M/s J.K. Stores, Chandigarh V. DCIT, Chandigarh

ITA 850/CHANDI/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8315 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 06-09-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 23-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Proportionate interest
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

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.850/CHD/2015 (ASSESSMENT YEAR : 2010-11) M/S J.K. STORES, VS. THE D.C.I.T., SCO 25, SECTOR 17-E, CIRCLE 2(1), CHANDIGARH. CHANDIGARH. PAN: AAEFJ7835N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NEERAJ JAIN RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 10.01.2017 DATE OF PRONOUNCEMENT : 06.02.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THE APPEAL FILED IS DIRECTED AGAINST THE ORDER O F LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, CHANDIGARH DATED 24.9.2015, RELATING TO ASSESSMENT YEAR 2010-11. 2. THE ONLY ISSUE IN THE PRESENT APPEAL PERTAINS T O DISALLOWANCE OF INTEREST AMOUNTING TO RS.21,57,427/ - BY INVOKING OF PROVISIONS OF SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : 2 1. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN UPHOLDING T HE INVOKING OF PROVISO TO SECTION 36 (I) (III) OF THE I. T. ACT, 1961. 2. THAT THE LD. CIT (A) IS NOT JUSTIFIED IN CONF IRMING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS. 21, 57,427/-. 3. THAT WITHOUT PREJUDICE TO ABOVE, THE APPELLANT DISPUTES THE QUANTUM OF DISALLOWANCE. 4. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 4. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS UNDERGOING EXPANSION OF ITS BUSINESS ACTIVITIES AND HAD SHOWN EXPENSES AMOUNTING TO RS.3,86,66,408/- UNDER THE HEAD CAPITAL WORK IN PROGRESS AS ON 31.3.2010. D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED AN AMOUNT OF RS.21,57,427/- AS INTEREST EXPENSES IN TH E PROFIT & LOSS ACCOUNT, WHICH WAS DISALLOWED BY THE ASSESSING OFFICER BY APPLYING THE PROVISIONS OF SEC TION 36(1)(III) OF THE ACT. THE ASSESSING OFFICER HELD THAT THE WORK IN PROGRESS HAD NOT BEEN PUT TO USE AND AS PER THE PROFIT & LOSS ACCOUNT THE ASSESSEE HAD PAID INTERES T ON SECURED LOANS. APPLYING THE RATIO OF THE DECISION IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LIMITED, 286 I TR 1, HE DISALLOWED THE PROPORTIONATE INTEREST ON THE AMO UNT SHOWN AS CAPITAL WORK IN PROGRESS, WHICH WORKED O UT TO RS.46,39,968/- BUT WAS RESTRICTED TO RS.21,57,427/- , 3 BEING THE AMOUNT OF INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT. 5. BEFORE THE LD. CIT (APPEALS), THE ASSESSEE CONTENDED THAT IT HAD UTILIZED ITS OWN FUNDS FOR TH E PURPOSE OF MAKING INVESTMENTS IN CAPITAL WORK IN PR OGRESS AND DEMONSTRATED THE SAME BY STATING BEFORE THE LD. CIT (APPEALS) THAT THE ENTIRE INVESTMENTS HAD BEEN MADE THROUGH TWO SEPARATE BANK ACCOUNTS OF THE ASSESSEE FIRM IN WHICH INCOME OF THE FIRM HAD BEEN DEPOSITED. TH E ASSESSEE FURTHER STATED THAT NO LOAN FUNDS HAD BEEN TRANSFERRED TO THE SAID ACCOUNTS. THE LD. CIT (APP EALS) REJECTED THE CONTENTION OF THE ASSESSEE ,APPLIED TH E MIXED FUNDS THEORY LAID DOWN IN THE CASE OF ABHISHEK INDU STRIES LIMITED (SUPRA) AND UPHELD THE DISALLOWANCE MADE. 6. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT IDENTICAL ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN THE PRECE DING YEAR I.E. ASSESSMENT YEAR 2009-10 BY THE I.T.A.T., CHANDIGARH BENCH IN ITA NO.1026/CHD/2012 DATED 15.9.2015 WHEREIN THE TRIBUNAL FOUND THAT THE ASSES SEE HAD ENOUGH INTEREST FREE OWN FUNDS TO MAKE THE INVESTMENT AND, THEREFORE, THE SAME COULD BE PRESUM ED TO HAVE BEEN MADE OUT OF ITS OWN FUNDS WARRANTING NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. THE LD. COUNSEL POINTED OUT THAT THE I.T.A.T. IN THAT CASE HAD PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT 4 ENTERPRISES PVT. LTD. VS. CIT, JALANDHAR IN ITA NO. 224 OF 2013 DATED 24.7.2015. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE LD. CIT (APPEALS). 8. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND HAVING PERUSED THE ORDER OF THE I.T.A.T . IN THE PRECEDING YEAR, WE FIND THAT IDENTICAL ISSUE HAS BE EN ADJUDICATED BY THE I.T.A.T. IN ITA NO.1206/CHD/2012 DATED 15.9.2015 IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2009-10, WHEREIN THE DISALLOWANCE MADE WAS DEL ETED BY APPLYING THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. (SUPRA), WHICH HELD THAT WHER E THE FUNDS OR RESERVES OF THE ASSESSEE WERE SUFFICIENT T O COVER INTEREST FREE ADVANCES, A PRESUMPTION WOULD ARISE T HAT THE INVESTMENTS HAD BEEN MADE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. THE LD C OUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE FACTS IN TH E PRESENT CASE WERE IDENTICAL TO THAT IN THE PRECEDIN G YEAR, AS IN THE ASSESSEE HAD ENOUGH OWN FUNDS IN THE IMPU GNED YEAR ALSO TO MAKE THE INVESTMENT IN WORK IN PROGRES S. SINCE THE DISALLOWANCE OF INTEREST MADE IN THE PRES ENT CASE U/S 36(1)(III) NEEDS TO BE EXAMINED IN THE LI GHT OF THE DECISION RENDERED BY THE I.T.A.T. IN THE PRECED ING YEAR I.E. ASSESSMENT YEAR 2009-10 IN ITA NO.1026/CHD/201 2, WE RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESS ING OFFICER FOR THIS LIMITED PURPOSE WITH A DIRECTION THAT THE 5 ASSESSEE BE GIVEN DUE OPPORTUNITY OF HEARING AND TH E CASE BE THEREAFTER DECIDED IN ACCORDANCE WITH LAW. THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE, THEREFORE, STAND ALLOWED FOR STATISTICAL PURPOSES. -9. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH FEBRUARY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH