BAJAJ ELECTRICALS LTD, MUMBAI V. ASST CIT CIR 2(1), MUMBAI

ITA 7598/MUM/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7898 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR LD
• Assessee Lawyers: PARTH ACHWAL LD ARS; KIRIT KAMADAR
• Keywords: Proportionate interest; Reassessment proceedings
• Section: 143(3); 147; 154

Judgement Text

ITA.NO.7598/MUM/2013 BAJAJ ELECTRICALS LIMITED ASSESSMENT YEAR-2007-08 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , , BEFORE SHRI D.T. GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7598/MUM/2013 ( / ASSESSMENT YEAR: 2007-08) BAJAJ ELECTRICALS LIMITED 45/47,BOMBAY LIFE BUILDING VEER NARIMAN ROAD, FORT MUM BAI - 40 0 001 / VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1) AAYKAR BHAVAN,M.K.ROAD MUMBAI - 400 020 ! ./ ./PAN/GIR NO. AAACB-2484-Q ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) ASSESSEE BY : KIRIT KAMADAR & PARTH ACHWAL, LD. ARS REVENUE BY : SUMAN KUMAR, LD. DR / DATE OF HEARING : 30/10/2017 / DATE OF PRONOUNCEMENT : 13/12 /2017 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2007-08 ASSAILS THE ORDER OF THE LD. COMMISSIONER O F INCOME-TAX (APPEALS)-4 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-4/IT-102/ACIT 2(1)/2012-13 DATED 08/10/2013. THE ASSESSMENT FOR IMPUGNED ASSESSMENT YEAR [AY] WAS FRAMED BY LD. ASSISTANT COMMISSIONER INCOME TAX, CIRCLE 2(1), MUMBAI [AO] U/S 143(3) REA D WITH SECTION 147 ITA.NO.7598/MUM/2013 BAJAJ ELECTRICALS LIMITED ASSESSMENT YEAR-2007-08 2 OF THE INCOME TAX ACT,1961 ON 31/01/2013. THE ONLY EFFECTIVE GROUND PRESSED BEFORE US IS GROUND NO. 2 AND THE SAME READ S AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST EX PENSES IN RELATION TO CAPITAL WORK- IN-PROGRESS MADE BY THE LEARNED AO UNDER SECTION 36 (I)(III) OF THE ACT. 2.1 FACTS LEADING TO THE SAME ARE THAT THE ASSESSE BEING RESIDENT CORPORATE ASSESSEE ENGAGED IN MANUFACTURING OF VARIOUS ELECTRICAL APPLIANCES, WAS ASSESSED U/S 143(3) READ WITH SECTION 147 ON 31/01/2013 AT RS.72.38 CRORES UNDER NORMAL PROVISIO NS AFTER CERTAIN ADDITIONS / DISALLOWANCES. THE SOLE SUBJECT MATTER OF THIS APPEAL IS INTEREST DISALLOWANCE OF RS.43.20 LACS U/S 36(1)(II I). THE ASSESSEE WAS ORIGINALLY ASSESSED U/S 143(3) ON 30/12/2009 AT RS. 71.96 CRORES. 2.2 DURING REASSESSMENT PROCEEDINGS, IT WAS NOTED T HAT THE ASSESSEE DEBITED INTEREST EXPENDITURE OF RS.2307.33 LACS IN THE PROFIT & LOSS ACCOUNT WHEREAS CAPITAL WORK-IN-PROGRESS [CWIP] AS PER BALANCE SHEET AT YEAR-END STOOD AT RS.56.62 LACS AND THEREFORE LD . AO OPINED THAT PROPORTIONATE INTEREST EXPENDITURE RELATED TO CWIP WAS REQUIRED TO BE CAPITALIZED ALONG WITH THE SAME. THE ASSESSEE POINT ED OUT THAT IT HAD NOT BORROWED ANY SPECIFIC FUNDS TO PURCHASE THE SAID AS SETS AND HENCE NO INTEREST ON CWIP WAS REQUIRED TO BE CAPITALIZED. HOWEVER, NOT CONVINCED, LD. AO WORKED OUT PROPORTIONATE INTEREST AGAINST THE SAME WHICH CAME TO RS.43.20 LACS AND DISALLOWED THE SAME U/S 36(1)(III). 3. AGGRIEVED THE ASSESSEE CONTESTED THE SAME WITH P ARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 08/10/2 013 WHERE THE LD. CIT(A), WHILE CONFIRMING THE ACTION OF LD. AO IN MA KING DISALLOWANCE U/S 36(1)(III), DIRECTED HIM TO RE-WORK THE SAME IN THE LIGHT OF ERROR BEING ITA.NO.7598/MUM/2013 BAJAJ ELECTRICALS LIMITED ASSESSMENT YEAR-2007-08 3 POINTED OUT BY THE ASSESSEE BY WAY OF RECTIFICATION APPLICATION U/S 154. THE MATTER WAS THUS CONCLUDED BY LD. CIT(A) IN THE FOLLOWING MANNER:- 5.3.1 I HAVE CAREFULLY AND DISPASSIONATELY CONSIDER ED THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT HAD NOT CA PITALIZED INTEREST ON THE CAPITAL WORK IN PROGRESS (RS.56.62 LAKHS) BECAUSE I T HAD NOT BORROWED ANY LOANS SPECIFICALLY TOWARDS ACQUIRING SUCH CAPITAL W ORK IN PROGRESS. SECONDLY, THE NET CASH FLOW FROM OPERATIONS WAS RECORDED AT R S.29.29 CRORES IN THE F.Y. 2006-07 RELEVANT TO A.Y.2007-08 AS AGAINST CAPITAL WORK IN PROGRESS OF RS.56.62 LAKHS. IT IS A CLAIM OF THE LAR THAT THE A PPELLANT HAD SUFFICIENT OLD FUNDS AND HENCE THERE IS NO QUESTION OF ANY BIFURCA TION OF INTEREST INTO THE CAPITAL WORK IN PROGRESS. HOWEVER, IT IS NOT DISPUT ED THAT INTEREST ON LOANS TAKEN FOR ACQUIRING CAPITAL WORK IN PROGRESS SHOULD BE CAPITALIZED WITH THE COST OF THE ASSETS. AS A MATTER OF FACT, THE APPELLANT H AS BEEN FOLLOWING THIS METHOD OF ACCOUNTING IN EARLIER YEARS. THEREFORE, THERE IS NO REASON AS TO WHY THE EARLIER YEARS METHOD OF ACCOUNTING SHOULD NOT BE FO LLOWED IN THIS YEAR ALSO. 5.3.2. SECONDLY, THE APPELLANT HAS FILED A RECTIFIC ATION APPLICATION U/S.154 OF THE ACT BEFORE THE LAO ON 26.07.2013 WHEREIN IT IS CLEARLY MENTIONED THAT THE LAO HAD ERRED IN THE ARITHMETIC CALCULATION VIZ. IN TEREST WORKED OUT @ 1.43 % ON CAPITAL WORK IN PROGRESS OF RS.30.145 LAKHS HAD BEEN ERRONEOUSLY CALCULATED AT RS.43.20 LAKHS INSTEAD OF THE CORRECT CALCULATION OF RS.43,107 ONLY. IF THE LAO RECTIFIES THE ASSESSMENT ORDER U/S .154 OF THE ACT THEN THE DEMAND WOULD BE SUBSTANTIALLY REDUCED. 5.3.3. IN VIEW OF THE APPELLANTS SPECIFIC RECTIFIC ATION APPLICATION FILED U/S.154 OF THE ACT ON THIS SUBJECT, THE LAO IS DIRECTED TO DIS POSE OFF THE APPELLANTS RECTIFICATION APPLICATION AS PER PROVISIONS OF SECT ION 154 OF THE ACT IN ACCORDANCE WITH THE CBDT INSTRUCTION NO.3/2013 ISSU ED VIDE F.NO.225/76/2013/ITA.II DATED 5 TH JULY, 2013. UNDER THE CIRCUMSTANCES, THE LAO IS DIRECTED TO CONSIDER THE ARITHMETIC ERROR IN RELEVANT ASSESSMENT ORDER AND RECTIFY THE MISTAKE APPARENT FROM RECORD AS PER LAW AFTER DUE VERIFICATION OF THE FACTS AT THE TIME OF GIVING APPEAL EFFECT. F OR STATISTICAL PURPOSES, GROUND OF APPEAL NO.2 IS PARTLY ALLOWED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. COUNSEL FOR ASSESSEE, AT THE OUTSET DREW OUR ATTENTION TO THE ERRONEOUS COMPUTATIONS MADE BY THE LD. AO WHILE ARRIVING AT THE IMPUGNED DISALLOWANCE AND CONTENDED THAT NO SUCH DI SALLOWANCE WAS WARRANTED FOR SINCE THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS TO UNDERTAKE THE CAPITAL WORK IN PROGRESS AND BORROWED FUNDS WERE NEVER USED FOR THE SAME. OUR ATTENTION IS ALSO DRAW N TO THE ACCOUNTING POLICIES BEING FOLLOWED BY THE COMPANY IN THIS REGA RD AND IT WAS FURTHER SUBMITTED THAT THERE WAS NO EXTENSION OF EXISTING B USINESS SO AS TO ITA.NO.7598/MUM/2013 BAJAJ ELECTRICALS LIMITED ASSESSMENT YEAR-2007-08 4 WARRANT THE IMPUGNED DISALLOWANCE U/S 36(1)(III). P ER CONTRA , LD. DR PLACED RELIANCE ON THE STAND OF LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD. UPON PERUSAL, WE FIND THAT LD. AO HAS, I N FACT, ERRED IN COMPUTING DISALLOWANCE U/S 36(1)(III) SINCE AVERAGE COST OF FUNDS @1.43% AS COMPUTED BY LD. AO ON AVERAGE CAPITAL WORK IN PROGRESS OF RS.30.145 LACS COMES TO RS.43,107/- AS AGAINST RS.4 3.20 LACS COMPUTED BY LD. AO. HOWEVER, EVEN THE RATE OF 1.43% COMPUTED BY LD. AO, IN ITSELF, IS ERRONEOUS SINCE INTEREST COST OF RS.2307.33 LACS ON CAPITAL EMPLOYED OF RS.35399.50 LACS AS EXTRACTED B Y LD. AO TRANSLATES INTO AVERAGE RATE OF 6.51% AS AGAINST 1.43% COMPUTE D BY LD. AO. NEVERTHELESS, WE ARE NOT CONCERNED WITH THE SAME AT PRESENT. 6. THE LD. AR HAS CONTENDED THAT THERE WAS NO EXTEN SION OF EXISTING BUSINESS AND SECONDLY, INTEREST FREE FUNDS IN THE S HAPE OF SHARE CAPITAL & FREE RESERVES FAR EXCEEDED THE CAPITAL WORK-IN-PROGRESS . THESE CONTENTIONS COULD NOWHERE BE REBUTTED / CONTROVERTE D EITHER BY ANY OF THE LOWER AUTHORITIES OR LD. DR BEFORE US. FROM THE PERUSAL OF FINANCIAL STATEMENTS, IT IS QUITE EVIDENT THAT THE INTEREST F REE FUNDS IN THE SHAPE OF SHARE CAPITAL & FREE RESERVES FAR EXCEED THE CLOSING CAPITAL WORK-IN- PROGRESS AND MOREOVER, THE RESERVES & SURPLUS HAS GROWN FROM 8053.44 LACS TO RS.10818.15 LACS AND THEREFORE, A PRESUMPTI ON HAS TO BE DRAWN THAT THE CWIP WAS CARRIED OUT BY THE ASSESSEE OUT OF OWN INTEREST FREE FUNDS. THE LOWER AUTHORITIES COULD NOWHERE PROVE TH E NEXUS OF BORROWED FUNDS WITH CWIP BEING CARRIED OUT BY THE ASSESSEE DESPITE BEING POINTED OUT BY THE ASSESSEE BEFORE LOWER AUTHORITIE S. IT IS ALSO UNCONTROVERTED FACT THAT THERE WAS NO EXTENSION OF EXISTING BUSINESS BY ITA.NO.7598/MUM/2013 BAJAJ ELECTRICALS LIMITED ASSESSMENT YEAR-2007-08 5 THE ASSESSEE. HENCE, WE ARE UNABLE TO CONCUR WITH T HE VIEW TAKEN BY LD. CIT(A) AND THEREFORE, INCLINED TO REVERSE THE SAME. HENCE, BY DELETING THE IMPUGNED ADDITIONS, WE ALLOW ASSESSEES APPEAL. 7. RESULTANTLY, THE ASSESSEES APPEAL STANDS ALLOWE D IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2017. SD/- SD/- (D.T. GARASIA) (MANOJ KUMAR AGGARW AL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 13.12.2017 SR.PS:- THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. . / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI