M/S Jain Shawls & Textile Mills, Ludhiana V. Assistant Commissioner of Income Tax, Ludhiana

ITA 822/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8355 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 17-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Bonafide belief; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.822/CHD/2015 ( ASSESSMENT YEAR : 2007-08) M/S JAIN SHAWLS & TEXTILE VS. THE A.C.I.T., MILLS, WAIT GANJ, LUDHIANA. CIRCLE-III, NOW AT VILLAGE NOORWALA, LUDHIANA. LUDHIANA. PAN: AAAFJ7916N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 17.02.2016 DATE OF PRONOUNCEMENT : 16.03.2016 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 31.8.2015. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER MADE DISALLOWANCE OF AN AMOUNT OF RS.1,77,538/- ON ACCOUNT OF CAPITALIZATION OF INTER EST ON PLANT & MACHINERY UNDER PROVISO TO SECTION 36(1)(II I) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE CLAIM OF THE ASSESSEE WAS THAT SAID INTEREST HAD NOT BEEN 2 CAPITALIZED BY HIM AS THE PAYMENT OF INTEREST WAS J UST ON EXTENSION OF THE EXISTING BUSINESS. THE TERM LOAN WAS RAISED FOR PURCHASE OF MACHINERY, WHICH IS THE EXTE NSION OF THE EXISTING BUSINESS ONLY. REJECTING THE CONT ENTION OF THE ASSESSEE THE ASSESSING OFFICER MADE THE DISALLO WANCE AND ALSO LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE SAID DISALLOWANCE. 3. BEFORE THE LEARNED CIT (APPEALS), IT WAS STATED THAT A TERM LOAN WAS RAISED FOR PURCHASE OF MACHINE RY AND MACHINERY WAS PURCHASED TO SOME EXTENT FOR INCREASE IN PRODUCTION. REJECTING THE CONTENTION OF THE ASSESS EE, THE CIT (APPEALS) HELD THAT THE PROVISO TO SECTION 36(1 )(III) OF THE ACT VERY CLEARLY STATED THAT WHERE CAPITAL HAS BEEN BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION, INTEREST PAID SHAL L NOT BE ALLOWED FOR THE PERIOD FROM THE DATE ON WHICH THE C APITAL WAS BORROWED TILL THE DATE ON WHICH SUCH ASSET HAS BEEN PUT TO USE. THE ONUS WAS ON THE ASSESSEE TO PROVE THAT THE ASSET IS NOT FOR EXTENSION OF EXISTING BUSINESS . SINCE NO SUCH CASE WAS MADE OUT BY THE ASSESSEE, THE PROV ISO TO SECTION 36(1)(III) OF THE ACT ARE CLEARLY ATTRACTED AND IT IS NOT A DEBATABLE ISSUE. IN VIEW OF THIS, THE PENAL TY WAS CONFIRMED BY THE LEARNED CIT (APPEALS). 4. AGGRIEVED BY THIS, THE ASSESSEE HAS COME UP IN APPEAL, RAISING THE FOLLOWING GROUND OF APPEAL : 3 THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT , 1961 BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-L, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH SHE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD LEVY OF PEN ALTY U/S 271(1)(C) ON THE AMOUNT OF DISALLOWANCE AMOUNTING TO RS.1,77,538/- U/S 36(1)(III) WHEREAS NO SUCH PENALTY WAS EXIGIBLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEAL S) AND FURTHER SUBMITTED THAT THE DISALLOWANCE MADE UN DER SECTION 36(1)(III) OF THE ACT, DOES NOT LEAD TO LEV Y OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IN THI S REGARD, RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCT S PRIVATE LIMITED (2010) 322 ITR 158. IT WAS STATED THAT THE DISALLOWANCE WAS SUSTAINED ONLY BECAUSE OF DIFFEREN CE OF OPINION BETWEEN THE ASSESSEE AND THE ASSESSING OFFI CER. 6. THE LEARNED D.R. RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSES SEE HAS RAISED SOME TERM LOAN FROM THE BANK FOR PURCHASE OF MACHINERY, WHICH WAS INSTALLED AND PUT TO USE ON 25.9.2006. THE AMOUNT OF RS.1,77,538/- WAS DISALLO WED AS REVENUE EXPENDITURE BY THE ASSESSING OFFICER AND CAPITALIZED ON ACCOUNT OF PLANT & MACHINERY. THIS IS ALSO 4 A FACT ON RECORD THAT AFTER CAPITALIZING THE SAID A MOUNT, THE ASSESSING OFFICER HIMSELF HAD ALLOWED DEPRECIAT ION ON THE SAID CAPITALIZED AMOUNT AS PER RULES. IN THESE CIRCUMSTANCES, WE DO NOT FIND THAT IT IS A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS SINCE THE ASSESSEE HAD DISCLOSED ALL FA CTS AND FIGURES ACCURATELY IN ITS RETURN OF INCOME. IN FA CT, THE DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON THE BASIS OF INFORMATION PROVIDED BY THE ASSESSEE I TSELF. THIS IS ONLY ASSESSEES BONAFIDE BELIEF UNDER WHICH HE DID NOT CAPITALIZE THE SAID INTEREST ON LOAN RAISED FOR PURCHASE OF PLANT & MACHINERY. THIS MAY BE A CASE FOR MAKING DISALLOWANCE BUT NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT CAN BE LEVIED ON SAID DISALLOW ANCE. WE HEREBY DIRECT THE ASSESSING OFFICER TO DELETE TH E PENALTY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF MARCH, 2016. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER DATED : 16 TH MARCH, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE D R. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 5