ACIT, Ludhiana V. M/s Nexo Industries Pvt. Ltd., Ludhiana

ITA 880/CHANDI/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8377 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 09-02-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: JASVINDER SINGH
• Keywords: Depreciation; Tax effect; Commercial expediency; Onus to prove
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 880/CHD/2015 ASSESSMENT YEAR: 2010-11 THE ACIT, CIRCLE 4, VS. M/S NEXO INDUS PVT. LTD., LUDHIANA LUDHIANA PAN NO. AABCN0558L (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : SH. JASVINDER SINGH DATE OF HEARING : 09.02.2016 DATE OF PRONOUNCEMENT : 14.03.2016 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)- 2, LUDHIANA DATED 01.09.2015 RELATING TO ASSESSMENT YEAR 2010-11. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN DELEING DISALLOWANCE U/S 3 6(1)(III) OF RS. 14,03,100/- AS THE ASSETS IN QUESTION WERE N OT PUT TO USE AND THE ASSESSEE HAS NOT SHOWN ANY NEXUS THAT B ORROWED FUNDS WERE NOT UTILIZED. 2. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS RIGHT IN DELETING DISALLOWANCE U/S 40A( 2) OF RS. 2 2,83,204/- ON INTEREST PAYMENTS TOWARDS UNSECURED L OANS TO THE RELATED PARTIES. 3. WHETHER ON THE FACTS IN CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) RIGHT IN ACCEPTING THE CLAIM OF THE ASSE SSEE THAT THE CABLE FORM PART OF MACHINERY AND ALLOWING DEPRE CIATION AT 15% RATE INSTEAD OF 10% RATE ADOPTED BY THE ASSE SSING OFFICER. 3. AT THE VERY OUTSET, SHRI JASVINDER SINGH, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT AS PER THE NOTICE OF DEMAND ISSUED U/S 156 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), THE REVENUE RAISED THE DEMAND ON ACCOUNT OF INCOME TAX FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AT RS. 6,54,818/- BESIDES INTEREST OF RS. 2,32,977/- U/S 234B OF THE ACT. ACC ORDING TO HIM, IN THIS CASE THE TAX EFFECT DOES NOT EXCEED THE MONETARY LIMIT OF RS . 10 LAKHS. ACCORDINGLY, ON THIS GROUND ALONE, THE APPEAL IS LIABLE TO BE DISMI SSED. EVEN ON MERITS ALSO, THE ISSUE RAISED VIDE GROUND NOS. 1 & 3 OF THE APPEAL A RE COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THIS BENCH OF THE TRIBUNAL DATED 23.12.2013 PASSED IN ASSESSEES CASE IN ITA N O. 73/CHD/2013 RELATING TO ASSESSMENT YEAR 2009-10. IN THE BALANCE SHEET, THE ASSESSEE HAS SHOWN BUILDING UNDER CONSTRUCTION AND MACHINERY UNDER INSTALLATION . THE ASSESSING OFFICER NOTED THAT NONE OF THE ABOVE ASSETS WERE UTILIZED F OR THE BUSINESS PURPOSES DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INTEREST EXPENSES CORRE SPONDING TO THE ABOVE INVESTMENT AS CLAIMED IN THE PROFIT AND LOSS ACCOUN T SHOULD NOT BE DISALLOWED U/S 36(1)(III) OF THE ACT. AFTER AFFORDING AN OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE AND CONSIDERING THE ASSESSEES REPLY, THE ASSESSING OFFICER DISALLOWED INTEREST CORRESPONDING TO THE AFORESAID INVESTMENT @ 11.57% WHICH CAME TO RS. 14,03,100/-. ON APPEAL, THE CIT(A) DELETED THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER U/S 36(1)(III) OF RS. 14,03,100 /- FOLLOWING THE ORDER OF HIS PREDECESSOR PASSED IN ASSESSEES CASE WHICH WAS CON FIRMED BY THE TRIBUNAL IN 3 ITA NO. 73/CHD/2013 VIDE ORDER DATED 23.12.2013. TH E REVENUE PREFERRED AN APPEAL BEFORE THE HON'BLE JURISDICTIONAL HIGH COUR T WHICH WAS ALSO DISMISSED BY THE HON'BLE HIGH COURT, OBSERVED THE CIT(A). THE RELEVANT FINDINGS GIVEN BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10 ON IDE NTICAL ISSUE ARE AS UNDER:- 20. IN THE FACTS OF THE CASE BEFORE US, OUT OF THE TOTAL LOAN OF RS. 4.09 CR. LOAN AMOUNTING TO RS. 1.22 CR WAS TAKEN FOR THE PURCHASE OF FIXED ASSETS AND THE BALA NCE LOAN WAS AGAINST STOCKS AND BOOK DEBTS. OUT OF LOAN OF R S.1.22 CR, LOAN OF RS. 50 LACS WAS TAKEN AGAINST PURCHASE OF CAR WHICH WAS IMMEDIATELY PUT TO USE. THE INTEREST PER TAINING TO THE REMAINING LOAN OF RS. 72 LACS HAD BEEN CAPIT ALIZED BY THE ASSESSEE AND NO BENEFIT OF THE SAME HAD BEEN CLAIMED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT THE INVESTMENT HAD BEEN MADE OUT OF ITS RESERVES AN D SURPLUS AND THE MONEY AVAILABLE WITH IT. IN ORDER TO INVOKE THE PROVISIONS OF THE PROVISO TO SECTION 36( 1)(III) OF THE ACT, THE TWO CONDITIONS WHICH ARE TO BE FULFILL ED IS THAT; (A) CAPITAL WAS BORROWED FOR THE ACQUISITION OF AN ASSET, AND (B) THE ASSET WAS NOT PUT TO USE FOR CER TAIN PERIOD AFTER ACQUISITION. IN THE CASE OF THE ASSESS EE, THE FIRST CONTENTION WAS NOT SATISFIED. IN THE ABSENCE OF THE ASSESSEE HAVING BORROWED CAPITAL FOR THE ACQUISITIO N OF THE ASSETS, WHICH ADMITTEDLY WERE NOT PUT TO USE FO R CERTAIN PERIOD AFTER THE ACQUISITION, DOES NOT ME RIT ANY DISALLOWANCE UNDER THE PROVISO TO SECTION 36(1)(III ) OF THE ACT. UPHOLDING THE ORDER OF THE CIT(APPEALS), WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, P ASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2009-10, WE DO NOT SEE ANY MERIT I N THIS GROUND OF APPEAL AND ACCORDINGLY, WE DISMISS GROUND NO.1 OF THE APPEAL. 4 4. THE ISSUES RAISED BY THE ASSESSEE VIDE GROUND NO .3 OF THE APPEAL IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL DATED 23.12.2013 PASSED IN ASSESSEE CASE IN ITA NO. 1343 /CHD/2012 RELATING TO ASSESSMENT YEAR 2008-09 AND IN ITA NO. 69/CHD/2013 RELATING TO ASSESSMENT YEAR 2009-10. THE RELEVANT FINDINGS OF THE TRIBUNAL ON IDENTICAL ISSUE ARE AS UNDER:- 11. THE ISSUE IN GROUND NO. 3 RAISED BY THE ASSESS EE IS FOR RESTRICTING THE ALLOWANCE OF DEPRECIATION ON ELECTR IC FITTINGS @ 10% AS AGAINST 15% CLAIMED BY THE ASSESSEE. THE CONTENTION OF THE ASSESSEE BEFORE US WAS THAT THE E LECTRIC FITTINGS HAD TWO SUB-HEADS I.E. ONE CONNECTED TO TH E OFFICE AND THE ELECTRIC FITTINGS OTHERWISE. THE DEPRECIAT ION @ 15% WAS CLAIMED ON ELECTRIC FITTINGS (OFFICE). WE FIND MERIT IN THE CLAIM OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 15% ON ELECTRIC FITTINGS (OFFI CE). GROUND NO. 3 RAISED BY THE ASSESSEE IS THUS, ALLOWE D. 5. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THA T OF ASSESSMENT YEAR 2008- 09 AND 2009-10. RESPECTFULLY FOLLOWING THE ORDER O F THE TRIBUNAL, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL ALSO AND, H ENCE, THE SAME IS DISMISSED 6. AS REGARDS NO.2 OF THE APPEAL, IT IS OBSERVED TH AT ASSESSEE HAD TAKEN UNSECURED LOANS FROM CERTAIN PARTIES WHO ARE RELATI VES. INTEREST WAS PAID ON UNSECURED LOANS @ 15%. THE ASSESSING OFFICER HAS ME NTIONED THAT ASSESSEE HAD BORROWED FUNDS FROM FINANCIAL INSTITUTIONS ON WHICH IT HAD PAID INTEREST @ 11.57%. THE ASSESSING OFFICER TOOK THE VIEW THAT TH E INTEREST PAID ON UNSECURED LOANS TAKEN FROM RELATIVES AND OTHER KNOWN PERSONS WAS EXCESSIVE AND RESTRICTED THE INTEREST ALLOWABLE @ 11.57%. THUS, THE ASSESSIN G OFFICER WORKED OUT THE DISALLOWANCE AT RS. 2,83,204/-. 5 7. ON APPEAL, THE CIT(A) DELETED THE ADDITION FOR T HE REASONS STATED IN PARA 6.3 OF THE IMPUGNED ORDER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SHRI JASVINDER SINGH, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAD PAID INTEREST ON LOAN FROM BANK UPTO 13.62% PER ANNUM AGAINST SECURED ADV ANCES. HE FURTHER POINTED OUT THAT ON THESE SECURED ADVANCES THERE ARE LIABIL ITY TO PAY OTHER CHARGES AND COST OF VARIOUS OTHER FORMALITIES OF HYPOTHECATION AND PLEDGE OF PROPERTY ARE ALSO REQUIRED. SHRI JASVINDER SINGH LD. COUNSEL FO R THE ASSESSEE POINTED OUT THAT ASSESSEE ITSELF HAD PAID INTEREST @ 15% TO HDF C BANK AND 17% TO STANDARD CHARTERED BANK AGAINST THE UNSECURED LOANS TAKEN FR OM THEM I.E. WITHOUT COLLATERAL SECURITY. HE FURTHER POINTED OUT THAT AT THE RELEVANT TIME, OUTSIDERS AND THE PERSONS NOT KNOWN TO THE ASSESSEE DEMANDED 18% OR MORE AGAINST UNSECURED LOANS BECAUSE THIS WAS THE PREVALENT RAT E OF INTEREST IN THE OPEN MARKET. IN CASE OF CIT V AMRIT SOAP CO. (2009) 308 ITR 287 (P&H) THE HON'BLE JURISDICTIONAL HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL HOLDING THAT THE TRIBUNAL WAS FULLY JUSTIFIED IN ALLOWING INTEREST @ 18% TO CLOSE RELATIVES AND ASSOCIATE PERSONS COVERED U/S 40A(2)(B) AS COMPARED TO RATE OF 15% PAID TO OTHER CREDITORS. IT IS TRUE THAT FOR MAKING A DISAL LOWANCE U/S 40A(2)(B), ONUS TO PROVE THE UNREASONABLENESS IS ON THE ASSESSING OFFI CER. IN OUR OPINION, UNLESS PAYMENT OF INTEREST WAS IN EXCESS OF MARKET RATE, P AYMENT OF INTEREST COULD NOT BE HELD TO BE EXCESSIVE AND UNREASONABLE WITHIN THE MEANING OF SECTION 40A(2)(B) OF THE ACT. IN THE INSTANT CASE, THE ASSE SSING OFFICER NOTED THAT INTEREST PAID TO RELATIVES AND KNOWN PERSONS @ 15% WAS EXCESSIVE AND UNREASONABLE. SECTION 40A(2)(B) OF THE ACT READS AS UNDER:- B) THE PERSONS REFERRED TO IN CLAUSE (A) ARE THE F OLLOWING, NAMELY:- (I) WHERE THE ASSESSEE IS AN INDIVIDUAL ANY RELATIVE OF THE ASSESSEE; 6 (II) WHERE THE ASSESSEE IS A COMPANY, ANY DIRECTOR OF THE FIRM, ASSOCIATION OF PERSONS OR COMPANY, PARTNER OF THE H INDU UNDIVIDED FAMILY FIRM, OF MEMBER IF THE ASSOCIATION OR FAMILY, OR FAMILY, OR ANY RELATIVE OF SUCH DIRECTOR, PARTNE R OR MEMBER; (III) ANY INDIVIDUAL WHO HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE, OR ANY RELA TIVE OF SUCH INDIVIDUAL; (IV) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HIN DU UNDIVIDED FAMILY HAVING A SUBSTANTIAL INTEREST IN T HE BUSINESS OR PROFESSION OF THE ASSESSEE OR ANY DIRECTOR, PART NER OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY , OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (V) A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HIND U UNDIVIDED FAMILY OF WHICH A DIRECTOR, PARTNER OR ME MBER, AS THE CASE MAY BE, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THE ASSESSEE; OR ANY DIRECTOR, PARTNE R OR MEMBER OF SUCH COMPANY, FIRM, ASSOCIATION OR FAMILY OR ANY RELATIVE OF SUCH DIRECTOR, PARTNER OR MEMBER; (VI) ANY PERSON WHO CARRIES ON A BUSINESS OR PROFES SION,- (A) WHERE THE ASSESSEE BEING AN INDIVIDUAL, OR ANY RELATIVE OF SUCH ASSESSEE, HAS A SUBSTANTIAL INTERE ST IN THE BUSINESS OR PROFESSION OF THAT PERSON; OR (B) WHERE THE ASSESSEE BEING A COMPANY, FIRM, ASSOCIATION OF PERSONS OR HINDU UNDIVIDED FAMILY, O R ANY DIRECTOR OF SUCH COMPANY, PARTNER OF SUCH FIRM OR MEMBER OF THE ASSOCIATION OR FAMILY, OR ANY RELATIV E OF SUCH DIRECTOR, PARTNER OR MEMBER, HAS A SUBSTANTIAL INTEREST IN THE BUSINESS OR PROFESSION OF THAT PERS ON. 9. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS N OT POINTED OUT UNDER WHICH CATEGORY THE CASE OF ASSESSEE FALLS. HOWEVER, LOOKI NG AT THE PREVALENT MARKET RATE AND THE FACTS OF THE PRESENT CASE, INTEREST PA ID @ 15% PER ANNUM COULD NOT BE SAID TO BE EXCESSIVE AND UNREASONABLE. HOW MUCH EXPENDITURE IS REASONABLE IS TO BE LOOKED INTO FROM A VIEWPOINT OF PRUDENT BU SINESSMAN BY IMPELLED COMMERCIAL EXPEDIENCY, WHICH HAS NOT BEEN DONE IN T HIS CASE. IN OUR OPINION, IT WAS INCUMBENT UPON THE ASSESSING OFFICER TO ASSESS FAIR MARKET PRICE AND GIVE COMPARATIVE INSTANCE. IN OUR OPINION, THE ASSESSING OFFICER HAS MISERABLY FAILED TO DISCHARGE THE ONUS AND, HENCE, NO DISALLOWANCE U S/ 40A(2)(B) OF THE ACT IS CALLED FOR. ACCORDINGLY, WE DISMISS GROUND NO.2 OF THE APPEAL. 7 10. IN VIEW OF THE ABOVE, WE HOLD THAT IN THE REVEN UES APPEAL, TAX EFFECT DOES NOT EXCEED THE MONETARY LIMIT OF RS. 10 LAKHS. THUS, IN VIEW OF CIRCULAR NO. 21/2015 DATED 10.12.2015, F.NO. 279/MISC.142/20 07-ITJ(PT), GOVERNMENT. OF INDIA, MINISTRY OF FINANCE, DEPARTMENT OF REVENU E, CENTRAL BOARD OF DIRECT TAXES, THE INSTANT APPEAL DESERVES TO BE TREATED AS WITHDRAWN / NOT PRESSED. VIDE PARA 10 OF THE ABOVE INSTRUCTIONS, THE CBDT HA S CLARIFIED THAT THIS INSTRUCTION WILL APPLY RETROSPECTIVELY TO PENDING A PPEALS AND APPEALS TO BE FILED HENCEFORTH IN ITAT. THE CBDT HAS FURTHER CLARIFIED THAT THE PENDING APPEALS BEFORE THE TRIBUNAL BELOW THE SPECIFIED TAX LIMITS I.E. RS. 10 LAKHS MAY BE WITHDRAWN / NOT PRESSED BY THE REVENUE. IT IS ALSO OBSERVED THAT THE ISSUE INVOLVED IN THESE APPEALS ARE NOT COVERED BY PARA 8 (EXCEPTIONS) OF THE ABOVE INSTRUCTIONS. ACCORDINGLY, THE APPEAL FILED BY THE REVENUE ARE TREATED AS WITHDRAWN / NOT PRESSED. EVEN, ON MERITS ALSO, THE APPEAL IS NOT SUSTAINABLE. ACCORDINGLY, WE DISMISS THE APPEAL. 11. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.03.2016 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 14 TH MARCH, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 8