DCIT, C-1, Ludhiana V. M/s Oriental Textiles Processing Co. Pvt. Ltd., Ludhiana

ITA 86/CHANDI/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4989 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 30-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: EPASS PAN AAACOK

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHB, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.86/CHD/2018 (ASSESSMENT YEAR : 2008-09) DCIT VS. M/S ORIENTAL TEXTILES PROCESSING CIRCLE-1, CO. PVT. LTD. LUDHIANA B-XXIII/2877, LINK ROAD, SAMRALA BYEPASS PAN: AAACO2135K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. SUBHASH AGGARWAL DEPARTMENT BY : SHRI. MANJIT SINGH DATE OF HEARING : 24/05/2018 DATE OF PRONOUNCEMENT : 25/05/2018 O R D E R PER DR. B.R.R. KUMAR, A.M. : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A)-I, LUDHIANA DT. 07/11/2017. 2. THE ONLY EFFECTIVE GROUND OF APPEAL IS AS UNDER: WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 37,53,625/- ON ACCOUNT OF CAPITALIZATION OF INTEREST ON CAPITAL WORK IN PROGR ESS ? 3. BRIEF FACTS OF THE CASE ARE THAT DURING THE ASSE SSMENT PROCEEDINGS, THE ASSESSING OFFICER, ON AN EXAMINATION OF THE LEDGER ACCOUNT OF THE MACHINES, NOTICED THAT MACHINES WERE ENTERED IN THE BOOKS AS CAPITAL WORK IN PROGRESS AS ON 31/03/2013. HOWEVER, THERE WERE FURTHER DEBIT EN TRIES AND FINALLY THE SAID MACHINES WERE SEEN TO HAVE BEEN PUT TO USE LATER ON . 4. THE ASSESSEES ACCOUNTS ALSO DISPLAYED INTEREST EXPENSES OF AROUND RS. 3.08 CRORES ON ACCOUNT OF BORROWINGS. PRESUMING THA T THE MACHINES WERE 2 ACQUIRED OUT OF BORROWED FUNDS, AND INVOKING THE PR OVISO TO SECTION 36(1)(III) AS WELL AS EXPLANATION-8 TO SECTION 43(1) OF THE ACT, THE ASSESSING OFFICER CALCULATED INTEREST @ 12% FOR THE NUMBER OF DAYS TILL THE MACH INES WERE PUT TO USE 15/02/2014] FOR CAPITALIZATION. THE AGGREGATE OF SU CH COMPUTATION WORKED OUT TO RS. 55,48,196/-. HOWEVER, SINCE THE APPELLANT CO MPANY HAD ALREADY CAPITALIZED AN AMOUNT OF RS. 17,94,571/-, THE DIFFE RENTIAL OF RS. 37,53,625/- WAS ADDED BACK TO THE RETURNED INCOME. 5. THE LD. CIT(A) DELETED THE ADDITION BASED ON THE JUDGMENT IN THE CASE OF HERO CYCLES LTD IN ITA NO. 314/CHD/2013 DT. 16/02/2 016. 6. THE LD. DR ARGUED BASED ON THE FACTS QUOTED BY T HE ASSESSING OFFICER. 7. BEFORE US, THE LD. AR ARGUED THAT THE INTEREST O N MONEY BORROWED FOR INVESTMENT IN CAPITAL WORK IN PROGRESS WAS CAPITALI ZED TO THE TUNE OF RS. 17,94,571/-. HE FURTHER ARGUED THAT THE BALANCE INV ESTMENTS WAS MADE OUT OF OWN FUNDS AND INTERNAL APPROVALS INCLUDING THE INCO ME DURING THE YEAR. IT HAS EXPLAINED THAT THE ASSESSEE HAD OWN FUNDS TO THE TU NE OF RS.11.13 CRORES AND INTEREST FREE FUNDS OF RS. 6.87 CRORES WHEREAS INVE STMENTS IN FIXED ASSETS ARE TO THE TUNE OF RS. 2.24 CRORES ONLY. HE FURTHER SUBMITTED THAT SIMILAR ADDITION WAS MADE DURING THE A.Y. 2012-13 TOO WHICH WAS DECIDED BY THE LD. CIT(A) IN FAVOUR OF TH E ASSESSEE FOR WHICH THE DEPARTMENT HAS NOT APPEALED FURTHER. 8. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND A LSO THE ORDER OF THE LD. CIT(A) FOR THE A.Y. 2012-13 WHEREIN IT WAS HELD AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE BASIS OF DISALLOWANCE MADE AND THE ARGUMENTS OF THE AR. UNDER THE PROVISO TO SEC 36(1)(III), WHERE A LOAN IS RAISED TO PURCHASE AN ASSET AND THE ASSET IS PURCHASED FOR EXTENSION OF THE EXISTING BUSINESS; THE INTEREST FO R THE PERIOD DURING WHICH THE ASSET IS NOT PUT TO USE IS TO BE CAPITALIZED. H OWEVER, A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER H AS NOWHERE GIVEN A CATEGORICAL FINDING REGARDING THE FULFILLMENT OF TH ESE TWO CONDITIONS AND HAS GONE AHEAD AND MADE THE ADDITION IN A MECHANICAL MA NNER. MOREOVER, THE POSITION OF THE APPELLANT'S OWN FUNDS HAS NOT BEEN VERIFIED BY THE ASSESSING OFFICER IN ANY CASE. THE APPELLANTS OWN FUNDS ARE MORE THAN THE SAID ADVANCE. THE AR HAS PLACED RELIANCE ON DCIT VS. SAMRAT FORGI NGS LTD. IN ITA NO. 975/CHD/2011 WHEREIN IT HAS BEEN HELD THAT WHERE INCOME OF THE 3 ASSESSEE IS MORE THAN THE INVESTMENT, NO DISALLOWAN CE OF INTEREST CAN BE MADE ON ACCOUNT OF INVESTMENT IN WORK IN PROGRESS, WHICH WAS FURTHER FOLLOWED IN THE CASE OF HERO CYCLES LTD. VS. ADDL. DCIT A.Y 2009-10 DATED 16.02.2016 IN ITA NO.314/CHD/2013. THE AR HAS FURTHER RELIED ON THE CASE OF ACIT VS. U PPER INDIA STEEL MFG. & ENGG. CO. LTD. IN ITA NO. 920/CHD/2009 OF THE HON'BLE ITAT, CHANDIGARH BENCH, WHEREIN IT HAS BEEN HELD THAT WHERE THE APPELLANT H AS NOT RAISED ANY LOAN FROM ANY BANK OR FINANCIAL INSTITUT ION AGAINST INSTALLATION OF MACHINERY DURING THE YEAR, IT CANNOT BE PRESUMED TH AT ANY INTEREST BEARING FUNDS HAVE BEEN INVESTED IN THE CAPITAL WORK IN PRO GRESS. FURTHER, THAT WHERE THE ASSESSING OFFICER HAS FAILED TO GIVE ANY FINDING ON THE ASPECT OF ANY LOAN RAISED FOR INSTALLATION OF MACHINERY, NO SUCH DISALLOWANCE CAN BE MADE. IN THE INSTANT CASE ALSO THE ASSESSING OFFICER HAS FAILED TO RECOR D ANY FINDING AS TO WHETHER ANY LOAN WAS RAISED FOR THE PURCHASE OF THE SAID MACHIN ERY. IN VIEW OF THE SAID FACTS AND CIRCUMSTANCES, THE CASE OF THE APPELLANT BEING COVERED BY THE SAID CASE- LAWS, THE SAID DISALLOWANCE IS NOT JUSTIFIED AND IS ORDERED TO BE DELETED. THIS GROUND OF APPEAL IS ALLOWED.' FOLLOWING THE ABOVE ORDER ON SIMILAR FACTS, THIS GR OUND OF APPEAL IS ALLOWED. 9. HENCE, IN VIEW THE FACTS OF THE CASE, THE RATION ALE GIVEN BY THE LD.CIT(A) WHICH IS TOTALLY BASED ON THE JUDGMENTS OF THE HIG HER JUDICIAL FORUMS, PLACING RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PRIVATE LTD. ITA NUMBER 224 OF 2 013 DATED 24/07/2015, AND JUDGMENT IN THE CASE OF A CIT VS. OMAX BIKES LIMITE D ITA NUMBER 1085/2013 A.Y. 2008-09 DT. 24/07/2015 , HERO CYCLES VS. CIT ITA N O. 314 & 493/2013 A.Y. 2009-10 DT. 16/02/2016 WHEREIN IT HAS BEEN HELD THAT IF SUF FICIENT INTEREST FREE FUNDS ARE AVAILABLE THE PRESUMPTION IS THAT THE ADVANCES HAVE BEEN MADE OUT OF SUCH FUNDS AND NO DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) IS CALLED FOR, WE HEREBY DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A). 10. AS A RESULT, THE APPEAL OF THE REVENUE IS HEREB Y DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25/05/2018 AG COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR