DCIT RG 9(1), MUMBAI V. DEVA DRILL TECH (I) LTD., MUMBAI

ITA 883/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1132 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-04-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 10-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: STAISH R MODY
• Keywords: Proportionate interest
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 883/MUM/2009 (ASSESSMENT YEAR: 2004-05) DCIT, RANGE 9(1) M/S. DEVA DRILL TECH (I) LTD. ROOM NO. 223, AAYAKAR BHAVAN SUITE # 101, SATNAM SA GAR GOLDEN M.K. ROAD, MUMBAI 400020 VS. CREST CHS LTD., PLOT NO. 9 KHAR (W), MUMBAI 400052 PAN - AACDS 1436 G APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL KUMAR SINGH RESPONDENT BY: SHRI STAISH R. MODY O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-IX, MUMBAI DATED 11.12.2008 AND THE GROUND OF THE REVEN UE IS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFF ICER TO RESTRICT THE DISALLOWANCE OF THE CLAIM OF DEDUCTION U/S 36(1)(II I) TO THE EXTENT OF RS.38,47,255/- OUT OF THE TOTAL CLAIM OF INTEREST O N TERM LOAN OF RS.54,90,613/- HOLDING THAT DISALLOWANCE HAS TO BE RESTRICTED ON THE CLOSING WORK IN PROGRESS OF RS.300.15 LACS FOR ENTIRE F.Y. 2003- 04 AND ON CLOSING WORK IN PROGRESS OF RS.572.58 LAC S FOR 9 DAYS. 2. BRIEFLY STATED, THE A.O. NOTED THAT THE INTEREST PA YMENT ON TERM LOANS IN THE CURRENT YEAR WAS TO THE TUNE OF RS.54,90,613 /-. HE ALSO NOTICED THAT THE ASSESSEE HAD CAPITALISED WORK-IN-PROGRESS TO AN EXTENT OF RS.5,72,57,420/- IN THE YEAR AND CARRIED OVER THE W ORK-IN-PROGRESS WAS ABOUT RS.3,00,15,387/-. THERE WAS ALSO INCREASE IN VALUE OF FIXED ASSETS BY RS.7,57,82,042/-. SINCE THE WORK-IN-PROGRESS IS SOU RCED BY THE LOANS, PARTICULARLY BY TERM LOANS, THE A.O. ASKED WHY INTE REST CLAIM SHOULD NOT BE TREATED IN CAPITAL ACCOUNT AND DISALLOW EXPENDITUR E AS OF CAPITAL IN NATURE UNDER SECTION 36(1)(III) OF THE I.T. ACT. IT WAS TH E CONTENTION THAT AN AMOUNT ITA NO. 883/MUM/2009 2 OF RS.29,22,457/- WAS COVERED BY THE PROVISIONS OF SECTION 43B AND THE BALANCE AMOUNT IS TO BE ALLOWED AS ASSESSEE HAS CAP ITALISED THE WORK-IN- PROGRESS DURING THE YEAR TO AN EXTENT OF RS.5.72 CR ORES AND ACCORDINGLY NOTHING WAS TO BE DISALLOWED. HOWEVER, THE A.O. DID NOT AGREE AND TREATED THE INTEREST TO AN EXTENT OF RS.49,49,160/- ,CONSID ERING THE ENTIRE TERM LOAN PERTAINING TO WORK-IN-PROGRESS CARRIED OVER THE YEA R AND RE-WORKED OUT THE DISALLOWANCE. BEFORE THE CIT(A) IT WAS CONTENDED TH AT THE TERM LOANS ARE FOR THE ENTIRE EXPANSION OF THE UNIT WHICH INCLUDED OWN FUNDS ALSO AND THE DISALLOWANCE HAS TO BE WORKED OUT PROPORTIONATELY. THE WORKING AS GIVEN BEFORE THE CIT(A) WAS AS UNDER: - INTEREST ON CAPITAL WORK IN PROGRESS CAPITALIZED A ND ADDED TO FIXED ASSETS DURING THE RESPECTIVE YEARS (AS PER SECTION 36(1)(III) IS AS UNDER: FINANCIAL YEAR INTEREST CAPITALIZED 2000-01 21,83,618/- 2001-02 47,54,766/- 2002-03 87,92,164/- TOTAL INTEREST CAPITALIZED UPTO 01.04.2003 1,57,30, 548/- TREATMENT OF INTEREST ON TERM LOAN IN F.Y. 2003-04 INTEREST ON TERM LOAN 54,90,613/- LESS: INTEREST DISALLOWED U/S. 43B WHILE COMPUTING INCOME 29,22,4567/- NET ALLOWABLE INTEREST 25,68,156/- CAPITAL WORK IN PROGRESS AS ON 01.04.2003 872.73 LA CS CAPITAL WORK IN PROGRESS CAPITALIZED ON 10.04.2003 572.58 LACS CAPITAL WORK IN PROGRESS YET TO BE CAPITALIZED 300 .15 LACS THEREFORE, THE PROPORTIONATE INTEREST ON CAPITAL WORK IN PROGR ESS OF RS.300.15 LACS FOR THE ENTIRE FINANCIAL YEAR 200 3- 04 (300.15 LACS X RS.25,68,156 / 872.72 LACS) 8,83,252/- THEREFORE INTEREST ON CAPITAL WORK IN PROGRESS OF RS.572.58 LACS FOR 9 DAYS I.E. 01.04.2003 TO 09.04.2003 (572.58 LACS X 25,68,156 / 872.73 LACS) 41,546/- ------------------ THEREFORE INTEREST ON CAPITAL WORK IN PROGRESS OF T HE FINANCIAL YEAR 2003-04 ADMITTED TO BE DISALLOWED 9,24,798/- ITA NO. 883/MUM/2009 3 3. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CIT (A) HAS DECIDED THE ISSUE AS UNDER: - 4. I HAVE GONE THROUGH THE ABOVE FACTS OF THE CASE AND I FIND MERITS IN THE APPELLANTS SUBMISSION THAT THE DISALLOWANCE HA S TO BE RESTRICTED ON THE CWIP OF RS.300.15 LACS FOR THE ENTIRE F.Y. 03-0 4 AND ON CWIP OF RS.572.58 LACS FOR 9 DAYS, SINCE, THE COMMERCIAL PR ODUCTION HAD COMMENCED ON 10.04.2003. THUS THE PROPORTIONATE INT EREST DISALLOWABLE IS WORKED OUT TO RS.9,24,798/-. BESIDES THIS, THE I NTEREST OF RS.29,22,457/- IS ALSO TO BE DISALLOWED U/S. 43B OF THE I.T. ACT. THE AO IS THEREFORE DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS.38,47,255/- OUT OF THE TOTAL CLAIM OF INTEREST O N TERM LOAN OF RS.54,90,613/-. THE TOTAL DISALLOWANCE MADE BY THE AO AMOUNTING TO RS.49,49,160/- IS THUS RESTRICTED TO RS.38,47,255/- . THUS, THE APPELLANT GETS A RELIEF OF RS.11,01,905/-. 4. BEFORE US THE LEARNED D.R. SUPPORTED THE ORDER OF T HE A.O. WHEREAS THE LEARNED A.R. CLARIFIED THE AMOUNTS AS PER THE W ORKING GIVEN BEFORE THE CIT(A). IT WAS SUBMITTED THAT THE ASSESSEE HAS CAPI TALISED MOST OF THE WORK- IN-PROGRESS ON 10.04.2003 AND INTEREST CAPITALIZATI ON UNDER THE PROVISIONS OF SECTION 36(1)(III) WAS PROPORTIONATE FOR 9 DAYS ON RS.572.58 LAKHS AND THE BALANCE WORK-IN-PROGRESS CARRIED OVER AT THE END OF THE YEAR WAS CONSIDERED IN THE RATIO OF LOANS TO THE TOTAL WORK-IN-PROGRESS AND ACCORDINGLY THE DISALLOWANCE WAS CORRECTLY DETERMINED BY THE CIT(A) . 5. WE HAVE CONSIDERED THE ISSUE AND SEEN THE FACTS. WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DOES NOT REQUI RE ANY MODIFICATION AS THE WORKING MADE BY THE A.O. WAS NOT CORRECT. WHILE CON SIDERING THAT THE ASSESSEE HAS CAPITALISED THE WORK-IN-PROGRESS DURIN G THE YEAR AND ALSO INCREASE IN ASSETS AS STATED IN PARA 4 OF THE ORDER , HE ARRIVED AT THE DISALLOWANCE OF RS.49,49,160/- WITHOUT GIVING ANY B ASIS FOR ARRIVING AT THAT AMOUNT. OUT OF THE TOTAL CLAIM OF RS.54,90,613/- TH E ASSESSEE ITSELF DISALLOWED AN AMOUNT COVERED BY SECTION 43B TO AN E XTENT OF RS.29,22,457/- AND OUT OF THE NET ALLOWABLE INTEREST OF RS.25,68,1 56/- AO CONSIDERED AN AMOUNT OF RS.49,49,160/- FOR DISALLOWANCE. SINCE TH E ASSESSING OFFICERS BASIS FOR DISALLOWANCE IS NOT CORRECT, THE CIT(A) H AS CORRECTLY ARRIVED AT THE ITA NO. 883/MUM/2009 4 DISALLOWANCE. BASED ON THESE FACTS, THERE IS NO MER IT IN THE CONTENTIONS OF THE REVENUE. ACCORDINGLY THE GROUND IS REJECTED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH JULY 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9 TH JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IX, MUMBAI 4. THE CIT IX, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.