M/S Industrial Equipment Co., Chandigarh V. Addl. CIT, Chandigarh

ITA 84/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9724 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 12-07-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 09-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 84/CHD/2016 (ASSESSMENT YEAR : 2009-10) M/S INDUSTRIAL EQUIPMENT CO., VS. THE ADDL.C.I.T., SCO-36 (FIRST FLOOR), SECTOR 26, RANGE-V, CHANDIGARH. CHANDIGARH. PAN: AAAFI2847P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N. SINGLA RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 21.07.2016 DATE OF PRONOUNCEMENT : 27.07.2016 O R D E R PER ANNAPURNA GUPTA, A.M. : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2, CHANDIGARH DATED 15.1.2016 FOR ASSESSM ENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL: 2 1. THAT THE ORDER OF LEARNED CIT (A) IS BAD, AGAIN ST THE FACTS AND LAW. 2. THAT THE LEARNED CIT(A) HAS WRONGLY UPHELD DISAL LOWANCE OF INTEREST U/S 36(L)(III) AMOUNTING TO RS.9,89,725 /- AS CAPITALIZATION OF INTEREST RELATING TO CWIP. 3. THAT THE LEARNED CIT(A) HAS WRONGLY UPHELD DISALLOWANCE OF INTEREST AMOUNTING TO RS.24000/- ON EARNEST MONEY GIVEN BY THE APPELLANT TO M/S CONQUOR INVESTMENT & FINANCE DURING EARLIER YEARS. 4. THE APPELLANT CRAVES TO ADD, DELETE OR MODIFY AN Y GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. GROUND NO. 2 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(II I) OF THE INCOME TAX ACT, AMOUNTING TO RS.9,89,725/-. 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD RAISED UNSECURED/SECURED LOANS AND PAI D INTEREST THEREON AMOUNTING TO RS.2,48,79,853/- WHIC H WAS CLAIMED AS AN EXPENSE IN THE P&L ACCOUNT. FURTHER T HE ASSESSEE HAD SHOWN CAPITAL INVESTMENT NOT PUT TO US E DURING THE YEAR, BEING BUILDING AND PLANT & MACHINE RY AT ITS PANCHKULA UNIT AND BUILDING UNDER CONSTRUCTION AT ITS CHANDIGARH UNIT, ON WHICH NO DEPRECIATION HAD BEEN CLAIMED. THE AO HELD THAT THE CAPITAL WIP/CAPITAL INVESTMENTS WERE ASSETS NOT PUT TO USE IN THE BUSI NESS OF THE ASSESSEE DURING THE YEAR AND THEREFORE DISALLOW ED INTEREST CORRESPONDING TO THE INVESTMENTS MADE I N THEM 3 OF RS.98,97,254/-, U/S 36(1)(III) OF THE INCOME TAX ACT,1961. THE AO COMPUTED THE INTEREST BY APPLYIN G THE RATE OF 10%,RESULTING IN A DISALLOWANCE OF INTERES T OF RS. 9,89,725/-. 5. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT NO DISALLOWANCE OF INTEREST WAS WARRANTED SINC E THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS FOR MAKING THE IMPUGNED INVESTMENT AND ALSO THAT NO NEW LOAN HAD B EEN TAKEN FOR MAKING THE INVESTMENT. LD. CIT(A) REJECTE D THE ASSESSEES CONTENTION AND RELYING UPON THE DECISION OF PUNJAB & HARYANA HIGH COURT IN CASE OF ABHISHEK INDUSTRIES 286 ITR 1 UPHELD THE DISALLOWANCE MADE U NDER SECTION 36(1)(III) FOR THE REASON THAT THE INVESTME NTS WERE MADE FOR NON BUSINESS PURPOSE. 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ENTIRE INTEREST PAID DURING THE YEAR PERTA INED TO LOANS WHICH WERE UTILIZED FOR THE PURPOSE OF THE BU SINESS OF THE ASSESSEE WHICH IS EVIDENT FROM THE FACT THAT THE LOANS PERTAINED TO CASH CREDIT LIMITS AND CAR LOAN ONLY. LD. AR DREW OUR ATTENTION TO PAGE NO. 8 OF THE PAPE R BOOK, BEING BALANCE SHEET OF THE ASSESSEE FOR THE IMPUGNE D YEAR, SHOWING THE SECURED LOANS COMPRISING OF CITI BANK OD, ICICI BANK (CAR LOAN) AND HDFC BANK LOAN. THEREAFTER LD. AR DREW OUR ATTENTION TO PAPER BOOK PAGE NO. 16 TO 18 WHICH WAS THE SANCTION LETTER OF WORKING 4 CAPITAL LOAN TAKEN FROM HDFC BANK. FURTHER ATTENTIO N OF THE BENCH WAS DRAWN AT PAPER BOOK PAGE NO. 23 WHICH WAS THE SANCTION LETTER OF THE CITI BANK FOR WORKING C APITAL LOAN. THUS THE LD. AR SUBMITTED THAT NO SPECIFIC LO AN FOR THE PURPOSE OF MAKING INVESTMENT IN BUILDING OR PLA NT & MACHINERY WAS TAKEN BY THE ASSESSEE AND ALL THE LOA NS TAKEN WERE UTILIZED IN THE BUSINESS OF THE ASSESSEE AND THEREFORE THE ENTIRE INTEREST PAID ON THE SAME WAS ALLOWABLE AS PER THE PROVISIONS OF SECTION 36(1)(II I) OF THE ACT. ALTERNATIVELY THE LD. AR PLEADED THAT THE ASSE SSEE HAD ENOUGH SURPLUS FUND FOR MAKING IMPUGNED ASSESSMENT. LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE P&L ACCOUNT OF THE ASSESSEE FOR TH E IMPUGNED YEAR,PLACED AT PAPER BOOK PAGE NO. 10 & 11 TO SHOW THAT THE NET PROFIT EARNED BY THE ASSESSEE DUR ING THE YEAR AMOUNTED TO 5.83 CRORES.LD. COUNSEL FURTHER ST ATED THAT EXCEPT FOR RS. 18,92,246/- THE ENTIRE INVESTME NT IN THE IMPUGNED ASSETS AMOUNTING TO RS. 98,97,254/- HA D BEEN MADE DURING THE CURRENT YEAR. SINCE THERE WERE ENOUGH INTEREST FREE OWN FUNDS OF THE ASSESSEE, THE PRESUMPTION IS THAT THE IMPUGNED INVESTMENTS WERE M ADE OUT OF THESE FUNDS AND THEREFORE ALSO NO DISALLOWAN CE UNDER SECTION 36(1)(III) WAS WARRANTED. 7. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE AO. 5 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOC UMENTS PLACED BEFORE US. 9. WE FIND THAT THERE IS NO CASE FOR MAKING ANY DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III)OF THE ACT. IT HAS BEEN CLEARLY DEMONSTRATED THROUGH THE FINANC IAL ACCOUNTS OF THE ASSESSEE THAT THERE WERE ENOUGH SUR PLUS FUNDS WITH THE ASSESSEE TO MAKE THE IMPUGNED INVEST MENT IN THE ASSETS. THE PRESUMPTION IN SUCH CASES IS THA T THE INVESTMENTS HAVE BEEN MADE OUT OF THE SAME BY THE ASSESSEE. THE JURISDICTIONAL HIGH COURT IN THE CAS E OF BRIGHT ENTERPRISES LTD. VS CIT IN ITA NO.624 OF 20 13 (O&M) DT.24-07-2015 ,CIT VS. KAPSONS ASSOCIATES IN ITA NO.354 OF 2013 DT 04-08-2015 AND GURUDAS GARG VS CI T(A) BHATINDA AND ANOTHER DT 16-07-2015 IN ITA NO.413 OF 2014 HAS LAID DOWN THIS PREPOSITION.EVEN THE HONBL E SUPREME COURT IN HERO CYCLES (P) LTD. VS CIT (CENTR AL) LUDHIANA IN CIVIL APPEAL NO,514 OF 2008 DT.05-11-20 15 HAS AFFIRMED THIS PROPOSITION BY HOLDING AS FOLLOWS : INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CRE DIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS. 34 LA KHS WAS GIVEN. REMARKABLY, AS OBSERVED BY THE CIT (APPEAL) I N HIS ORDER, THE COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST 15 CRORES AND, THEREFORE, THE ASSESSEE COMPANY COUL D IN ANY CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO ITS D IRECTORS. 6 10. IN VIEW OF THE ABOVE, IN THE PRESENT CASE, WE HOLD THAT THE INVESTMENTS IN CAPITAL WIP/CAPITAL INVESTMENT PURPORTEDLY NOT PUT TO USE DURING THE YE AR ,HAS BEEN MADE OUT OF THE INTEREST FREE OWN FUNDS O F THE ASSESSEE AND THEREFORE NO DISALLOWANCE OF INTEREST U/S 36(1)(III) IS WARRANTED. 11. MOREOVER IT HAS BEEN CLEARLY DEMONSTRATED BEFORE US THAT THE INTEREST BEARING FUNDS OF THE AS SESSEE WERE EITHER CASH CREDIT LIMITS TAKEN BY THE ASSESSE E FROM BANKS OR PERTAIN TO CAR LOAN. THE CASH CREDIT LIMIT , IT IS COMMON KNOWLEDGE, ARE BANK ACCOUNTS IN WHICH THE ASSESSEE DEPOSITS ALL ITS TRADING RECEIPT AND ALSO MAKES WITHDRAWAL FOR THE SAME. EVEN FOR THE SAKE OF ARGUM ENT, IT IS BELIEVED THOUGH NOT PROVED BEFORE US, THAT THE INVESTMENT HAVE BEEN MADE OUT OF THE CASH CREDIT AC COUNT ,THE PRESUMPTION AGAIN IS THAT THE ASSESSEE HAS UTI LISED THE SURPLUS GENERATED IN ITS OWN BUSINESS FOR THE P URPOSE OF MAKING THE INVESTMENT SINCE ALL ITS BUSINESS RE CEIPTS AND PAYMENTS ARE ROUTED THROUGH THIS ACCOUNT. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF WOOLCOM BERS OF INDIA LTD. VS CIT (1982) 134 ITR 219 HAS LAID DO WN THE ABOVE PREPOSITION HOLDING AS FOLLOWS: AND HAVING REGARD TO THE FACTS, IN OUR OPINION, IT AP PEARS FROM THE FACTS THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY. THE PROFITS WERE DEPOSITED WITH THE OVERDRAFT ACCOUNT. IT SHOULD BE PRESUMED THAT IN ITS ES SENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE P ROFITS OF THE 7 YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNIN G OF THE BUSINESS. 12. IN VIEW OF THE ABOVE WE FIND THAT NO CASE HAS BEEN MADE OUT BEFORE US THAT ANY PORTION OF THE INT EREST PAID BY THE ASSESSEE PERTAINS TO FUNDS BORROWED FOR THE PURPOSE OF MAKING INVESTMENT IN THE IMPUGNED ASSETS WHICH IS A PREREQUISITE FOR MAKING DISALLOWANCE UND ER SECTION 36(1)(III). IN FACT WE FIND THAT ASSESSEE H AS CLEARLY DEMONSTRATED THAT THE ENTIRE INTEREST PAID BY IT RE LATES TO FUNDS UTILISED FOR BUSINESS PURPOSE AND IN VIEW OF THE SAME THE ENTIRE INTEREST PAID BY THE ASSESSEE IS AL LOWABLE UNDER SECTION 36(1)(III) OF THE ACT. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 13. GROUND NO. 3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF INTEREST OF RS. 24,000 ON EARNEST M ONEY. 14. BRIEF FACTS RELATED TO THE ISSUE ARE THAT THE ASSESSEE HAD GIVEN ADVANCE OF RS. 2,40,000/- TO M/S CONQUOR INVESTMENT & FINANCE. THE AO FOUND THAT NO BUSINESS PURPOSE OR COMMERCIAL EXIGENCY HAD BEEN EXPLAINED IN RELATION TO THE SAME AND THEREFORE FOL LOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF M/S S.A. BUILDER 228 ITR 1 AND THE DECISION OF HON' BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. 286 ITR 1 INTEREST @ 10% O F THE ADVANCE AMOUNTING TO RS. 24,000/- WAS DISALLOWED AN D ADDED TO THE INCOME OF THE ASSESSEE. 8 15. LD. CIT(A) UPHELD THE DISALLOWANCE MADE SINCE THE ASSESSEE HAD NOT SUBSTANTIATED HIS CLAIM OF MAK ING THE ADVANCE FOR BUSINESS PURPOSE AND FOLLOWING THE DECISION OF THE JUDICIAL HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. (SUPRA). 16. BEFORE US, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE IMPUGNED ADVANCE WAS A BUSINESS ADVANCE GI VEN TO M/S CONQUOR INVESTMENT & FINANCE FOR A TENDER FO R SUPPLY OF GOODS. LD. AR STATED THAT THE WORK WITH T HIS FIRM DID NOT MATERIALISE AND THE ADVANCE PAID WAS L OST BY THE ASSESSEE AND WRITTEN OFF AS BAD DEBT IN SUBSEQU ENT ASSESSMENT YEAR. LD. AR DREW OUR ATTENTION TO PAPE R BOOK PAGE NO. 14 & 15 BEING COPY OF THE BAD DEBT AC COUNT AND ALSO TO PAPER BOOK PAGE NO. 10 BEING THE P&L AC COUNT OF THE ASSESSEE, WHERE THE IMPUGNED AMOUNT HAD BEEN WRITTEN OFF AS BAD DEBT. LD. AR ALTERNATIVELY ARGUE D THAT THE ASSESSEE HAD ENOUGH OWN FUNDS FOR MAKING THE ADVANCE AND THEREFORE EVEN IF COMMERCIAL EXIGENCY W AS NOT PROVED NO DISALLOWANCE UNDER SECTION 36(1)(III ) COULD BE MADE SINCE THE ADVANCE WAS MADE OUT OF THE OWN F UNDS OF THE ASSESSEE. 17. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 9 19. WE FIND THAT THE ISSUE IN THE IMPUGNED GROUND IS SIMILAR TO THAT RAISED IN GROUND NO. 2 (SUPRA) W HEREIN WE HAVE HELD THAT IN VIEW OF THE FACT THAT THE ASSE SSEE HAD ENOUGH SURPLUS FUND THE PRESUMPTION IS THAT THE ADV ANCE UPON THE INVESTMENT HAD BEEN MADE OUT ON THE SAME A ND NO DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III ) IS TO BE MADE. SINCE, AS STATED ABOVE, THE ISSUE IN THE PRES ENT CASE IS SIMILAR TO THAT IN GROUND NO. 2 AND THE FAC T REMAINS THAT THE ASSESSEE HAD OWN SURPLUS FUND OF 5 .8 CRORES WHILE THE INVESTMENT MADE WAS ONLY 2.4 LACS. THE ISSUE STANDS COVERED BY OUR DECISION RENDERED IN G ROUND NO. 2 ABOVE, IN FAVOUR OF THE ASSESSEE. 20. GROUND NO. 3 RAISED BY THE ASSESSEE IS THEREFO RE ALLOWED. IN EFFECT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27 TH JULY, 2016 *AG* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, 10 ITAT, CHANDIGARH S