Control Plus Oil & Gas Solutions Pvt ltd., Ahmedabad V. The ITO, Ward-1(1)(3), Ahmedabad

ITA 81/AHD/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8745 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 21-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.S. SHUKLA
• Assessee Lawyers: AFAQ SAIYED
• Keywords: Capital asset; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER) [THROUGH VIRTUAL COURT] ITA. NO: 81/AHD/2019 (ASSESSMENT YEARS: 2015-16) CONTROL PLUS OIL & GAS SOLUTIONS PVT. LTD. 22, DHARA CENTRE, NEAR VIJAY CROSS ROAD, NAVRANGPURA, AHMEDABAD PAN NO. AACCC7127K I.T.O, WARD-1(1)(3), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AFAQ SAIYED, A.R. RESPONDENT BY : SHRI S. S. SHUKLA, SR. D.R. ( )/ ORDER DATE OF HEARING : 20-07-2021 DATE OF PRONOUNCEMENT : 29-07-2021 PER MAHAVIR PRASAD, J.M. 1. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (HEREINAFTER CALLED CIT(A)) ORDER NO. CIT(A)-1/ITO- ITA NO. 81/AHD/2019 . A.Y. 2015-16 2 WD-1(1)(3)/10369/2017-18 ORDER DATED 15/11/2018 ARISING OUT OF ASSESSMENT ORDER DATED 21/12/2017. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 35,03, 322/- ON TERM LOAN ON THE GROUND THAT IN THE IMMEDIATE PRECEDING ASST YEAR 2014-15 SUCH CLAIM WAS DISALLOWED ON AGREED BASIS SINCE NO FIXED ASSETS HAVE BEEN PURCHASED AND INTEREST ON TERM LOAN HAS NOT BEEN CAPITALIZED, WITHOUT PROPER CONSIDERATION AND APPRECIATION OF THE FACTS AND SUBMISSION. IN VIEW OF THE FACT THAT THE TERM LOAN WAS TAKEN AGAINST THE SECURITY OF MACHINERIES BELONGING TO THE HOLDING COMPANY AND NOT FOR PURCHASE OF THE FIXED ASSETS, THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE DISALLOWANCE OF INTEREST EXPENSES OF RS. 35,03,322.. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF GAS CONDITIONING SKIDS SUCH AS METERING SKIDS, PRESSURE SKIDS, ODORIZING SKIDS AND FILTRATION SKIDS. 3. DURING THE YEAR UNDER CONSIDERING THE ASSESSEE HAS CARRIED OUT THE BUSINESS OF MANUFACTURING OF GAS CONDITIONING SKIDS SUCH AS METERING SKIDS, PRESSURE SKIDS, ODORIZING SKIDS AND FILTRATION SKIDS, THE ASSESSEE HAS SHOWN TOTAL TURNOVER OF RS. 19,90,34,314/- WITH GROSS PROFIT OF RS. 2,51,42,788/- WHICH IS 12.63% AS AGAINST THE TURNOVER OF RS. 23,61,94,037/- WITH GROSS PROFIT OF RS. 4,40,72,069/- WHICH WAS 18.66% IN THE IMMEDIATE PRECEDING YEAR. 4. ON VERIFICATION OF DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTICED THAT ASSESSEE HAS CLAIMED INTEREST ON TERM LOAN OF RS. 35,03,322/- AS TAKEN FROM SREI EQUIPMENT PVT. LTD. AND IT REVEALED THAT THE ASSESSEE HAS NOT PURCHASED ANY ASSET DURING THE YEAR UNDER CONSIDERATION AS THERE IS NO ADDITION TO THE FIXED ASSETS. 5. AT THE OUTSET, LD. A.R. ARGUED THAT MATTER IS SQUARELY COVERED BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR IMMEDIATE PRECEDING YEAR WHEREIN RELIEF HAS BEEN ITA NO. 81/AHD/2019 . A.Y. 2015-16 3 GRANTED BY THE TRIBUNAL AND RELEVANT PORTION OF THE ITAT ORDER IN ITA NO. 428/AHD/2018 FOR A.Y. 2014-15 IS REPRODUCED HEREUNDER: 2. AS PER THE GROUNDS OF APPEAL FILED BY THE ASSESSEE, THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE OF RS.25,49,201/- TOWARDS INTEREST EXPENSES INCURRED ON TERM LOANS AVAILED BY THE ASSESSEE. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AT THE OUTSET THAT THERE IS A DELAY OF 73 DAYS IN FILING THE APPEAL FOR AY 2014-15 BEFORE THE ITAT AGAINST THE ORDER OF THE CIT(A). IN THIS CONNECTION, THE LEARNED COUNSEL REFERRED TO THE AFFIDAVIT FILED BY THE ASSESSEE DATED 16 T H SEPTEMBER, 2019 ALONGWITH A PETITION OF EVEN DATE AND URGED FOR CONDONATION OF DELAY AND DISPOSAL OF THE APPEAL ON MERITS. REFERRING TO THE CONTENTS OF THE AFFIDAVIT, THE LEARNED COUNSEL POINTED OUT THAT THE ASSESSEE COMPANY INADVERTENTLY LEFT THE FIRST APPELLATE ORDER TO BE APPEALED AGAINST IN THE DRAWER OF ONE OF DIRECTOR WHICH GOT MIXED WITH OTHER PAPERS. THE FIRST APPELLATE ORDER WAS THUS UNATTENDED DUE TO A BRIEF LAPSE ON THE PART OF THE DIRECTOR, WHICH WAS PRAYED TO BE CONDONED. IT WAS FURTHER POINTED OUT THAT THE DELAY OCCURRED IS NOT INTENTIONAL OR DELIBERATE AND THE AFORESAID DELAY OF 73 DAYS OCCURRED HAS NOT CAUSED ANY SERIOUS PREJUDICE TO THE REVENUE. NO MALAFIDE CAN BE IMPUTED FOR SUCH DELAY. THE LEARNED COUNSEL REFERRED TO THE DECISION RENDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF COLLECTOR OF LAND ACQUISITION VS. MST. KATIJI & ORS. 167 ITR 471 (SC) TO CONTEND THAT THE SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED OVER THE TECHNICAL GLITCH COMMITTED BY THE ASSESSEE IN BELATED FILING FOR PLAUSIBLE REASONS. 4. ON MERITS, LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT INTEREST EXPENDITURE ON TERM LOAN IN THE IMPUGNED AY 2014-15 WAS DISALLOWED FOR THE REASON THAT THE TERM LOAN TAKEN FROM LENDER SREI EQUIPMENTS PVT. LTD. IS IN THE NATURE OF CAPITAL EXPENDITURE. TO REBUT THE ALLEGATION OF THE REVENUE, THE LEARNED ITA NO. 81/AHD/2019 . A.Y. 2015-16 4 COUNSEL REFERRED TO A LETTER DATED 23.12.2016 FILED WITH THE AO ON 5 T H JANUARY, 2017 TO CLARIFY THAT THE REPRESENTATIVE OF THE ASSESSEE HAS WRONGFULLY AGREED FOR THE PROPOSED DISALLOWANCE BEFORE THE AO ON MISCONSTRUCTION OF UNDERLYING FACTS. ON FACTS, THE LEARNED COUNSEL REFERRED TO THE NOTES TO THE AUDITED FINANCIAL STATEMENT OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31 S T MARCH, 2015 WHICH EXPLAINS THAT LOANS FROM NON-BANKING FINANCIAL COMPANY INCLUDING LOAN FROM SREI EQUIPMENTS PVT. LTD. WAS SECURED AGAINST THE ASSET BELONGING TO HOLDING COMPANY CORRTECH INTERNATIONAL PVT. LTD. THE LOAN WAS WRONGLY UNDERSTOOD TO HAVE BEEN TAKEN FOR ACQUISITION OF CAPITAL ASSET WHICH ADMITTEDLY HAVE NOT BEEN ACQUIRED. THE LOAN WAS ONLY SECURED AGAINST THE CAPITAL ASSET. IT WAS SUBMITTED THAT THIS FACT WAS DULY BROUGHT TO NOTICE OF THE FIRST APPELLATE AUTHORITY AS WELL. AS NOTED IN PARA 2.2(3) OF THE FIRST APPELLATE ORDER, IT WAS ALLEGED THAT AFTER RECORDING THE RELEVANT FACTS AS REPRESENTED ON BEHALF OF THE ASSESSEE, THE CIT(A) BY A VERY CRYPTIC ORDER, DISMISSED THE CASE OF THE ASSESSEE ON THE GROUND THAT ASSESSEE HAS FAILED TO ESTABLISH WITH EVIDENCE THAT INTEREST CLAIMED HAS BEEN UTILIZED FOR THE PURPOSE FOR WHICH IT HAS TAKEN THE LOAN. IT WAS REITERATED THAT THE LENDER WAS ONLY A NON-BANKING FINANCE COMPANY FROM WHOM A LOAN FACILITY WAS AVAILED AGAINST THE SECURITY OF ASSET I.E. BENDING MACHINE. THE LOAN FACILITY SO AVAILED HAS BEEN UTILIZED 'FOR THE PURPOSE OF BUSINESS' AS CONTEMPLATED UNDER S.36(1)(III) OF THE ACT. IT WAS SUBMITTED THAT THE AO HAS NOT ALLEGED THAT ANY EXPENDITURE HAS BEEN INCURRED FOR NON-BUSINESS PURPOSES. LEARNED COUNSEL FINALLY SUBMITTED THAT THE DISALLOWANCE OF INTEREST ON LOAN FACILITY SO AVAILED IS TOTALLY UNJUSTIFIED IN THE OSTENSIBLE FACTS OF THE CASE. 5. THE LEARNED DR FOR THE REVENUE, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE DOES NOT DESERVE CONDONATION OF DELAY ON SUCH A VAGUE GROUND QUOTED IN THE AFFIDAVIT. THE LEARNED DR FURTHER SUBMITTED ON MERITS THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS TO ESTABLISH WITH EVIDENCE THAT INTEREST CLAIMED HAS BEEN UTILIZED FOR THE PURPOSE FOR WHICH LOANS WERE TAKEN. ITA NO. 81/AHD/2019 . A.Y. 2015-16 5 6. ON APPRAISAL OF THE ARGUMENTS FROM BOTH SIDES, WE FIND THAT SUFFICIENT CAUSE, WHEN SEEN LIBERALLY, EXISTS IN THE INSTANT CASE DESERVING CONDONATION OF SHORT DELAY. ALTHOUGH, THERE APPEARS TO BE SOME NEGLIGENCE ON THE PART OF THE ASSESSEE IN NOT PREFERRING APPEAL IN TIME AFTER THE ORDER OF THE CIT(A) WAS DELIVERED, BUT NEGLIGENCE DOES NOT APPEAR TO BE OF SUCH A DEGREE THAT THE APPEAL CAN BE DISMISSED BEING BARRED BY LIMITATION WHEN SEEN IN CONJUNCTION WITH THE MERITS INVOLVED IN THE CASE OF THE ASSESSEE. THE SHORT DELAY OCCURRED IN PREFERRING APPEAL HAS ALSO NOT SHOWN TO HAVE CAUSED ANY SERIOUS PREJUDICE TO THE REVENUE. IT IS THE ADMITTED POSITION THAT ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET DURING THE YEAR AND CONSEQUENTLY, INTEREST ON LOAN FACILITY OBTAINED FROM THE NON-BANKING FINANCE COMPANY HAS ARISEN TO THE ASSESSEE AFTER THE ASSET WAS PUT TO USE, EVEN IF, THE LOAN WAS BORROWED FOR ACQUISITION OF ASSET. THE CASE ON MERIT IS PRIMA FACIE TENABLE IN THE LIGHT OF PLETHORA OF JUDICIAL PRECEDENTS. THE PRIMA FACIE CASE ON MERITS ALSO GIVES AN IMPRESSION THAT THE DELAY WAS NOT MALAFIDE PER SE. HENCE, DELAY OF 73 DAYS IN FILING APPEAL BEFORE THE TRIBUNAL STANDS CONDONED AND THE APPEAL OF THE ASSESSEE DESERVES TO BE PROCEEDED ON MERITS. 7. AS RECORDED IN THE FIRST APPELLATE ORDER IN CONJUNCTION WITH THE AUDITED BALANCE SHEET, IT IS EVIDENT THAT THE LOAN FACILITY HAS BEEN TAKEN AGAINST THE SECURITY OF THE CAPITAL ASSET. THE DIVERSION OF LOAN FUNDS FOR NON-BUSINESS PURPOSES HAS NOT BEEN ALLEGED BY THE REVENUE AUTHORITIES. BESIDES, THE FINDINGS OF THE CIT(A) IS QUITE VAGUE INDEED. SECTION 36(1)(III) OF THE ACT GOVERNS ALLOWABILITY OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PROFESSION. AS HELD IN DY. CIT V. CORE HEALTH CARE LTD. [2008] 167 TAXMAN 206 (SC), THERE IS NO DISTINCTION IN SECTION 36(1)(III) OF THE ACT CAPITAL BORROWED FOR REVENUE PURPOSE AND CAPITAL BORROWED FOR A CAPITAL PURPOSE. THE ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL AFTER THE ASSET IS PUT TO USE FOR BUSINESS PURPOSES. THE LOAN HAVING BEEN UTILIZED FOR ACQUISITION OF CAPITAL ASSET IN THE ITA NO. 81/AHD/2019 . A.Y. 2015-16 6 EARLIER YEARS IS THUS NOT AN OBSTACLE FOR TREATING INTEREST EXPENDITURE AS REVENUE EXPENDITURE UNDER S.36(1)(III) OF THE ACT R.W.S. EXPLANATION 8 TO S.43A OF THE ACT. THE CIT(A) HAS WRONGLY APPLIED THE TESTS LAID DOWN FOR APPLICABILITY ON SECTION 36(1)(III) OF THE ACT IN ITS NON-DESCRIPT ORDER. WE THUS FIND MERIT IN THE PLEA OF THE ASSESSEE FOR ALLOWABILITY OF INTEREST CLAIM IN QUESTION. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. 6. SIMILAR IN SIMILAR FACTS AND CIRCUMSTANCES, ASSESSEE HAS BEEN GRANTED RELIEF BY THE TRIBUNAL. 7. IN VIEW OF THE ABOVE AND IN PARITY WITH THE AFORESAID ITAT ORDER, WE ALLOW THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 07- 2021 SD/- SD/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 29 /07/2021 RAJESH COPY OF THE ORDER FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD