING THE YEAR UNDER CONSIDERATI ON. IT WAS FURTHER POINTED OUT THAT NO ADJUSTMENT COULD BE MADE BETWEE N PARTIES BECAUSE OF THE DISPUTE TILL DATE. 8. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER AND POINTED OUT THAT IN VIEW OF T HE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS A BHISHEK INDUSTRIES 286 ITR 1 (P&H), THE ADDITION MERITS TO BE UPHELD. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF NUTS AND BOLTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD ADVANCED A SUM OF RS. 35,41,659/- TO SHRI BALDEV SINGH. THE SAID ADVA NCE WAS MADE INTEREST FREE. ON THE OTHER HAND, THE ASSESSEE HAD DURING T HE YEAR UNDER CONSIDERATION, PAID INTEREST ON BOTH SECURED AND UN SECURED LOANS. THE ASSESSEE WAS ASKED TO EXPLAIN WHY INTEREST CORRESPO NDING TO THE SAID AMOUNT SHOULD NOT BE DISALLOWED AS PER SECTION 36(1 )(III) OF THE ACT. IN REPLY, IT WAS EXPLAINED BY THE ASSESSEE AS UNDER : THAT AS REGARDS ADVANCES TO S.BALDEV SINGH AMOUNTI NG TO RS. 35,41,659/- IT IS SUBMITTED THAT DUE TO FAMILY DISP UTES THIS ADVANCE IS NOT BEING ADJUSTED. AS AGAINST THIS ADV ANCE WE HAVE 4 GOT UNSECURED LOAN AND ADVANCED FROM THE FAMILY MEM BERS OF S. BALDEV SINGH WHICH FAR EXCEED THIS AMOUNT AND NO IN TEREST IS BEING PAID ON THE SAME. THESE ARE : I) MANJIT SINGHS/O S.BALDEV SINGH RS.2431892/- II) KULDINGH SINGH S/O S.BALDEV SINGH RS.1064096/ III) ANAND BOLT PROP. MANJIT SINGH RS. 821331/- S/O BALDEV SINGH ----------------- RS. 4317219/- ----------------- THAT WE HAVE GOT MUCH MORE AMOUNT FROM THE FAMILY M EMBER OF S.BALDEV SINGH THAN WE HAVE GIVEN TO HIM AS ADVANCE SOOTHE QUESTION OF THE APPLICABILITY OF THE PROVISIONS OF SECTION 36(1)(III) DOES NOT ARISE. 10. THE CONTENTION OF THE ASSESSEE BEFORE US WAS TH AT THERE WERE CERTAIN FAMILY DISPUTES AMONGST BROTHERS AND SHRI BALDEV SI NGH WAS ONE OF THE BROTHERS AND AS SETTLEMENT OF THE SAID DISPUTE, THE SAID SUM OF RS. 35,41,659/- WAS ADVANCED TO SHRI BALDEV SINGH. THE RE WAS AN UNDERSTANDING THAT SAID AMOUNT WOULD BE ADJUSTED AG AINST THE AMOUNTS WHICH HAD BEEN RECEIVED FROM HIS SONS. HOWEVER, TH ERE WAS NO SETTLEMENT AMONGST THE FAMILY MEMBERS AND IN VIEW T HEREOF, NO ADJUSTMENT COULD BE MADE BETWEEN THE AMOUNT WHICH W AS ADVANCED TO SHRI BALDEV SINGH AT RS. 35,41,659/- AND THE AMOUNT RECEIVED FROM HIS SONS TOTALING RS. 43,17,219/-. IN THE ABOVESAID FA CTS AND CIRCUMSTANCES, WHERE THE AMOUNT RECEIVED BY THE ASSESSEE COMPANY I S HIGHER THAN THE AMOUNT ADVANCED INTEREST FREE BETWEEN FAMILY MEMBER S OF SHRI BALDEV SINGH AND HIS SONS, WE FIND NO MERIT IN THE ORDER O F THE CIT(APPEALS) IN APPLYING THE PROVISIONS OF SECTION 36(1)(III) OF TH E ACT IN ORDER TO DISALLOW THE INTEREST CORRESPONDING TO THE AMOUNT A DVANCED TO SHRI BALDEV SINGH. REVERSING THE SAME, WE DIRECT THE AS SESSING OFFICER TO DELETE DISALLOWANCE OF RS. 4,25,000/-. THE GROUND NO.2 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 11. THE ISSUE IN GROUND NO. 3 RAISED BY THE ASSESSE E IS FOR RESTRICTING THE ALLOWANCE OF DEPRECIATION ON ELECTRIC FITTINGS @ 10% AS AGAINST 15% 5 CLAIMED BY THE ASSESSEE. THE CONTENTION OF THE ASS ESSEE BEFORE US WAS THAT THE ELECTRIC FITTINGS HAD TWO SUB-HEADS I.E. O NE CONNECTED TO THE OFFICE AND THE ELECTRIC FITTINGS OTHERWISE. THE DE PRECIATION @ 15% WAS CLAIMED ON ELECTRIC FITTINGS (OFFICE). WE FIND MER IT IN THE CLAIM OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 15% ON ELECTRIC FITTINGS (OFFICE). GROUND NO. 3 RAISED BY THE ASSESSEE IS THUS, ALLOWED. ITA 69/CHD/2013 :: ASSESSEE'S APPEAL 12. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL : 1. THAT THE ORDER OF THE LEARNED ASSESSING OFFICER IS ILLEGAL, ARBITRARY AND AGAINST LAW AND THE FACT OF THE CASE. 2. THAT THE LEARNED ASSESSING OFFICER HAS WRONGLY ALLO WED DEPRECIATION ON ELECTRIC FITTINGS @10% AS AGAINST 15% RIGHTLY CLAIM ED. 3. THAT THE LEARNED ASSESSING OFFICER HAS WRONGLY ACTE D ILLEGALLY IN MAKING ADDITION U/S 14-A WHEN ACTUALLY NO EXPENDI TURE WAS INCURRED ON INVESTMENT OF RS.35000/- FOR PURCHASE OF SHARES DUR ING THE LAST YEAR & NO EXEMPT INCOME WAS EARNED DURING THIS YEAR. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND AND A LTER ANY OF THE GROUNDS OF APPEAL. 13. THE ISSUE IN GROUND NO. 2 RAISED BY THE ASSESSE E IS IDENTICAL TO THE GROUND NO. 3 RAISED BY THE ASSESSEE IN ASSESSMENT Y EAR 2008-09 AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT T HE ASSESSING OFFICER TO ALLOW DEPRECIATION ON ELECTRIC FITTINGS (OFFICE) @ 15% AS CLAIMED BY THE ASSESSEE. THE GROUND NO. 2 RAISED BY THE ASSES SEE IS THUS, ALLOWED. 14. THE GROUND NO. 3 RAISED BY THE ASSESSEE IS NOT PRESSED AND HENCE, THE SAME IS DISMISSED AS NOT PRESSED. ITA NO. 73/CHD/2013 :: REVENUES APPEAL 15. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL : 1. THE LD. COMMISSIONER OF INCOME TAX (APPEAL)-LL, LUD HIANA, ON FACTS AS WELL AS IN LAW, HAS ERRED IN DELETING THE DISALLOWA NCE OF RS. 32,26,114/ MADE 6 BY THE A.O. UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. 2. THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEAL)-II, LUDHIANA BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED. 16. THE GROUND NO. 1 RAISED BY THE REVENUE IS AGAIN ST THE DELETION OF DISALLOWANCE OF RS. 32,26,114/- MADE BY ASSESSING O FFICER UNDER SECTION 36(1)(III) OF THE ACT. 17. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IN HIS BALANCE SHEET HAD SHOWN CAPITAL WORK IN PROGRESS, B UILDING UNDER CONSTRUCTION, FACTORY BUILDING UNDER CONSTRUCTION O RIGINALLY NOT INSTALLED, GUEST HOUSE IN USE, THE SOFTWARE UNDER INSTALLATION , ADVANCE AGAINST LAND AND ADVANCE AGAINST MACHINERY. THE ASSESSING OFF ICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASKED THE ASSESSE E TO EXPLAIN WHY INTEREST CORRESPONDING TO THE AFORESAID ADVANCES MA Y NOT BE DISALLOWED UNDER PROVISION TO SECTION 36(1)(III) OF THE ACT. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT DURING THE YE AR UNDER CONSIDERATION, IT HAD TAKEN FRESH LOAN AGAINST ONLY PART OF THE MACHINERY WHICH REMAINED UNDER INSTALLATION DURING THE YEAR A ND INTEREST TO THE TUNE OF RS. 175,891/- HAD BEEN CAPITALIZED AGAINST THE S AID MACHINERY, BY THE ASSESSEE. THE SECOND CONTENTION OF THE ASSESSEE WA S THAT IT HAD RESERVE AND SURPLUS OF RS. 33.85 CR AND THE BALANCE INVESTM ENT WAS MADE OUT OF THE SAID FUNDS. THE ASSESSEE THUS, CONTENDED BEFO RE ASSESSING OFFICER THAT AS NO AMOUNT HAD BEEN BORROWED FOR ACQUIRING T HE BALANCE ASSETS AND AGAINST WHICH NO INTEREST WAS PAYABLE, THEREFORE, T HERE WAS NO QUESTION OF CAPITALIZATION OF INTEREST UNDER PROVISO TO SECT ION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER, REJECTING THE EXPLANATION OF THE ASSESSEE NOTED THAT THE ASSESSEE HAD RECEIVED LOAN OF RS. 37.32 CR DURING THE YEAR ON WHICH THE INTEREST LIABILITY INCURRED WAS RS. 5.64 CR AND AS THE ASSETS 7 REFERRED BY THE ASSESSING OFFICER HAD NOT BEEN PUT TO USE DURING THE YEAR, INTEREST CORRESPONDING TO THE AFORESAID INVESTMENT @ 11.5% WAS COMPUTED AT RS. 32,26,114/- WAS DISALLOWED BY THE A SSESSING OFFICER. 18. BEFORE THE CIT(APPEALS), THE ASSESSEE FILED WRI TTEN SUBMISSIONS WHICH ARE REPRODUCED UNDER PARA 4.2 AT PAGES 3 TO 6 OF THE APPELLATE ORDER. THE CONTENTION OF THE ASSESSEE BEFORE THE C IT(APPEALS) WAS AS UNDER : 1.1 THE APPELLANT ASSESSEE HAS PAID UP SHARE CAP ITAL TO THE TUNE OF RS. 1,99,13,000 & RESERVE & SURPLUS TO THE TUNE OF RS. 29,64,78,095 AS ON 01.04.2008 & RS. 33,85,95,377/ - AS ON 31.03.2009. BESIDES THIS THE APPELLANT ASSESSEE HAS ALSO GOT INTEREST FREE UNSECURED LOANS WHICH ARE AS UNDER: S. KULDEEP SINGH : 10,64,0 96 S. MANJIT SINGH : 24,31,892 S. MANPREET SINGH : 72,219 35,38,107 THAT DURING THE YEAR UNDER APPEAL THERE WAS NET INC REASE OF BORROWINGS TO THE OF RS. 3.75 CRORES IN SECURED LOA NS &RS. 34 LACS IN UNSECURED LOANS. OUT OF THIS INCREASE OF RS. 3.7 5 CRORES RS.72 LACS WAS SPECIFICALLY TAKEN FOR PURCHASE OF MACHINE RY, RS. 50 LACS WAS TAKEN AGAINST PURCHASE OF CAR WHICH WAS PURCHAS ED IN THE MONTH OF DEC 2008 AND IMMEDIATELY PUT TO USE & BALA NCE OF RS.. 2.52 CRORES WAS AGAINST BOOK DEBT AND PACKING CREDI T IN FOREIGN CURRENCY. AGAINST SUCH INCREASE OF LOANS, THERE IS AN INCREASE IN BOOK DEBTS TO THE TUNE OF RS. 4.25 CRORES & INCREAS E IN STOCK TO THE TUNE OF RS. 1 CRORE. HENCE OUT OF TOTAL INCREASE IN BORROWINGS OF RS.4.09 CRORES ONLY RS.1.22 LACS IS ATTRIBUTABLE TO PURCHASE OF FIXED ASSETS AND OUT OF THESE FIXED ASSETS, ASSET WORTH R S. 50 LACS WAS IMMEDIATELY PUT TO USE AND INTEREST ON REMAINING 72 LACS HAS ALREADY BEEN CAPITALIZED. 19. FURTHER SUBMISSIONS WERE MADE BY THE ASSESSEE I N RESPECT OF VARIOUS ASPECTS OF THE SAID ISSUE BEFORE THE CIT(AP PEALS). THE CIT(APPEALS) VIDE PARA 4.3 HELD AS UNDER : 4.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SU BMISSIONS. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST CORRE SPONDING TO THE FOLLOWING INVESTMENTS/ASSETS : I) CAPITAL WORK-IN-PROGRESS II) BUILDING UNDER CONSTRUCTION III) FACTORY BUILDING UNDER CONSTRUCTION IV) MACHINERY NOT INSTALLED 8 V) GUEST HOUSE NOT USED VI) SOFTWARE UNDER INSTALLATION VII) ADVANCE AGAINST LAND VIII) ADVANCE AGAINST MACHINERY THE APPELLANT HAS SUBMITTED THAT DURING THE YEAR LO ANS AMOUNTING TO RS.4.09 CRORES ONLY HAD BEEN TAKEN AS AGAINST THE L OAN AMOUNTING TO RS. 37,32,75,534/ -MENTIONED BY THE AO IN THE ASSESSMEN T ORDER. THE APPELLANT HAS EXPLAINED THAT THE REMAINING LOANS WE RE OLD LOANS EXISTING FROM THE EARLIER YEARS. OUT OF THE LOANS OF RS.4.09 CRORES, LOAN AMOUNTING TO RS.1.22 CRORES WAS TAKEN FOR PURCHASE OF FIXED ASSETS AND THE REMAINING LOANS IS AGAINST STOCK AND BOOK DEBTS . OUT OF THE LOAN AMOUNTING TO RS.1.22 CRORES , LOAN OF RS.50.00 LACS WAS TAKEN AGAINST PURCHASE OF CAR WHICH WAS IMMEDIATELY PUT TO USE AN D THE INTEREST PERTAINING TO REMAINING 72.00 LACS HAD ALREADY BEEN CAPITALIZED. AS PER THE PROVISIONS OF THE PROVISO TO SECTION 36(L)(III) , INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET IS TO BE DISALLOWED TILL THE DATE SUCH ASSET IS FIRST PUT TO USE. THE PROVIS IONS OF THIS SECTION ARE APPLICABLE ONLY IN THE CASES WHERE ANY AMOUNT OF LO AN HAD BEEN BORROWED SPECIFICALLY FOR THE ACQUISITION OF ANY CA PITAL ASSET. IN THE INSTANT CASE, AS SEEN FROM THE ASSESSMENT ORDER AND THE APPELLANT'S SUBMISSIONS, EXCEPT FOR RS. L.22 CRORES DISCUSSED A BOVE, NO AMOUNT OF LOAN HAD BEEN BORROWED SPECIFICALLY FOR THE PURPOSE S OF ACQUISITION OF ANY CAPITAL ASSET. IN THESE CIRCUMSTANCES IT WAS IN CUMBENT UPON THE AO TO SHOW WHETHER ANY BORROWED FUND HAS BEEN USED FOR THE PURPOSE OF ACQUISITION OF THESE ASSETS IN ORDER TO MAKE ANY DI SALLOWANCE UNDER PROVISO TO SECTION 36(L)(III). THE AO HAS NOT SPECI FICALLY REFERRED TO THE PROVISO TO SECTION 36(L)(III) PERSE. THE AO HAS ALS O NOT SHOWN ANY NEXUS BETWEEN BORROWED FUNDS AND THE ACQUISITION OF CAPIT AL ASSETS. THE AO RATHER POINTED OUT THAT THE APPELLANT HAS NOT SHOWN ANY NEXUS BETWEEN THE INTEREST FREE FUNDS AND INVESTMENTS IN ASSETS. AS SEEN FROM THE DETAILS DISCUSSED ABOVE ALL THE INVESTMENTS WERE MADE IN BU SINESS ASSETS. IT MAY BE THAT THESE ASSETS NOT PUT TO USE DURING THE YEAR . BUT THAT BY ITSELF DOES NOT MEAN THAT THE ASSETS WERE NOT ACQUIRED FOR BUSI NESS PURPOSES. THERE WAS THUS COMMERCIAL EXPEDIENCY INVOLVED IN THE AFOR ESAID PAYMENTS. THE HON'BLE SUPREME COURT IN THE CASE OF M/S S.A. BUILD ERS AS REPORTED IN 288 ITR 1 HAS HELD THAT WHERE BORROWED FUNDS HAVE B EEN USED FOR COMMERCIAL EXPEDIENCY, DEDUCTION U/S 36(L)(III) IS ALLOWABLE. THIS IS NOT A CASE WHERE BORROWED FUNDS HAVE BEEN ADVANCED FOR NON-BUSINESS PURPOSES AND THERE IS NO BENEFIT TO THE APPELLANT. IT IS NOT THE AO'S CASE THAT ANY OF THESE ASSETS WERE FOR PURPOSES OTHER TH AN THE BUSINESS PURPOSES. IN THESE CIRCUMSTANCES NO DISALLOWANCE U/ S 36(L)(III) OF THE INCOME TAX ACT CAN BE MADE. DISALLOWANCE IF AT ALL CAN BE MADE UNDER THE PROVISIONS OF THE PROVISO TO SECTION 36(L)(III) BUT FOR ANY DISALLOWANCE UNDER THE PROVISO IT HAS TO BE SHOWN T HAT LOANS WERE TAKEN FOR ACQUISITION OF ASSETS AND THE ASSETS WERE NOT P UT TO USE FOR A CERTAIN PERIOD. THUS FOR INVOKING PROVISIONS OF THIS PROVIS O THE FOLLOWING TWO CONDITIONS ARE ESSENTIAL :- I) CAPITAL WAS BORROWED FOR ACQUISITION OF AN ASSET. II) THE ASSET WAS NOT PUT TO USE FOR A CERTAIN PERIOD AFTER THE ACQUISITION. 9 IN THE INSTANT CASE, THE FIRST CONDITION IS NOT SAT ISFIED. THE AO HAS NOT SHOWN ANYWHERE THAT ANY CAPITAL WAS BORROWED FOR AC QUISITION OF THESE ASSETS. IT IS NOT EVEN THE AO'S CASE THAT ANY CAPIT AL WAS BORROWED SPECIFICALLY FOR ACQUISITION OF THESE ASSETS. THE A O HAS MERELY REFERRED TO THE FACT THAT THERE WERE BORROWED FUNDS TO THE EXTE NT OF MORE THAN RS.33.00 CRORES AND THERE IS A POSSIBILITY THAT THESE BORROW ED FUNDS HAVE BEEN USED FOR PURPOSE OF THESE ASSETS. ALTHOUGH IT HAS NOT BE EN SPECIFICALLY MENTIONED IN THE ASSESSMENT ORDER, THE DISALLOWANCE HAS BEEN MADE BY THE AO PROBABLY KEEPING IN VIEW THE FACT THAT THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRI ES LTD. HAS HELD THAT THE ISSUE OF NEXUS BETWEEN THE BORROWED FUNDS AND THE I NVESTMENTS MADE IS NOT RELEVANT. HOWEVER, THIS WOULD BE TRUE ONLY WHERE TH E FACTS ARE SIMILAR TO THIS CASE. IN THE INSTANT CASE, IT IS NOT THE AO'S CASE THAT THE FUNDS WERE USED FOR NON BUSINESS PURPOSES. THE AO HAS MERELY M ENTIONED THAT THE ASSETS WERE NOT PUT TO USE FOR BUSINESS PURPOSES DU RING THE YEAR. IN VIEW OF THE AFORESAID FACTUAL AND LEGAL POSITION, THE DISAL LOWANCE MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS THEREFORE ALLO WED. 20. IN THE FACTS OF THE CASE BEFORE US, OUT OF THE TOTAL LOAN OF RS. 4.09 CR. LOAN AMOUNTING TO RS. 1.22 CR WAS TAKEN FOR THE PURCHASE OF FIXED ASSETS AND THE BALANCE LOAN WAS AGAINST STOCKS AND BOOK DEBTS. OUT OF LOAN OF RS.1.22 CR, LOAN OF RS. 50 LACS WAS TAKEN A GAINST PURCHASE OF CAR WHICH WAS IMMEDIATELY PUT TO USE. THE INTEREST PER TAINING TO THE REMAINING LOAN OF RS. 72 LACS HAD BEEN CAPITALIZED BY THE ASSESSEE AND NO BENEFIT OF THE SAME HAD BEEN CLAIMED BY THE ASSESSE E. THE CLAIM OF THE ASSESSEE IS THAT THE INVESTMENT HAD BEEN MADE OUT O F ITS RESERVES AND SURPLUS AND THE MONEY AVAILABLE WITH IT. IN ORDER TO INVOKE THE PROVISIONS OF THE PROVISO TO SECTION 36(1)(III) OF THE ACT, THE TWO CONDITIONS WHICH ARE TO BE FULFILLED IS THAT; (A) C APITAL WAS BORROWED FOR THE ACQUISITION OF AN ASSET, AND (B) THE ASSET WAS NOT PUT TO USE FOR CERTAIN PERIOD AFTER ACQUISITION. IN THE CASE OF TH E ASSESSEE, THE FIRST CONTENTION WAS NOT SATISFIED. IN THE ABSENCE OF TH E ASSESSEE HAVING BORROWED CAPITAL FOR THE ACQUISITION OF THE ASSETS, WHICH ADMITTEDLY WERE NOT PUT TO USE FOR CERTAIN PERIOD AFTER THE ACQUISI TION, DOES NOT MERIT ANY DISALLOWANCE UNDER THE PROVISO TO SECTIO N 36(1)(III) OF THE ACT. 10 UPHOLDING THE ORDER OF THE CIT(APPEALS), WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 21. IN THE RESULT, APPEAL IN ITA NO. 1343/CHD/2012 OF THE ASSESSEE IS ALLOWED, APPEAL IN ITA NO. 69/CHD/2013 OF THE ASSES SEE IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 73/CHD/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD DECEMBER,2013. SD/- SD/- ( T.R.SOOD) (SUSHMA CHO WLA) ACCOUNTANT MEMBER JUD ICIAL MEMBER DATED: 23 RD DECEMBER,2013 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR ITAT,CHD.