M/s Fertichem Cotspin Limited, Chandigarh V. ACIT, Chandigarh

ITA 8/CHANDI/2012

• Counselvise Citation: 821514 RSA 2012
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 04-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Proportionate interest; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 8/CHD/2012 ASSESSMENT YEAR: 2008-09 M/S FERTICHEM COTSPIN LTD., V THE ACIT, C-2(1), 182/11, INDUSTRIAL AREA, CHANDIGARH. PHASE-I, CHANDIGARH. PAN: AAACF-4298C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT : SHRI N.K.SAINI DATE OF HEARING : 05.12.2012 DATE OF PRONOUNCEMENT : 07.12.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 01.09.2011 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'TH E ACT'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT THE LD, CIT(A) HAS ERRED IN GIVING HIS FIND INGS THAT THERE WAS BALANCE AMOUNT OF RS. 5,63,85,819/- OUT OF TOTAL AM OUNT OF RS. 28,95,12,797/- (RELATING TO CAPITAL WORK IN PROGRES S OF RS. 10,44,55,195/- INCLUDING PRE OPERATIVE EXPENSES ON ACCOUNT OF INTEREST) AND ADVANCES AGAINST CAPITAL ASSETS OF RS . 18,50,57,603/- WHICH WAS NOT FUNDED FROM THE BANK. 2. NOTWITHSTANDING THE ABOVE SAID GROUND OF APPEAL, TH E LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT BALANCE AMOUNT OF RS. 5,63,85,819/- WAS OUT OF INTERNAL ACCRUAL ONLY AND ON WHICH NO INTERE ST WAS PAID. 3. FURTHER, NOTWITHSTANDING THE ABOVE SAID GROUNDS OF APPEAL, THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT DISALLO WANCE OF INTEREST 2 @12% ON THE SAID BALANCE AMOUNT OF RS. 5,63,85,819/ - IS NOT JUSTIFIED. 4. NOTWITHSTANDING THE ABOVE GROUNDS OF APPEAL, THE LD . CIT(A) HAS ALSO ERRED IN NOT CONSIDERING THAT IF AT ALL INTEREST WA S TO BE DISALLOWED ON THE SAID BALANCE AMOUNT OF RS. 5,63,85,819/- THE SAME SHOULD HAVE BEEN DISALLOWED PROPORTIONATELY, AS OU T OF TOTAL ASSETS OF RS. 91.65 CRORES ONLY RS. 5,63,85,819/- W AS INVESTED IN NEW PROJECT (IN WHICH INTEREST IS SAID TO BE PAID) PROP ORTION OF THE SAME COMES TO 6.15% OF TOTAL INTEREST PAID. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEARD OR DISPOSED OFF. 3. THE APPEAL WAS FILED BY THE ASSESSEE AFTER A DEL AY OF 16 DAYS, FOR WHICH THE ASSESSEE HAS FILED AN APPLICATI ON FOR CONDONATION OF DELAY. THE SAME IS REPRODUCED HEREUN DER : IT IS SUBMITTED THAT IN THE ABOVE SAID CASE THE OR DER OF THE CIT (A) WAS RECEIVED ON 20.10.2011 AND THE APPEAL WAS TO BE FILED WITHIN 60 DAYS AND, WHEREAS, THE APPEAL WAS FILED ON 04.01.2012. 2. IN THIS REGARD, IT IS VERY HUMBLY SUBMITTED THAT TH E ORDER OF THE CIT (A) WAS MISPLACED BY THE ACCOUNTANT OF THE COMPANY AND LATER ON, IT WAS FOUND, AND IMMEDIATELY THE APPEAL PAPERS WERE GOT PREPARED FROM THE ADVOCATE OF THE ASSESSEE ON 30.12.2011 AND THE REQUISITE FEE FOR FI LING THE APPEAL WAS PAID ON 2ND OF JANUARY 2012 AND THEN THE APPEAL WAS FILED B EFORE THE INCOME TAX APPELLATE TRIBUNAL ON 04.01.2012. 3. IT IS SUBMITTED THAT THE APPEAL PAPERS WHICH WERE M ISPLACED COULD BE TRACED ONLY IN THE LAST WEEK OF DECEMBER, 2011 AND THEN, THE APPEAL WAS GOT PREPARED. THAT THE LAPSE IS VERY MUCH REGRETTED AND THE SAME BE CONDONED. IN VIEW OF THE ABOVE SAID EXCEPTIONAL CIRCUMSTANCES , THE DELAY OF 16 DAYS MAY, PLEASE BE CONDONED AND OBLIGE. 4. IN VIEW OF THE REASONS, NARRATED BY THE ASSESSEE FOR OCCURRING DELAY IN FILING THE APPEAL, WE FEEL THAT THERE WERE SUFFICIENT REASONS FOR NOT FILING THE APPEAL IN TIM E. THEREFORE, THE DELAY OF 16 DAYS IN FILING THE APPEA L IS CONDONED. 5. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'AR' CLEARLY STATED THAT MAIN GRIEVANCE OF THE APPELLANT IS IN RESPECT OF GROUND NO.3. GROUND NO. 1 & 2 ARE MEREL Y NARRATIVE IN NATURE. SIMILARLY, IT WAS STATED BY LD . 'AR' THAT 3 GROUND NO. 4 IS ALTERNATIVE IN NATURE. LD. 'AR' RE FERRED TO PARA 3.3 OF THE ORDER OF THE CIT(APPEALS). HE ALSO SUBMITTED A CHART INDICATING THE POSITION OF FUNDS AVAILABLE WITH HIM, ALONGWITH INTEREST FREE AND INTEREST BEARING LOANS. HE IS OF THE OPINION THAT DECISION OF THE JURISDICTIONAL HI GH COURT IN CIT V M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1 (P&H) IS NOT APPLICABLE TO THE CASE. 6. LD. 'DR', ON THE OTHER HAND, PLACED RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V M/S ABHISHEK INDUSTRIES LTD. (SUPA). 7. THE BRIEF FACTS OF THE CASE ARE THAT THE AO NOTI CED THAT ASSESSEE HAD RAISED INTEREST BEARING FUNDS. AS PER THE ASSESSMENT ORDER, CAPITAL WORK IN PROGRESS, AS WELL AS CAPITAL ASSETS, FOR WHICH ADVANCES HAVE BEEN GIVEN, HAD NOT BEEN PUT TO USE AND SO, AO DISALLOWED THE PROPORTIO NATE INTEREST U/S 36(1)(III) OF THE ACT. 8. IN THE COURSE OF APPELLATE PROCEEDINGS BEFORE TH E CIT(APPEALS), ASSESSEE APPELLANT MADE A DETAILED SUBMISSION. HOWEVER, THE CIT(APPEALS), AFTER CONSI DERATION OF SUBMISSION FILED BY THE ASSESSEE, ADJUDICATED TH E ISSUE, AS PER THE FINDINGS CONTAINED IN PARA 3.3 TO 3.3.3, WHICH IS REPRODUCED HEREUNDER : 3.3 1 HAVE CONSIDERED THE SUBMISSION OF THE LD, CO UNSEL FOR THE APPELLANT AND HAVE GONE THROUGH THE DOCUMENTS SUBMI TTED ALONGWITH THE WRITTEN SUBMISSION. AS PER BALANCE SHEET, THE TOTAL AMOUNT OF CAPITAL WORK IN PROGRESS IS RS. 10,44,55,195 (INCLUDING PRE-OPERATI VE EXPENSES ON ACCOUNT OF INTEREST) AND ADVANCES AGAINST CAPITAL ASSETS WA S RS. 18,50,57,603/- TOTAL AMOUNT BEING RS. 28,95,12,797/-. OUT OF THIS AMOUNT OF 4 28,95,12,797/-, THE FUNDING FROM THE BANK WAS TO TH E TUNE OF RS. 23,31,36,978/- (INCLUDING PRE-OPERATIVE EXPENSES OF INTEREST ) AND SO THE DIFFERENCE I.E. RS. 5,63,85,819/- (28,95,12,797-23, 31,36,978 ) WAS OUT OF THE FUNDS OF THE COMPANY. IT IS SEEN THAT INTEREST ON TERM LOAN AMOUNTING TO RS. 23,31,36,978/- FOR THE NEW PROJECT OF RS. 56,14,215/- HAD BEEN CAPITALIZED AS PRE-OPERATIVE E XPENSES AND NOT CLAIMED AS DEDUCTION IN THE P & L ACCOUNT. HENCE, N O ADVERSE INFERENCE IS TO BE DRAWN IN RESPECT OF FUNDING OF CAPITAL WOR K IN PROGRESS /ADVANCES AGAINST CAPITAL ASSETS TO THE TUNE OF RS. RS, 23,31 ,36,978/- . 3.3.1 REGARDING THE BALANCE AMOUNT OF RS. 5,63,85,819/-, THE APPELLANT'S EXPLANATION IS THAT NO AMOUNT OF EXISTI NG LOAN WAS DIVERTED TO THE NEW PROJECT AND THE AMOUNT WAS OUT OF INTERNAL ACCRUAL ONLY. THIS CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE BECAU SE IF THIS AMOUNT OF RS.5,63,85,819/- WAS NOT UTILIZED FOR THE PURPOSE O F NEW PROJECT, IT WOULD HAVE BEEN AVAILABLE FOR BUSINESS PURPOSES AND INTEREST BURDEN WOULD HAVE BEEN LESS, PROPORTIONATELY TO THE SAME EXTENT. THE RATIO OF THE DECISION OF M/S ABHISHEK INDUSTRIES LT D. ( 286 ITR 1 ) APPLIES TO THE FACTS OF THE APPELLANT'S CASE IN WHICH IT WA S CLEARLY HELD THAT THE ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A COMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOANS, AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COL OUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS, THEY HAVE THE COLOUR OF B USINESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATION. 3.3.2 THE JUDGMENT OF THE APEX COURT QUOTED BY THE LD. COUNSEL OF S.A. BUILDERS LTD. (SUPRA) IS NOT APPLICABLE TO T HE CASE OF THE APPELLANT, BECAUSE IN THAT CASE THE HON'BLE APEX COURT HELD ME RELY REMANDED THE MATTER 'TO THE HON'BLE 1TAT TO GIVE A FINDING REGARDING COMMERCIAL EXPEDIENCY IN RESPECT OF THE ADVANCES GIVEN TO A SU BSIDIARY COMPANY. 3.3.3 IN VIEW OF THE ABOVE DISCUSSION, IT IS HELD T HAT PROPORTIONATE INTEREST IS TO BE DISALLOWED ON THE BALANCE AMOUNT OF RS. 5,63,85,819/-. HENCE, THE ASSESSING OFFICER IS DIRECTED TO RESTRIC T THE DISALLOWANCE OF INTEREST @ 12% PER ANNUM ON THE AMOUNT OF RS. 5,63, 85,819/- ONLY. THE DISALLOWANCE OF INTEREST, OF COURSE, IS TO BE CALCU LATED WITH EFFECT FROM THE DATE ON WHICH THE AMOUNT WAS INVESTED IN THE CAPITA L WORK IN PROGRESS/ ADVANCE FOR CAPITAL ASSETS WAS GIVEN. GROUNDS OF AP PEAL NO. 2, 3 & 4 ARC PARTLY ALLOWED. 5 9. WE HAVE CAREFULLY PERUSED AND CONSIDERED THE RIV AL SUBMISSIONS, FACTS OF THE CASE, RELEVANT PROVISIONS OF SECTION 36(1)(III) OF THE ACT AND THE RATIO LAID DOWN BY TH E JURISDICTIONAL COURT IN THE CASE OF M/S ABHISHEK IN DUSTRIES LTD. 286 ITR 1 (P&H). LD. CIT(A) HAS CONSIDERED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/ S ABHISHEK INDUSTRIES (SUPRA) AND ALSO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS V CIT 288 ITR 1 ( S.C). 10. HAVING REGARD TO THE FACT-SITUATION OF THE PRES ENT CASE, RELEVANT PROVISIONS OF THE ACT AND THE JUDICIAL PRE CEDENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F M/S ABHISHEK INDUSTRIES (SUPRA), WE DO NOT FIND ANY INF IRMITY IN THE FINDINGS OF THE CIT(APPEALS) AND, HENCE, THE SA ME ARE UPHELD AND GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED. 11. GROUND NO. 5 IS GENERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. ACCORDINGLY, THE SAME IS DIS MISSED. SIMILARLY, GROUND NO. 1 & 2, BEING NARRATIVE IN NAT URE, AS STATED BY THE LD. 'AR', NEED NO SEPARATE ADJUDICATI ON AND, HENCE, THE SAME ARE DISMISSED. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DEC.,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 7 TH DEC.,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH