ACIT, Ludhiana V. M/s Dada Motors (P) Ltd., Ludhiana

ITA 797/CHANDI/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6487 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 16-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRA KANTA
• Keywords: Capital asset; Business income; Depreciation; Additional evidence

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHA, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.797/CHD/2016 ASSESSMENT YEAR: 2012-13 ACIT VS. M/S DADA MOTORS(P) LTD. CIRCLE-5, LUDHIANA SAVITRI COMPLEX-1, G.T. ROAD, DHOLEWAL CHOWK, LUDHIANA PAN NO. AAACD5844J (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI. PARIKSHIT AGGARWAL REVENUE BY : SMT. CHANDRAKANTA DATE OF HEARING : 28/11/2017 DATE OF PRONOUNCEMENT : 20/12/2017 ORDER PER DR. B.R.R. KUMAR A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF LD. CIT(A)- 2, LUDHIANA DT. 11/03/2016. 2. IN THIS APPEAL REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE WORTHY CIT(A)-2, LUDHIANA HAS EARNED IN DELE TING THE ADDITION OF RS.99,60,091/- U/S 36(L)(III) OF THE I.T.ACT, 1961 ON ACCOUNT OF CAPITALIZATION OF INTEREST UNDER THE HEA D 'BUILDING UNDER CONSTRUCTION' NOT USE FOR BUSINESS PURPOSES. 2. THE WORTHY CIT(A)-2, LUDHIANA HAS NOT APPRECIATE D THE FACT THAT THE 'BUILDING UNDER CONSTRUCTION' NOT USED FOR BUSINESS PURPOSES AS DISCUSSED IN THE ASSESSMENT ORDER. 3. THE CIT(A)-2, LUDHIANA HAS ALSO ERRED IN DELETIN G THE ADDITION OF RS.6,64,414/- U/S 36(L)(III) OF THE I.T. ACT, 19 61 ON ACCOUNT OF DISALLOWANCE OF INTEREST ON ADVANCE TO GODREJ ENTER MIA MALL. 4. THE CIT(A)-2, LUDHIANA HAS NOT APPRECIATED THE F ACT A CAPITAL ADVANCE IS ALSO IN THE NATURE OF CAPITAL WORK IN PR OGRESS TILL THE ASSET IS PUT TO USE. 3. GROUND NO. 1 & 2 RELATES TO THE ADDITION OF RS. 99,60,091/- U/S 36(1) (III) OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF CAPITALIZATI ON OF INTEREST UNDER THE HEAD 'BUILDING UNDER CONSTRUCTION' NOT USED FOR BUS INESS PURPOSES. 2 4. BRIEFS FACTS IN THIS CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ON 29.09.2012 FOR THE A.Y. 2012-13 SHOWN INCOME OF RS. 5,12,46,774/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TRADING OF VEHICLES & ACCESSORIES DURING THE PERIOD UNDER CONSIDERATION. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE AO NOTED THAT AS ON 31.03.2011 AND 31.03.2012, THE 'CAPITAL WORK IN PROGRESS' WAS RS. 7,58,70,196/- AND NIL, RESULTANT RS. 7,58,7 0,196/- HAD BEEN CAPITALIZED BY THE ASSESSEE DURING THE YEAR. THE AO FURTHER NOTED THAT NO INTEREST HAD BEEN CAPITALIZED BY THE ASSESSEE DURING THE YEAR. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY INTEREST ON THIS AMOUNT MAY NOT BE CAPI TALIZED. IN HIS REPLY THE ASSESSEE SUBMITTED THAT THE BUILDING UNDER QUESTION WAS ALMOST COMPLETE AND WAS PUT TO USE IN THAT YEAR AND THE HEAD 'CAPITAL W ORK IN PROGRESS, WAS NO MORE IN PROGRESS. THE AO HELD THAT THE ASSESSEE ADMITTED THAT BUILDING WAS ALMOST COMPLETE IN THE LAST YEAR AND AS PER ACCOUNTS, IT W AS SEEN THAT ASSETS WERE FINALLY CAPITALIZED IN THE END OF THE YEAR. 5. ON PERUSAL OF BALANCE SHEET THE ASSESSING OFFICE R FINDS THAT THE SOURCES OF FUNDS FROM SHARES HOLDER FUNDS RS. 19,98,80,381/- A ND BORROWED CAPITAL RS. 38,51,49,774/-. THUS BORROWED CAPITAL WAS FAR MORE THAN OWN FUNDS OF THE ASSESSEE. AS THE ASSESSEE FAILED TO PROVE THE SOURCES OF FUN DS UTILIZED, INTEREST FOR THE PERIOD TILL THE TIME PUT TO USE OF THE ASSETS H AD BEEN CAPITALIZED AS PER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. ACC ORDINGLY, THE AO MADE DISALLOWANCE OF RS. 99,60,091/- ON ACCOUNT OF INTER EST EXPENSES @ 12% ON THE ASSETS OF RS. 7,58,70,196/-. 6. THE LD. CIT(A) HAS DELETED THE ADDITION BASED ON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM. 7. THE LD. SR. DR DURING THE HEARING BEFORE US HAS VEHEMENTLY ARGUED THAT SINCE THE BUILDING HAS BEEN TAKEN INTO FIXED ASSET SCHEDULE AND KEEPING IN VIEW THAT THE SHOWROOM WAS PUT TO USE ONLY AFTER 30/05/2 011 THE INTEREST NEEDS TO BE CAPITALIZED. THE LD. SR. DR HAS TAKEN US THROUGH TH E ASSESSMENT ORDER AND ALSO RELIED ON THE ORDER OF ITAT CHANDIGARH BENCH DT. 10 /09/2013 PASSED IN THE CASE OF VISHAL PAPER INDUSTRIES PVT. LTD. WHEREIN IT WAS HELD THAT INTEREST ON BORROWED CAPITAL CANNOT BE ALLOWED UNLESS SUCH ASSET WAS FIR ST PUT TO USE AND ARGUED THAT THE BUILDING WAS NOT USED TILL COMPLETED. IT WAS AR GUED THAT THE BUILDING COULD NOT HAVE BEEN PUT TO USE AS CONSTRUCTION WORK IS BE ING UNDERTAKEN BY THE ASSESSEE. THE LD. SR. DR HAS TAKEN US TO PAGE 34 OF THE PAPER BOOK WHEREIN 3 BUILDING UNDER CONSTRUCTION AT MOGA WAS REFLECTED S IMILAR IS THE CASE OF THE BUILDING CONSTRUCTION AT KHANNA WHICH STANDS TRANSF ERRED TO BUILDING ACCOUNT ON 23/01/2012 FURTHER THE BUILDING AT JLR SAHNEWAL WAS TRANSFERRED TO BUILDING ACCOUNT ON 31/03/2012. THE ASSESSEE HAS SHOWN THE B ALANCE SHEET WHEREIN THE ADDITIONS MADE DURING THE YEAR ON WHICH DEPRECIATIO N IS CALCULATED AT HALF THE RATE AS PER THE INCOME TAX ACT. THE LD. SR. DR HAS TAKEN TO PAGE NO. 118 OF THE PAPER BOOK WHERE APPLICATION FOR SHOWROOM REGISTRAT ION HAS BEEN SUBMITTED AND ARGUED THAT APPLYING FOR REGISTRATION CANNOT BE SAID TO BE USED FOR BUSINESS. PAGE NO. 120 OF THE PAPER BOOK IS A COPY OF THE TAX INVOICE DT. 12/04/2011 SIMILARLY TAX INVOICE WAS AVAILABLE FOR 15/05/2011. THE REFERENCE WAS ALSO INVITED TO PAGE NO. 182 OF THE PAPER BOOK WHEREIN TAX INVOI CE OF 29/03/2011 COULD BE FOUND PERTAINING TO REPAIRS OF THE VEHICLE AND ARGU ED THAT THESE WERE MINOR REPAIRS CONDUCTED. IT WAS ARGUED THAT SINCE NO MAJO R WORK WAS UNDERTAKEN AT THE NEW PREMISES THE INTEREST NEEDS TO BE DISALLOWE D. 8. DURING THE HEARING BEFORE US THE LD. AR HAS TAKE N US THROUGH THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE SUBMISSIONS ARE AS UNDER: 'THE UNDERSIGNED SH. SURAJ DEV DADA MANAGING DIRECT OR OF M/S. DADA MOTORS PVT. LTD., ON BEHALF OF THE COMPANY, SUBMITTED AS UNDER FOR YOUR HONOR'S CONSIDERATION AND FAVORABLE ACTION PLEASE. THE A.O. HAS MADE THE ADDITION OF RS. 1,06,24,505/- U/S 36(1)(III) BY DISALLOWING THE INTEREST PAID ON THE BORROWED CAPITAL TO THE RETURNED INCOME OF THE COMPANY. THE ADDITION IS UNW ARRANTED BEING CONTRARY TO THE FACTS AND HISTORY OF THE CASE , IGNORING THE EX PLANATIONS SUBMITTED BEFORE HIM DURING THE ASSESSMENT PROCEEDINGS . THE CASE WAS SC RUTINIZED THOROUGHLY COVERING A LONG SPAN OF TIME BUT THE A.O. COULD NOT FIND ANY INFIRMITY IN ACCOUNT BOOKS IN ANY FORM. THE ADDITION U/S 36(1)(III) HAS BEEN MADE WITHOUT ANY BASIS, THEREFORE, THE ADDITION IS FOR ADDITION SAKE ONLY A ND WITHOUT PROPER APPLICATION OF MIND. THE PROVISO TO SECTION 36(1)(III) IS APPLICAB LE WHERE THE INTEREST IS TO BE CAPITALIZED UP TO THE DATE , THE ASSET IS NOT PUT T O USE FOR BUSINESS PURPOSES. IN OUR CASE ALL THE BUILDINGS IN QUESTION SHOWN UNDER THE 'CAPITAL WORK IN PROGRESS' REMAINED UNDER BUSINESS USE THROUGHOUT THE YEAR UND ER APPEAL. THEREFORE THE PROVISO IN OUR CASE IS NOT APPLICABLE BY ANY STRETC H OF AN IMAGINATION IN VIEW OF THE TANGIBLE EVIDENCES AND EXPLANATIONS MADE AVAILA BLE TO THE A. O. DURING THE SCRUTINY OF THE CASE. THE ACCOUNTS OF OUR COMPANY A RE MAINTAINED BY THE EXPERTS ON DAY TO DAY BASIS AND PROPERLY CHECKED BY THE PRO FESSIONALS ENGAGED BY THE COMPANY FOR THE PURPOSE. THE A. O. HIMSELF ADMITTED THIS FACT IN THE BODY OF THE ASSESSMENT ORDER AT PAGE 2 LAST PARA WHICH NEEDS TO BE ACKNOWLEDGED. ON THE BASIS OF DOCUMENTARY EVIDENCES AND PHYSICAL VERIFIC ATIONS THE AUDITOR OF OUR COMPANY DID NOT PROPOSE ANY DISALLOWANCE IN HIS AUD IT REPORT ON FORM 3CD IN THE RELEVANT COLUMN ON BEING FULLY SATISFIED THAT THE P REMISES WERE USED FOR BUSINESS PURPOSES THROUGHOUT THE YEAR. SINCE IT IS THE PRERO GATIVE OF THE AUDITOR, BEING TECHNICALLY EXPERT AND QUALIFIED, TO PROPOSE SUCH D ISALLOWANCES AND NOT THE PERSON WHO IS ARRYING ON THE BUSINESS. THE A. O. NE VER QUESTIONED THE VERACITY /AUTHENTICITY OF THE AUDIT REPORT OF THE COMPANY AN D THE ACCOUNT VERSION OF THE BOOKS. BUT HE SIMPLY CHOSE TO MAKE THE ADDITIONS U/ S 36(1) (III) BY WAY OF MISCONCEPTIONS AND WITHOUT COMPREHENDING THE AVAILA BLE MATERIAL ON THE SUBJECT. IT IS PERTINENT TO STATE HERE THAT THE BUS INESSMAN DEALING WITH SUCH DEALERSHIP CANNOT AFFORD TO LEAVE THE AVAILABLE PRE MISES, MAY BE IN THE SHAPE OF LAND OR BUILDING, UNUSED AS HE IS ALWAYS SHORT OF S UCH ASSETS NEEDED FOR THE BUSINESS PURPOSES, ESPECIALLY WHEN HE IS ON THE EXP ANSION MODE OF BUSINESS . HE ALWAYS MAKE THE BEST USE OF BUSINESS ASSETS IN THE INTEREST OF THE BUSINESS TO 4 INCREASE PROFITABILITY BEING NORMALLY EXPECTED FROM A DILIGENT AND PRUDENT MAN. RATHER THE DEALER ALWAYS TRIES TO USE THE ADJOINING PREMISES IN THE INTEREST OF THE BUSINESS THOUGH NOT OWNED BY HIM TILL HE IS OBJECTE D TO BY THE LAWFUL OWNER OF THAT PREMISES. SO IT IS A PREVALENT PRACTICE AND CU STOMARY TO PUT TO USE THE PREMISES FOR BUSINESS PURPOSES WHEN BECOMES VIABLE THOUGH THE CONSTRUCTION IN THE FORM OF FINISHING TOUCHES, WHICH IS TIME CONSUM ING , IS STILL GOING ON AT THE PREMISES .FROM THE ABOVE STATED FACTS AND CIRCUMSTA NCES AND HISTORY OF OUR CASE IT BECOMES ABUNDANTLY CLEAR THAT ALL THE PREMISES U NDER QUESTION WERE ACTUALLY UNDER USE FOR THE BUSINESS PURPOSES AND THEREFORE Q UESTION OF CAPITALIZATION OF INTEREST DOES NOT ARISE IN OUR CASE. THE BUILDINGS/ PREMISES WISE EXPLANATION IS SUBMITTED HERE UNDER ALONGWITH THE NECESSARY DOCUME NTARY EVIDENCES FOR YOUR HONOR'S READY REFERENCE, CONSIDERATION AND NEEDFUL RELIEF. A.) JAGUAR LANDROVER AT SAHNEWAL THE ASSESSEE COMPANY GOT THE DEALERSHIP OF JLR IN T HE MONTH OF DEC.2009 AND DELIVERY OF THE VEHICLES STARTED ON JAN. 2010. THE DELIVERY IS STARTED BY THE PRINCIPAL'S TO THE AUTHORIZED DEALER ONLY WHEN THE WORKSHOP FOR THE PURPOSE OF PRE DELIVERY INSPECTION AND REPAIR OF THE VEHICLES IS READY ACCORDING TO THE PRINCIPAL'S SPECIFICATIONS. AT THE INITIAL STAGE TH E WORKSHOP FOR THE JLR VEHICLES WAS STARTED AT SOME OTHER PREMISES TAKEN ON RENT AS THE ACTUAL PREMISES AT SAHNEWAL WAS BEING PREPARED FOR THE PURPOSE AT THAT POINT OF TIME. THE TEMPORARY ARRANGEMENT FOR RUNNING THE WORKSHOP HAD TO BE MADE IN ORDER TO BE ENTITLED FOR RELEASE OF THE DELIVERY OF VEHICLES TO THE ASSESSEE COMPANY. ULTIMATELY WE SHIFTED TO THE BUILDING AT SAHNEWAL IN THE PRECEDING YEAR I .E. F. Y 2010-11 IN THE MONTH OF JANUARY AS THE PREMISES WAS READY FOR BUSINESS USE IN ALL RESPECTS. SINCE THE PREMISES AT SAHNEWAL USED FOR BUSINESS PURPOSES FOR WHOLE OF THE YEAR UNDER APPEAL THE CAPITALIZATION OF INTEREST WAS NOT WARRA NTED U/S 36(1)(III) OF THE INCOME TAX ACT. THE NECESSARY DOCUMENTARY EVIDENCES IN THE FORM OF; I) COPY OF VAT FORM 5 SUBMITTED TO PUNJAB SALES TAX DEPARTMENT BEING MANDATORY TO INFORM ABOUT THE ADDITION OF NEW BUSIN ESS PREMISES AND DULY VISITED BY THE SAID AUTHORITIES FOR PHYSICAL VERIFICATION. II) COPY OF THE SALE BILLS OF VEHICLES FOR THE MONT H OF APRIL 2011 EXECUTED AT THE PREMISES AT SAHNEWAL. III) COPY OF THE WORKSHOP SALE/REPAIR BILLS PERTAI NING TO THE SAID PREMISES FOR THE MONTH OF APRIL 2011 IV) COPY OF JOB CARD RELATING TO THE WORKSHOP A T SAHNEWAL FOR THE MONTH OF APRIL 2011. THE ABOVE EVIDENCES ARE THE PRODUCTS OF THE ROUTINE DEALERSHIP BUSINESS AND DULY RECORDED IN THE BOOKS OF ACCOUNTS ON DAY TO DAY BASIS. ON PERUSAL OF THE DOCUMENTARY EVIDENCES ATTACHED WITH THE SUBMISSIONS IT BECOMES CRYSTAL CLEAR THAT THE PREMISES AT SAHNEWAL USED FO R BUSINESS PURPOSES THROUGHOUT THE YEAR AND ALSO ESTABLISH THE VERACITY OF THE BOO K VERSION OF THE ASSESSEE COMPANY. ON THE BASIS OF ABOVE STATED FACTS, EVIDEN CES AND HISTORY OF THE CASE THE DISALLOWANCE OF INTEREST U/S 36(1)(III) IS UNLA WFUL ARBITRARY AND UNFOUNDED BEING CONTRARY TO THE FACTUAL POSITION OF THE CASE. THEREFORE THE DISALLOWANCE OF INTEREST OF RS. 94,08,204/- PAID ON THE BORROWED CA PITAL FOR THE PREMISES AT SAHNEWAL NEEDS TO BE KNOCKED OFF. B.) BUSINESS PREMISES AT MOGAJALANDHER BVEPASS.KHAN NA AND SAVITRI -1 LUDHIANA ON ALL THE SAID PREMISES THE A.O. HAS DISALLOWED IN TEREST OF RS.5,51,886/-U/S 36(1)(III) THOUGH ALL THE BUILDINGS WERE UNDER BUSI NESS USE SINCE THE EARLIER YEARS. SOME ADDITIONS /ALTERATIONS TO THE EXISTING STRUCTU RES WERE MADE DURING THE EARLIER YEAR AS PER THE NEEDS OF THE DEALERSHIP BUSINESS AS NO PENY HAS BEEN SPENT ON ALL THESE PREMISES DURING THE YEAR UNDER APPEAL. IN THI S SCENARIO HOW THE ASSESSING OFFICER REACHED TO THE CONCLUSION THAT THE PREMISES WERE NOT UNDER BUSINESS USE IS NOT UNDERSTANDABLE . WHILE MAKING THE DISALLOWANCE OF INTEREST THE A. O. DID NOT BOTHER TO APPRECIATE THE FACTUAL POSITION, BOOK VER SION AND THE AUDIT REPORT OF THE COMPANY .HE TRIED TO JUSTIFY THE DISALLOWANCE O F INTEREST MERELY BECAUSE THE HEAD 'BUILDING UNDER CONSTRUCTION ' TRANSFERRED TO THE BUILDING ACCOUNT DURING THE YEAR UNDER APPEAL ON DIFFERENT DATES. WHICH IS ONLY A QUESTION OF POSTING IN THE BOOKS OF ACCOUNT, IGNORING THE OTHER RELEVANT FACTO RS HAVING DIRECT NEXUS ON THE SUBJECT. IN VIEW OF THE ABOVE STATED FACTS THE DISA LLOWANCE OF INTEREST OF 5 RS.5,51,886/- (MOGA-RS. 169432/- JALANDHER BYEPASS -RS.74665, KHANNA-RS.58586/-, SAVITRI -1 PCD -RS.537/- AND SAVITRI -1 CVD RS.2486 66/-=RS.551886/-) IS UNSUSTAINABLE UNWARRANTED AND UNFOUNDED .SO THE DISALLOWANCE OF I NTEREST OF RS. 551886/- NEEDS TO BE DELETED . THE TOTAL DISALLOWANCE OF INT EREST COMPRISING RS.94,08,204/- FOR SAHNEWAL BUILDING AND RS.551886/- FOR OTHER PRE MISES TOTALING RS.99,60,091/- MADE BY THE A.O. U/S 36(1) (III) MAY PLEASE BE DELE TED IN THE INTEREST OF NATURAL LAW AND JUSTICE' 4.3 THEREAFTER, A LETTER DATED 06.05.2015 WAS ISSUE D TO THE ASSESSEE FROM THIS OFFICE WHICH IS REPRODUCED AS UNDER: *********** PLEASE REFER TO YOUR WRITTEN SUBMISSION DATED 05.05 .2015 ON THE AFORESAID SUBJECT. 2. AS PER THE WRITTEN SUBMISSION PERTAINING TO GROU ND NO. 1(A) YOU HAVE CONTENDED THAT THE DISALLOWANCE OF RS. 94,08.204/- FOR SAHNEV VAI BUILDING U/S 36(L)(III) OF THE I.T. ACT IS NOT JUSTIFIED AS THE BUILDING WAS UNDER BUSINESS USE THROUGHOUT THE YEAR UNDER APPEAL. IN THIS REGARD PERUSAL OF THE COPY OF ACCOUNT PERTAINING TO THIS BUILDING UNDER CONSTRUCTION (JLR) REVEALS THAT THE OPENING BALANCE OF THE BUILDING UNDER CONSTRUCTION WAS RS. 3,70,07,073/- A ND THE CLOSING BALANCE TRANSFERRED TO THE BUILDING ACCOUNT ON 3L.03.2012 I S RS. 4,83,11,149/-. THUS IT IS APPARENT FROM THE STATEMENT OF ACCOUNT PERTAINING T O THIS BUILDING UNDER CONSTRUCTION THAT EXPENDITURE IN EXCESS OF RS. 1 CR ORE WAS INCURRED TOWARDS THIS BUILDING DURING THE YEAR AND THAT THE BUILDING WAS ONLY TRANSFERRED FROM THE BUILDING UNDER CONSTRUCTION TO THE BUILDING ACCOUNT ON 31.03.2012. IT IS FURTHER SEEN FROM THE DETAILS OF EXPENSES (LIED BY YOU DURI NG THE FINANCIAL YEAR 2011-12 PERTAINING TO THIS BUILDING THAT THESE EXPENSES INC LUDED THE FOLLOWING EXPENSES:- SR. NO. DATE DESCRIPTION AMOUNT( RS.) 1. 25.04.2011 COPPER CABLE 79,125/- 2. 24.05.2011 MARBEL SLABS 1,32,270/- 3. 04.05.2011 PBC M/CORE/FLEX CABLE 63.600/- 4. 26.0S.2011 BUILDING MATERIAL PURCHASED FROM AJANTA GLASS HOUSE 6,30,089/- 5 26.0S.2011 BUILDING MATERIAL PURCHASED FROM AJANTA CLASS HOUSE 3.30,884/- 6. 26.05.2011 WOODWORK PURCHASED FROM NIRMAL DECOR RS. 1,71,648/- 7. 23.06.2011 ALLUMINIUM CLADING 2.58,201/- 8 30.06.2011 AGT CEMENT AT SAHNEWAL 2,80,01 0/- 9. 22.07.2011 FALSE CEILING/WALLS 10.96,871/- 10. (17.10.2011 ELECTRICITY LILTING AT SHOWROOM 3.3 2,239/- 11. 20.10.2011 WHITEWASH OF ENTIRE XI .R. SET UP 12 ,00,196/- 12. 25.10.2011 TILE FITTING 7,47,500/- 13. 25.10.2011 SANITARY PLUMBER MATERIAL 3,54,884/- 14. 15.12.2011 WOODWORK BILL 17,00.000/- 3. IT IS APPARENT FROM THE AFORESAID DETAILS THAT WORK RELATED TO ELECTRICAL FITTINGS, SANITATION FACILITIES, WOODWORK, TILING E TC WAS DONE ONLY DURING THE YEAR UNDER REFERENCE. THE ISSUE WAS DISCUSSED DURING THE APPELLATE PROCEEDINGS. IT WAS ALSO POINTED OUT BY PERUSING THE STATEMENT OF A CCOUNT FOR BUILDING UNDER CONSTRUCTION FOR THE FINANCIAL YEAR 2010-11 THAT TH ERE WAS NO EXPENDITURE PERTAINING TO ANY ELECTRICAL FITTINGS DEBITED DURIN G, THAT YEAR. IN THESE CIRCUMSTANCES IT: IS APPARENT THAT YOUR CONTENTION THAT THE BIDDING WAS ALREADY UNDER BUSINESS USE IS NOT BASED ON THE FACTS ON REC ORD. YOU ARE REQUESTED TO SUBMIT YOUR EXPLANATION IN THIS REGARD. 4. 'WITH REGARD TO GROUND NO. 1 (B) YOU HAVE CONTENDED THAT THE BUSINESS PREMISES AT MOGA, JALANDHAR, KHANNA, LUDHIANA AND S AVILRI~L, WERE ALREADY BEING 6 USED FOR BUSINESS PURPOSES SINCE THE EARLIER YEARS AND ONLY SOME ADDITIONS AND ALTERATIONS TO THE EXISTING STRUCTURE WERE MADE DUR ING THE EARLIER YEARS AND NO PENNY WAS SPENT ON THESE PREMISES DURING THE YEAR U NDER APPEAL. YOU ARE REQUESTED TO FURNISH THE EVIDENCE REGARDING THE BUS INESS USE OF THESE ASSETS SINCE EARLIER YEARS. YOU ARE ALSO REQUESTED TO EXPLAIN WH Y IN CASE THESE ASSETS WERE ALREADY IN USE THEY WERE CONTINUED TO BE SHOWN UNDE R THE HEAD 'BUILDING UNDER CONSTRUCTION'. 5. REGARDING THE DISALLOWANCE OF RS. 6,64,414/- PERTAI NING TO DISALLOWANCE OF INTEREST ON ADVANCES GIVEN TO GODREJ ETERNIA MAIL Y OU HAVE RELIED ON THE DECISION OF THE HORVBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF SURAJ DEV DADA. YOU ARE REQUESTED TO GIVE DETAILS OF DISPUTE WITH GODRE J EERNIA MALL AND THE CORRESPONDENCE PERTAINING TO DEMAND OF INTEREST FRO M THAT COMPANIES AS WELL AS THEIR REFUSAL TO PAY INTEREST ON THE ADVANCE GIVEN. FURTHER, YOU EXPLAINED DURING THE COURSE OF APPELLATE PROCEEDINGS THAT FURTHER AD VANCE WAS GIVEN TO THIS COMPANY DURING THE SUBSEQUENT YEAR ALSO AND THE INT EREST ON WHOLE OF THIS ADVANCE INCLUDING THE ADVANCE GIVEN DURING THE CURR ENT YEAR WAS CAPITALIZED DURING THE NEXT YEAR. IN VIEW OF THESE FACTS IT IS ADMITTED POSITION THAT BORROWED FUNDS WERE USED FOR GIVING THESE ADVANCES AND THAT THE BUSINESS FUNDS WERE DIVERTED FOR NON BUSINESS PURPOSES. YOU ATE REQUEST ED TO EXPLAIN WHY THE AC) WAS NOT JUSTIFIED IN CAPITALIZING THE INTEREST ON A DVANCE GIVEN DURING THE YEAR, PERTAINING TO I HE CURRENT YEAR. 6. YOUR REPORT IN THE MATTER MAY BE FURNISHED BY 1 3.05.201 5. 4.4 THE ASSESSEE VIDE HIS SUBMISSION DATED 13.05.20 15 SUBMITTED HIS REPLY IN RESPONSE TO THE AFORESAID LETTER, WHICH IS REPRODUC ED AS UNDER: REFERENCE YOUR QUARRIES RAISED VIDE YOUR LETTER NO. CIT/APPEAL -LL/LDH/2015- 16/98 DATED 06/05/2015, THE UNDERSIGNED, ON BEHALF OF THE COMPANY ASSESSEE, BEG TO SUBMIT AS UNDER FOR YOUR HONOR'S CONSIDERATI ON AND FAVORABLE ACTION PLEASE. AS ALREADY EXPLAINED VIDE OUR EARLIER SUBMISSIONS D ATED 05/05/2015 SUBMITTED BEFORE YOUR HONOR ON THE DAY OF HEARING T HAT THE BUILDING WAS ALMOST COMPLETE IN THE PRECEDING YEAR I.E.F.Y. 2010-11 AND WAS OF WORTH TO USE FOR BUSINESS PURPOSE BY THE END OF THAT YEAR. ACCORDING LY WE SHIFTED TO THAT PREMISES IN THE MONTH OF MARCH OF THE PRECEDING YEAR AND STA RTED DEALERSHIP BUSINESS ACTIVITIES INSTANTLY IN THAT MONTH. IT WAS ALSO EXPLAINED IN OUR EARLIER SUBMISSIONS TH AT THE DEALERSHIP BUSINESS CAN ONLY BE RESUMED WHEN THE PREMISES IS READY FOR USE TO THE ENTIRE SATISFACTION OF THE PRINCIPALS OF THE DEALERSHIP. THE DELIVERY O F THE VEHICLES FROM THE PREMISES CAN ONLY BE STARTED WHEN SHOWROOM AND WORKSHOP AT T HE PREMISES BECOME OPERATIONAL. PRE DELIVERY INSPECTION OF THE VEHICLE S AND DELIVERY OF THE VEHICLES WERE STARTED IN THE MONTH OF MARCH 2011, THE COPY O F THE SALE BILL IS BEING SUBMITTED BEFORE YOUR HONOR WITH THIS LETTER. THE BULK OF THE MATERIALS CONSUMED FOR THE CONSTRUC TION AND COMPLETION OF THE BUILDING WAS PURCHASED IN THE PREVIOUS YEAR AND THE WORK AT SITE EXECUTED BY THE CONTRACTOR TO THE PROPORTION OF THE MATERIAL S PURCHASED ENABLING US TO CONDUCT OUR BUSINESS SINCE MARCH 2011, WHEN WE SHIF TED TO THAT PREMISES. IN ORDER TO CLARIFY THE ABOVE STATED VIEW POINT AND FA CTUAL POSITION WITH RESPECT TO THE STATUS OF THE BUILDING, WE HAVE PREPARED A CHAR T SHOWING THE MATERIAL PURCHASED IN THE PRECEDING YEAR AND THE EXECUTION O F THE WORK AT SITE TO THAT EXTENT VIS-A-VIS THE CHART GIVEN BY YOUR HONOR VIDE YOUR LETTER UNDER REFERENCE WHICH MAY KINDLY BE PERUSED. IN THE SAID CHART WE H AVE GIVEN THE COMPLETE DATE WISE DATA OF THE MATERIALS PURCHASED AND THE PAYMEN TS INCLUDING THE ADVANCES MADE TO THE CONTRACTORS. THIS CHART WILL DEFINITELY HELP YOUR HONOR TO MAKE PROPER APPRAISAL OF THE STATUS OF THE BUILDING AND TO DECI DE THE APPEAL ON MERIT BY CONSIDERING ALL THE FACTS NARRATED ABOVE AND ALSO I N EARLIER SUBMISSIONS IN ALL ITS FAIRNESS. 7 YOUR HONOR HAS OBSERVED IN PARA 3 OF YOUR QUARRY LE TTER THAT NO EXPENDITURE PERTAINING TO ANY ELECTRICAL FITTINGS W AS MADE IN THE PRECEDING YEAR. IN THIS RESPECT IT IS STATED THAT THE EXPENDITURE O N ELECTRICAL FITTINGS AND ELECTRICAL MATERIALS PURCHASED IN THE PRECEDING YEAR ARE COVER ED UNDER A SEPARATE HEAD 'ELECTRIC INSTALLATION' AND IN ALL WE HAVE SPENT RS .29,70,131/-WHICH WORKS OUT TO ABOUT 90%OF THE TOTAL INVESTMENT MADE ON ELECTRICAL MATERIAL & FITTINGS. THE DETAIL OF ELECTRIC INSTALLATION MATERIAL FROM THE FIXED AS SETS CHART OF THE PRECEDING YEAR HAS BEEN PREPARED FOR YOUR READY REFERENCE AND PERU SAL. IT IS EVIDENT FROM THE DETAIL THAT ELECTRICAL WORK AT THE PREMISES WAS COM PLETE IN THE PRECEDING YEAR ON WHICH THE DEPRECIATION WAS ALSO CLAIMED BEING THE S TATUTORY DEDUCTION. IT IS REITERATED THAT THE EVIDENCE IN THE FORM OF V AT 5, SALE BILLS OF VEHICLE, SALE BILLS OF WORKSHOP ETC. ETC. FILED BEFORE YOUR HONOR ON THE LAST DAY OF HEARING OF THE APPEAL ARE OF PARAMOUNT IMPORTANCE HAVING DI RECT NEXUS WITH THE MATTER AND GENERATED DURING THE NORMAL COURSE OF THE BUSIN ESS ON DAY TO DAY BASIS WHICH MAY PLEASE BE GIVEN DUE WEIGHTAGE BEING THE E VIDENCES IRREFUTABLE AND CLINCHING ONES. IN VIEW OF THE ABOVE SUBMISSIONS AND EARLIER SUBMIS SIONS THE DISALLOWANCE OF INTEREST RS.94,08,204/- U/S 36(1)(III) ON THE CA PITAL BORROWED AND INVESTED ON THE JLR PREMISES MAY PLEASE BE DELETED BEING THE DISALL OWANCE UNWARRANTED AND UNLAWFUL AS PER THE FACTS AND HISTORY OF THE CASE. AS PER PARA 4 OF YOUR LETTER WITH RESPECT TO GROUND NO. (B) YOUR HONOR DIRECTED THE ASSESSEE TO FURNISH THE EVIDENCE REGARDING THE BUSI NESS USE OF THESE ASSETS SINCE EARLIER YEARS. IN COMPLIANCE OF YOUR DIRECTIONS THE ASSESSEE SUBMITS THE COPY OF FORM VAT 4 WITH ANNEXURE 1 WHEREIN THE PREMISES UND ER BUSINESS USE ARE DULY MENTIONED THEREIN WHICH MAY PLEASE BE PERUSED. IN A DDITION TO THE VAT 4 FORM DEPRECIATION CHART OF THE PRECEDING YEAR I.E.F.Y.20 10-11 IS SUBMITTED FOR YOUR HONOR'S READY REFERENCE AND PERUSAL. THE EVIDENCES AS STATED ABOVE CLEARLY ESTABLISH THAT ALL THE PREMISES WERE UNDER BUSINESS USE SINCE THE EARLIER YEARS. THE ADDITIONS AND ALTERATIONS AT THE OLD PREMISES WERE MADE AS PER THE NEEDS OF THE BUSINESS THOUGH ALL THE PREMISES REMAIN UNDER BUSIN ESS USE IN THE YEAR UNDER REFERENCE ALSO. AS EARLIER EXPLAINED WHILE DISCUSSING THE APPEAL WI TH YOUR HONOR ON THE DAY OF LAST HEARING THAT THE WORK WAS COMPLETED IN THE PRECEDIN G YEAR AS NO PENNY HAS BEEN SPENT ON THE SAID PREMISES IN THE YEAR UNDER A PPEAL. THE DISALLOWANCE OF INTEREST OF RS.5,51,886/- U/S 36(1)(III) HAS BEEN M ADE BY THE A.O. ON CONJECTURAL BASIS IGNORING THE FACTUAL POSITION OF THE CASE MER ELY TAKING IN TO CONSIDERATION THE DATE OF POSTING FROM THE HEAD ' BUILDING UNDER CONSTRUCTION ' TO THE HEAD BUILDING ACCOUNT. IN VIEW OF THE ABOVE STATED FACTS AND THE EARLIER S UBMISSIONS THE DISALLOWANCE OF INTEREST OF RS. 5,51,886/- AGAINST THE PREMISES AT MOGA, JULLUNDUR BYE PASS ,KHANNA ,LUDHIANA AND SAVITRI -1 NEEDS TO BE DELETE D PLEASE. IN RESPONSE TO PARA 5 OF THE LETTER UNDER REFERENCE IT IS STATED THAT THE POSSESSION OF THE SHOWROOM AT CHANDIGARH FOR JLR VEHICLES WAS TO BE DELIVERED BY THE GODREJ ETERNIA MALL TO THE ASSESSEE COMPANY BY 30 TH SEPTEMBER 2012 AS PER THE TERMS OF THE MEMORANDUM OF AGREED TERMS ( MOAT ) VI DE SR.NO.4 POINT 5. BUT THE SAID PARTY COULD NOT DELIVER THE SAME WITHIN THE ST IPULATED TIME AND REQUESTED FOR EXTENSION OF TIME AGAIN AND AGAIN. THE ASSESSEE COM PANY WAS UNDER PRESSURE FROM THE JLR PRINCIPALS TO TAKE THE POSSESSION OF T HE SHOWROOM OR SEEK SOME OTHER ALTERNATIVE PREMISES SO THAT THE BUSINESS OF DEALER SHIP COULD BE RESUMED WITHOUT FURTHER LOSS OF TIME. IN SPITE OF THE VERBAL AND WR ITTEN REQUESTS TO THE GODREJ ETERNIA MALL TO DO THE NEEDFUL AT THE EARLIEST AND TO PUT M ORE PRESSURE ON THEM OUR COMPANY CAPITALIZED THE INTEREST IN THE SUCCEEDING YEAR TO MAKE A CLAIM OF THE SAME FROM THE SAID PARTY BECAUSE OF THE INORDINATE DELAY AT THEIR END IN DELIVERING THE POSSESSION OF SHOWROOM. ULTIMATELY T HE ASSESSEE COMPANY HAD TO ASK FOR THE CANCELLATION OF THE DEAL BECAUSE OF THE FAILURE TO SETTLE THE ISSUE OF GIVING THE POSSESSION AND REQUESTED THE REFUND OF T HE ADVANCE ALONGWITH 8 INTEREST AT THE EARLIEST. THE MATER WAS SORTED OUT WITH THE PARTY AFTER LONG VERBAL AND WRITTEN CONVERSATION AND THEY AGREED TO REFUND THE ADVANCE AMOUNT BY 30 TH JUNE 2014. BUT THEY MADE THE REFUND ON 16/01/2015 AND PAID THE INTEREST ON THE ADVANCE AMOUNT FROM 1 ST JULY 2014 TO 15 TH JANUARY 2015 ( SIX AND HALF MONTHS ONLY ) CONCEDING THE DELAY FOR THAT PERIOD ONLY. SI NCE THE REFUND OF THE ADVANCE AMOUNT WAS AT STAKE THE ASSESSEE COMPANY HAD TO ACC EPT THE SAME TO SETTLE THE ISSUE WITH THE PARTY IN THE INTEREST OF THE DEA LERSHIP BUSINESS. THE INTEREST SO CAPITALIZED IN THE SUCCEEDING YEAR BY THE ASSESSEE COMPANY ON THE ADVANCE GIVEN TO GODREJ ETERNIA MALL WILL HAVE TO BE CLAIME D AS BUSINESS LOSS IN THE RELEVANT YEAR WHEN THE AMOUNT OF ADVANCE RECEIVED I .E. F. Y.2014-15. IT IS ALSO PERTINENT TO STATE HERE THAT THE ASSESSEE COMPANY D ID NOT CAPITALIZE THE INTEREST IN THE YEAR UNDER APPEAL BEING THE FIRST YEAR OF TH E DEAL AND WITH A HOPE TO GET THE POSSESSION OF THE SAID SHOWROOM WITHIN THE STIP ULATED TIME AGREED IN THE MEMORANDUM .SINCE THERE WAS NO PROVISION TO CHARGE INTEREST ON THE ADVANCE GIVEN FOR THE PURCHASE OF THE SHOWROOM THEREFORE NO INTEREST WAS CAPITALIZED IN THE YEAR UNDER APPEAL. ALL THE RELEVANT CORRESPONDE NCES BY THE ASSESSEE COMPANY WITH GODREJ ETERNIA MALL IN THE FORM OF E-M AILS IS ENCLOSED FOR YOUR READY REFERENCE AND CONSIDERATION. BECAUSE OF THE CIRCUMS TANCES BEYOND THE CONTROL OF THE ASSESSEE COMPANY THE DEAL FOR THE PURCHASE O F SHOWROOM HAD TO BE CANCELLED AND TO BE CONTENDED WITH THE RECEIPT OF A DVANCE AMOUNT WITH INTEREST ONLY FOR SIX AND HALF MONTHS. IN THE GIVEN CIRCUMSTANCES NO DISALLOWANCE OF INTER EST U/S 36(1) (III) IS REQUIRED TO BE MADE BY THE A. O. IN VIEW OF THE UNA VOIDABLE CIRCUMSTANCES AND THEREFORE NEEDS TO BE DELETED IN ALL ITS FAIRNESS. IT IS MOST HUMBLY PRAYED THAT THE APPEAL OF THE ASS ESSEE COMPANY MAY PLEASE BE ALLOWED IN FULL AND OBLIGE. 4.5 THE SUBMISSION FILED BY THE ASSESSEE ON DATED 0 5.05.2015 AND 13.05.2015 WERE FORWARDED TO THE AO. THE AO VIDE HIS OFFICE LETTER NO. 962 DATED 11.09.2015 & 08.02.2016 SUBMITTED AS UNDER:- DATED 11.09.2015 CAPITALIZATION U/S 36 (L) (III) FROM THE BALANCE SHEET OF THE ASSESSEE AS ON 31 . 03.2011 IT IS SEEN THAT THE CAPITAL WORK IN PROGRESS WAS RS. 7,58,70/196/-. THE CAPITAL WORK IN PROCESS AS ON 31.03.2012 IS NIL. THIS MEANS THAT THE ASSETS OF RS . 7,58,70,196/- HAVE BEEN CAPITALIZED DURING THE YEAR. ON PERUSAL OF THE LEDG ER ACCOUNTS IT WAS SEEN THAT NO INTEREST HAS BEEN CAPITALIZED ON THESE ASSETS. A S PER PROVISO TO SECTION 36(L)(III), INTEREST SHOULD HAVE BEEN CAPITALIZED. THE SUBMISSI ONS PUT FORTH BY THE ASSESSEE ARE THE SAME AS FILED DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND THE SAME WERE DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER IT SELF. FURTHER THE ASSESSEE HAS ALREADY SUBMITTED DETAILED EVIDENCE AS CALLED FOR B Y THE EARLIER CIT-(A), WHICH MAY BE CONSIDERED ON MERIT. IN VIEW OF THE ABOVE APPEAL OF THE ASSESSEE MAY KIN DLY BE DISMISSED AND THE ADDITION MADE BY THE AO MAY KINDLY HE CONFI RMED. DATED 08.02.2016 KINDLY REFER TO YOUR OFFICE LETTER NO CIT(A)-2/LDH/ 2015-16/757 DATED 27 10 2015 ARID IN CONTINNUTION OF THIS OFFICE LETTER NO ACITVCIR-S/LDH/15 16/892 DATED 11 09 2015 ON THE ABOVE SUBJECT. IN THIS CONNECTION IT IS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED FROM BALANCE SHEET OF AS SESSEE AS ON 30.03.201 1 THAT THE CAPITAL WORK IN PRIOCOSS WAS RS. 7,85,70,196/-. ON PERSUAL OF THE LEDGER ACCOUNTS IT WAS SEEN THAT NO INTEREST HAS BEEN CAPI TALIZED ON THESE ASSETS AS PER PROVISO TO SECTION 36(1KIII), INTEREST SHOULD HAVE BEEN CAPITALIZED THE ASSESSEE 9 WAS ISSUED SHOWCAUSE IN THIS REGARD VIDE ORDER DATE D 31.01 201 S TO WHICH THE ASSESSEE SUBMITTED ITS REPLY AS BELOW - 'THAT THE BUILDING IN QUESTION AT SAHNEWAL WAS ALMO ST COMPLETE IN THE LAST YEAR AND WAS PUT TO USE FOR BUSINESS PURPOSES IN TH AT YEAR AS PER EXPLANATION FURNISHED AT THE TIME OF ASSESSMENT PRO CEEDINGS OF THE PRECEDING YEAR THE HEAD CAPITAL WORK IN PROCESS IS NO MORE IN EXISTENCE IN THE YEAR UNDER SCRUTINY AS HAS BEEN CAPITALIZED AFTER THE SETTLEMENT OF AN LIT, PAYMENTS WITH THE CONTRACTOR WHO EXECUTED T HE WORK AT SITE SINCE THE BUILDING WAS PUT TO USE FOR BUSINESS PURPOSE FO R WHOLE THE YEAR THE QUESTION OF CAPITALIZATION OF INTEREST DID NO! SURV IVE. NECESSARY ADDITIONAL EVIDENCE TO PROVE THE ABOVE FACT IS BEIN G FURNISHED FOR YOUR READY REFERENCE AND RECORD. ' DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSEE HAD RELIED THE TORN! OL STANDARD FIRE & SPECIAL PERIL POLICY SCHEDULE . IT MAY BE MENTIONED HERE THAT: THE INSURANCE PAPER CANNOT PROVE THAT THE BUILDING WAS COMPLETED AND PUT TO USE TOT BUSINESS PURPOSES. OTHER PAPERS HAVE NOT BEEN FILED. THE ASS ESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE YOUR GOODSELF. AS DIRECTED BY YOURSELF THE ASSESSEE WAS CALLED TO FILE DOCUMENTARY EVIDENCE REGARDING ISSUE OF DISALLOWANCE MADE ON AC COUNT OF CAPITALIZATION OF INTEREST ON BUILDING UNDER CONSTRUCTION, IN RESPONS E TO WHICH HE FILED SOME TAX VOICE, RETAIL IN VOICE, FORM-VAT 5 AND FORM FOR STA NDARD FIRE & SPECIAL PERILS POLICY SCHEDULE. AS PER RULE 46A THE ADDITIONAL EVIDENCE FILED BEFOR E YOUR GOOD SELF MAY KINDLY NOT BE ENTERTAINED. AS IT MAY BE THE RESULT OF AFTER THOUGH. IF THESE EVIDENCES WERE AVAILABLE WITH THE ASSESSEE AT THAT TIME. THEN WHY THESE WERE NOT SUBMITTED DURING THE COURSE OF ASSESSMENT PROCE EDINGS. IN VIEW OF THE ABOVE THE APPEAL MAY KINDLY BE DECID ED ON MERITS. 4.6 THE REPORTS SUBMITTED BY THE AO WERE PROVIDED T O THE AR OF THE ASSESSEE. THE AR OF THE ASSESSEE VIDE SUBMISSION DATED 16.02.2016 SUBMITTED AS UNDER:- 'THE A.O.IN HER EARLIER COMMENTS VIDE LETTER DATED 11/09/2015 CLEARLY ACKNOWLEDGED THAT THE ASSESSEE'S SUBMISSIONS PUT FO RTH NOW ARE THE SAME AS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE SAME WERE DISCUSSED IN DETAIL IN THE ASSESSMENT ORDER ITSELF AND ALSO STAT ED IN THAT LETTER THAT THE ASSESSES HAS ALREADY SUBMITTED DETAILED EVIDENCE AS CALLED F OR BY THE EARLIER CIT (APPEAL) WHICH MAY BE CONSIDERED ON MERIT. FROM THE ABOVE ST ATED CONTENTS OF THE LETTER UNDER REFERENCE IT IS EVIDENT THAT THE A.O. DOES NO T HAVE ANY OBJECTION CONSIDERING ON MERIT ALL THE EVIDENCES FURNISHED AT THE APPELLATE STAGE ON ASKING DURING THE HEARING OF APPEAL, WHILE ADJUDICATING TH E APPEAL UNDER PROCESS. BUT THE A.O. TOOK THE CONTRARY VIEW IN HER SECOND LETTE R DATED 08/02/2016 AND RAISED OBJECTIONS FOR CONSIDERING THE ADDITIONAL EVIDENCES WHILE DECIDING THE APPEAL ON MERIT. MOREOVER THE A. O. MISQUOTED THE FACTS IN TH E LETTER THAT NO EVIDENCE FOR THE USE OF BUILDING DURING THE YEAR UNDER REFERENCE FOR BUSINESS PURPOSES WAS PRODUCED DURING THE ASSESSMENT PROCEEDINGS EXCEPT T HE INSURANCE COVER NOTE WHICH IS FACTUALLY WRONG. IT IS TO BE POINTED OUT H ERE THAT THE ASSESSEE SPECIFICALLY EXPLAINED VIDE HIS WRITTEN REPLY WHICH IS DULY INCO RPORATED IN THE ASSESSMENT ORDER THAT THE BUSINESS AT THE PREMISES UNDER REFERENCE W AS STARTED IN THE EARLIER YEAR I.E. A.Y.2011-12 AND PRODUCED THE SALE VOUCHERS OF THE VEHICLES SOLD IN THE MONTH OF MARCH 2011 BEFORE THE THEN A.O. AT THE TIME OF A SSESSMENT PROCEEDINGS TO ESTABLISH THE FACT OF RESUMING BUSINESS ACTIVITIES SINCE JANUARY 2011 ON SHIFTING TO THE PREMISES IN QUESTION. IN VIEW OF THE ABOVE STAT ED FACTS IT IS ESTABLISHED THAT THE A. O. WAS PROPERLY APPRAISED OF THE EVIDENCE OF SALE OF VEHICLES IN THE MONTH OF MARCH 2011 AND BROUGHT TO HIS NOTICE THE SAID SA LE VOUCHERS AT THAT POINT OF TIME. BUT THE A. O. DID NOT FEEL THE NECESSITY TO B RING THE SAID VOUCHERS ON RECORD FOR THE REASONS BEST KNOWN TO HIM ONLY. HENCE THE E VIDENCE IN THE FORM OF SALE OF VEHICLES VOUCHERS CAN NOT BE TERMED AS ADDITIONAL E VIDENCES IN ANYWAY. EVEN THE CONCRETE AND CLINCHING EVIDENCE IN THE FORM OF INSURANCE COVER NOTE FOR THE 10 BUILDING UNDER REFERENCE AND THE STOCK OF VEHICLES IN THAT PREMISES HAS ALSO BEEN UNDERMIND BY THE A. O. IN HER LETTER DATED 08/02/20 16. THE OBSERVATION OF THE A.O. THAT THE INSURANCE PAPER CAN NOT PROVE THAT TH E BUILDING WAS COMPLETE AND PUT TO USE FOR BUSINESS PURPOSES IS JUST AN ATTEMPT TO OVER LOOK THE CREDIBLE EVIDENCE IN THE FORM OF INSURANCE COVERNOTE. ON PER USING THE INSURANCE COVERNOTE IT CAN SAFELY BE CONCLUDED THAT THE PREMI SES WAS READY FOR USE AND REMAINED UNDER THE BUSINESS USE FOR WHOLE OF THE YE AR AS THE CONTENTS THEREIN CLEARLY MENTIONED THE ADDRESS OF THE COMPLETED BUIL DING COMPRISING WORKSHOP AND SHOWROOM OF JAGUAR LANDROVER PRODUCTS AND ALSO THE STOCK OF THE VEHICLES CONTAINED THEREIN. SO THIS EVIDENCE HAVING THE DIRE CT NEXUS TO PROVE THAT THE BUILDING AT SAHNEWAL REMAINED UNDER BUSINESS USE FO R WHOLE OF THE YEAR NEEDS TO BE CONSIDERED IN ORDER TO DECIDE THE APPEAL ON MERI T. THE ADDITIONAL EVIDENCE IN THE FORM OF VAT- 5 IS ALSO TO BE TAKEN IN TO CONSID ERATION IN THE INTEREST OF NATURAL LAW AND JUSTICE. IT IS PERMISSIBLE UNDER LAW TO FIL E THE ADDITIONAL EVIDENCE AT THE APPELLATE STAGE UNDER RULE 46 A(C) IF IT HAS THE DI RECT NEXUS WITH ANY GROUND OF APPEAL. THE OBJECTION OF THE A. O. TO CONSIDER THE ADDITIONAL EVIDENCE IN THE FORM OF VAT - 5 IS UNLAWFUL , ARBITRARY AND UNJUSTI FIED AND THEREFORE NEEDS TO BE IGNORED BY YOUR GOODSELF WHILE DECIDING THE APPEAL ON MERIT. IT IS, THEREFORE, HUMBLY PRAYED THAT THE APPEAL MAY PLEASE BE ALLOWED IN FULL AND OBLIGE.' 9. REBUTTING THE ARGUMENT OF THE LD. SR. DR, THE AR SUBMITTED THAT WHILE CAPITALIZATION BEING UNDERTAKEN WORK IN PROGRESS IS DULY ACCOUNTED AND IT DOESNT MEAN THAT THE PREMISES WERE NOT PUT TO USE. HE HAS RELIED ON THE INVOICES TO SHOW THAT THE BUSINESS OPERATIONS HAVE BEEN CONDUCTED FROM THE PREMISES. HE ARGUED THAT ONCE THE LAST OF CAPITALIZ ATION IS COMPLETED THE AMOUNT SPENT WAS TRANSFERRED TO BUILDING ACCOUNT AN D IT DOESNT MEAN THAT THE BUILDING WAS NOT UTILIZED FOR BUSINESS PURPOSE TILL THE TIME THE BUILDING WAS TRANSFERRED TO BUILDING ACCOUNT. 10. WE HAVE GONE THROUGH THE PROCEEDINGS BEFORE THE LD. CIT(A) THE REPORT SUBMITTED BY THE ASSESSING OFFICER DURING THOSE PRO CEEDINGS AND THE REPLY OF THE ASSESSEE TO THE REPORTS OF THE ASSESSING OFFICE R AND THE REBUTTAL OF THE ASSESSEE. 11. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS. AND PERUSED EVIDENCES FURNISHED BY THE ASSESSEE AND THE CASE LAWS RELIED UPON BY THE ID. A.R. IT IS SEEN THAT INTEREST EXPENSES OF RS. 99,60,091/- WAS DISAL LOWED U/S.36(1)(III) OF IT. ACT. DURING THE YEAR, A DISALLOWANCE OF INTEREST RS. 99, 60,091/- U/S 36(1) (III) HAS BEEN MADE ON ACCOUNT OF CAPITALIZATION FOR BEING THE ASS ET UNDER THE HEAD 'BUILDING UNDER CONSTRUCTION' NOT USED FOR BUSINESS PURPOSES. THE ID. AO HAS DISALLOWED INTEREST AFTER OBSERVING THAT THE ASSET SITUATED AT DIFFERENT PLACES HAS NOT BEEN PUT INTO USE. 12. IN OUR CONSIDERED OPINION THE LD. CIT(A) HAS A PPRECIATED THE RELEVANT FACTS AND EVIDENCE ADDUCED BY THE ASSESSEE DURING T HE COURSE OF APPELLATE PROCEEDINGS. THE ASSESSEE HAS RELIED UPON EVIDENCE IN THE FORM OF INSURANCE 11 COVER NOTE FOR THE BUILDING UNDER REFERENCE AND THE STOCK OF VEHICLES IN THE PREMISES. THE EVIDENCE IN THE FORM OF VAT 5, SALE B ILLS OF VEHICLE, SALE BILLS OF WORKSHOP HAVE BEEN FILED BY THE ASSESSEE ARE OF SUB STANCE AND HAVING DIRECT NEXUS WITH THE ISSUE. THESE EVIDENCE ARE DIRECTLY C ONNECTED WITH THE BUSINESS AND DAY TO DAY WORKING OF THE ASSESSEE CONCERN, WHI CH CAN NOT BE IGNORED. 13. THE CONTENTION OF AO IS BASED ON THE UNDERSTAND ING THAT THE ASSESSEE HAS NOT USED ITS PREMISES WHEREIN IT HAD CLAIMED WORK I N PROGRESS. HOWEVER AFTER CONSIDERING THE BASIC FACTS OF THE CASE, EVIDENCE I N THE FORM OF DOCUMENTS AS FILED AT THE TIME OF ASSESSMENT PROCEEDINGS AND AT THE TIME OF APPELLATE PROCEEDINGS RELIED UPON BY THE ASSESSEE, AND BASED THE FACT THAT THE ASSESSEE HAS PROVEN WITH EVIDENCE THAT THE SHOWROOMS CONCERN ED WERE IN USE AS EVIDENT FROM THE BILLS, AND FORM -VAT 5 SUBMITTED T O SALES TAX AUTHORITIES, WE ARE INCLINED TO AGREE WITH THE OBSERVATION OF THE LD. C IT(A). 14. GROUND NO. 3 RELATES TO THE DISALLOWANCE OF RS . 6,64,414/- U/S 36(1)(III) OF THE ACT ON ACCOUNT OF ADVANCE TO GODREJ ETERNIA MAL L, CHANDIGARH. 15. BRIEF FACTS ARE THAT DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAD GIVEN AN ADVANCE OF RS. 2,80,20,600/- WAS PAID FOR PURCHASE OF SHOW ROOM IN GODREJ ETERNIA MALL, CHAND IGARH. 16. IN REPLY THE ASSESSEE SUBMITTED THESE ADVANCE H AD BEEN GIVEN FOR THE PURCHASE OF A SHOWROOM IN GODREJ ENTERNIA MALL BY W AY OF CHEQUES. THE ASSESSEE FURTHER CONTENDED THAT THE DEAL WAS NOT FI NALIZED AND WHOLE THE PRINCIPAL AMOUNT HAD BEEN RECEIVED BACK BY THE ASSE SSEE DURING THE YEAR. NOT SATISFIED WITH THE ASSESSEE'S EXPLANATION THE AO CA LCULATED THE PROPORTIONATE DISALLOWANCE OF RS. 6,64,414/- U/S 36(1)(III) OF TH E ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 17. THE LD. CIT(A) HAS DELETED THE ADDITION ON THE GROUNDS THAT THE ASSESSEE HAS GIVEN THE ADVANCE FOR PURCHASE OF SHOWROOM FOR JLR VEHICLES AT CHANDIGARH ON ACCOUNT OF PURE BUSINESS NEEDS OF THE DEALERSHIP AND THEREFORE IT IS FULLY COVERED UNDER BUSINES S EXPEDIENCIES. 18. BEFORE US THE LD. SR. DR ARGUED THAT A CAPITAL ADVANCE IS ALSO IN NATURE OF CAPITAL WORK IN PROGRESS TILL THE ASSET IS PUT TO U SE. IT WAS FURTHER ARGUED THAT AN INVESTMENT IN A CAPITAL ASSET AS DONE BY THE ASSESS EE WILL NOT YIELD INCOME IN THE SAME YEAR THE INTENTION OF THE ACT IS TO ALLOW FOR EXPENSES WHICH HAVE BEEN INCURRED FOR EARNING THE INCOME SHOWN BY THE ASSESS EE DURING THE CONCERNED 12 FINANCIAL YEAR. IT WAS FURTHER ARGUED THAT THE ADVA NCE NEEDS TO BE TREATED AS ADVANCE FOR NON BUSINESS PURPOSE. 19. DURING THE HEARING BEFORE US THE LD. AR HAS TAK EN US THROUGH THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. THE SUBMISSIONS ARE AS UNDER: 'THE AO.HAS MADE DISALLOWANCE OF INTEREST OF RS.6,6 4,414/-U/S 36(1)(III) ON THE ADVANCE FOR PURCHASE OF SHOWROOM AT CHANDIGARH PAID TO GODREJ ETERNIA MALL AS PER THE SALE/PURCHASE MEMORANDUM DATED 01/10/2011.A S PER THE TERMS OF THE MEMORANDUM RS.100,00,000/-WAS GIVEN AS AN ADVANCE O N DATED 30/11/2011 AND RS. 1,80,20,600/- ON DATED 14/02/2012 TO THE SAID P ARTY . CERTAIN ADVANCES WERE ALSO MADE TO THE SAID PARTY IN THE SUCCEEDING YEAR .THE ADVANCE FOR THE PURCHASE OF SHOWROOM FOR JLR VEHICLES AT CHANDIGARH WAS MADE ON ACCOUNT OF THE PURE BUSINESS NEEDS OF THE DEALERSHIP AND THERE FORE THE PAYMENT IS FULLY COVERED UNDER THE BUSINESS EXPEDIENCIES. SOMEHOW TH E AGREEMENT FOR PURCHASE/SALE OF THE SAID SHOWROOM COULD NOT BE EXE CUTED BECAUSE OF THE FAILURE OF THE SELLER TO OBTAIN NOC FROM CHANDIGARH ADMINISTRATION FOR SALE OF THE SAID PREMISES .BECAUSE OF THE CIRCUMSTANCES BEYOND THE CONTROL OF THE PURCHASER AND THE SELLER THE DEAL COULD NOT SUCCEED AND ULTIM ATELY THE ADVANCE PAID TO THE SELLER HAD TO BE REFUNDED TO THE ASSESSEE COMPA NY IN THE MONTH OF JAN. 2015. UNDER SUCH CIRCUMSTANCES NO CAPITALIZATION OF INTER EST IS REQUIRED TO BE MADE BY THE ASSESSEE COMPANY AS THAT WOULD HAVE RESULTED IN TO A BUSINESS LOSS AT A LATER STAGE WHEN THE REFUND OF THE ADVANCE IS MADE WITHOU T ANY INTEREST. THE BUSINESSMAN HAS TO TAKE SUCH TYPE OF RISKS IN THE I NTEREST OF BUSINESS IN THE PURSUIT OF INCREASING THE BUSINESS INCOME. AT THE TIME OF E XECUTING AN AGREEMENT FOR PURCHASE NO ONE CAN ANTICIPATE THE END RESULT THAT WHETHER THE DEAL WOULD BE THROUGH OR STUCK UP. THE HONORABLE PUNJAB AND HARYA NA HIGH COURT IN THE CASE OF SH.SURAJ DEV DADA PROP. DADA MOTORS ( SISTER CONCER N) UP HELD THIS VIEW THAT IF THE ADVANCE IS FOR THE BUSINESS EXPEDIENCY AND FOR THE INTEREST OF THE BUSINESS NO DISALLOWANCE OF INTEREST WHAT -SO- EVER CAN BE MADE UNDER SUCH CIRCUMSTANCES ESPECIALLY WHEN NO INTEREST COULD BE REALISED UNDER THE GIVEN SITUATION. IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMSTANCES THE DISALL OWANCE OF INTEREST RS. 6,64,414/- ON THE ADVANCE GIVEN TO THE SAID PARTY F OR THE PURCHASE OF SHOWROOM IS UNWARRANTED , UNFOUNDED AND UNCALLED FOR. IT IS THEREFORE REQUESTED THAT THE ADDITION OF RS. 6,64,414/-ON ACCOUNT OF DISALLOWANC E OF INTEREST U/S 36(1)(III) MAY PLEASE BE DELETED IN ALL ITS FAIRNESS. 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN VIEW OF LEGAL PREPOSITION AND FACTS OF THE CASE, WE ARE INCLINED TO AGREE WITH THE CONTENTION OF THE LD. CIT(A) THAT THE ADVANCE FOR THE PURCHASE OF SHOWROOM FOR JLR VEHICLES AT CHANDIGARH WAS MADE ON ACCOUNT OF THE P URE BUSINESS NEEDS OF THE DEALERSHIP AND THEREFORE IT IS FULLY COVERED UNDER THE BUSINESS EXPEDIENCIES .THE ASSESSEE HAS FURTHER EXPLAINED THAT THE AGREEMENT F OR PURCHASE / SALE OF THE PROPOSED SHOWROOM COULD NOT BE EXECUTED BECAUSE OF THE FAILURE OF THE SELLER TO OBTAIN NOC FROM CHANDGIARH ADMINISTRATION FOR SA LE OF THE SAID PREMISES. AS THE CIRCUMSTANCES WERE BEYOND THE CONTROL OF THE PU RCHASER AND THE SELLER, THEREFORE THE DEAL COULD NOT SUCCEED AND ULTIMATELY THE ADVANCE PAID TO THE SELLER HAD TO BE REFUNDED TO THE ASSESSEE COMPANY I N THE MONTH OF JAN 2015. RELYING ON THE DECISION OF HONBLE PUNJAB AND HARYA NA HIGH COURT IN THE CASE OF SH. SURAJ DEV DADA PROP. M/S DADA MOTORS(SISTER CONCERN) OF THE ASSESSEE 13 WHEREIN IT HAS BEEN HELD THAT IF THE ADVANCE IS FOR THE BUSINESS EXPEDIENCY AND FOR THE INTEREST OF THE BUSINESS, NO DISALLOWANCE O F INTEREST WHAT-SO-EVER CAN BE MADE, HENCE THE DISALLOWANCE OF RS. 6,64,414/- U/S 36(1)(III) OF THE ACT IS ORDERED TO BE DELETED. KEEPING IN VIEW THE FACTS ON RECORD THE ARGUMENTS OF THE LD. SR. DR CANNOT BE SUSTAINED. THE ORDER OF THE LD. CIT(A) IS HEREBY UPHELD. 21. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (DR. B.R.R.KU MAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20/12/2017 AG COPY TO: THE ASSESSEE, THE RESPONDENT, THE CIT, THE CIT(A), THE DR