ACIT, Ludhiana V. M/s Raghav Woollen Mills, Ludhiana

ITA 892/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9212 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 05-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 10-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Deemed to accrue or arise in india; Cost of acquisition; Fair market value; Capital receipt; Unabsorbed depreciation
• Section: 69C; 133A; 32; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 892/CHD/2015 ASSESSMENT YEAR: 2011-12 THE ACIT, VS M/S RAGHAV WOOLLEN MILLS, CIRCLE - 1, HB-14-15, PHASE VI, LUDHIANA. FOCAL POINT, LUDHIANA. PAN: AADFR0089F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 25.07.2016 DATE OF PRONOUNCEMENT : 01.08.2016 O R D E R THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF LD. CIT(APPEALS)-1 LUDHIANA DATED 30.09.2015 FOR ASSESSMENT YEAR 2011-2012. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW. 3. ON GROUND NOS. 1 AND 2, REVENUE CHALLENGED THE ORDER OF LD. CIT(APPEALS) IN ALLOWING THE ASSESSEE TO SET OFF UNABSORBED DEPRECIATION UPTO THE EXTENT OF RS. 50 2 LACS AGAINST THE DEEMED INCOME UNDER SECTION 69, 69 A, 69B AND 69C OF THE INCOME TAX ACT. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT DURING TH E COURSE OF SURVEY PROCEEDINGS, CERTAIN DISCREPANCIES WERE FOUND. TO COVER UP THESE DISCREPANCIES, ASSESSEE VOLUNTARILY DISCLOSED ADDITIONAL INCOME OF RS. 50 L ACS UNDER THE HEAD CASH RS. 8,23,000/-, RECEIVABLE RS. 19,98,500/- AND STOCK RS. 21,78,500/- ( TOTAL RS. 50 LACS). THE ASSESSING OFFICER FOUND THAT THE INCOME TAX RETURN FILED BY THE ASSESSEE FIRM FOR THE YEAR UNDE R APPEAL, IT WAS REVEALED THAT FIRM HAD DECLARED LOSS OF RS. 38,56,371/- INCLUDING THE SURRENDERED INCOME OF RS. 50 LACS. THE ASSESSEE HAD SHOWN LESS INCOME THEREF ORE, EXPLANATION OF THE ASSESSEE WAS CALLED FOR WITH REF ERENCE TO THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH CO URT RENDERED IN THE CASE OF KIM PHARMA PVT. LTD. AND ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY THE INCOME VOLUNTARILY DISCLOSED DURING SURVEY SHOULD N OT BE SEPARATELY ASSESSED AS DEEMED INCOME UNDER SECTI ON 69, 69A, 69B AND 69C. THE ASSESSEE FILED DETAILED R EPLY BEFORE ASSESSING OFFICER TO EXPLAIN THE ABOVE SURRENDERED AMOUNT. THE ASSESSING OFFICER AFTER CONSIDERING REPLY OF THE ASSESSEE AND FOLLOWING DEC ISION IN THE CASE OF KIM PHARMA PVT. LTD.(SUPRA) HELD THA T INCOME DISCLOSED DURING THE COURSE OF SURVEY WAS TO BE TAXED AS DEEMED INCOME. IT WAS ALSO HELD THAT AGAI NST 3 THE DEEMED INCOME, SET OFF OF BUSINESS LOSS/DEPRECI ATION LOSS CANNOT BE ALLOWED. 5. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND DETAILED WRITTEN SUBMISSION OF THE ASSESSEE IS NOTED IN WHICH ASSESSEE ALSO MADE A CLA IM THAT REQUEST WAS MADE AT ASSESSMENT STAGE TO ADJUST THE UNABSORBED DEPRECIATION CLAIM UNDER SECTION 32(2) O F THE INCOME TAX ACT AGAINST THE SURRENDERED AMOUNT A S PER PROVISIONS OF THE ACT. IT WAS PLEADED THAT THE ADJUSTMENT OF CURRENT YEAR OR UNABSORBED DEPRECIATI ON CAN BE MADE AGAINST SUCH DEEMED INCOME AS PER DECISION OF JURISDICTIONAL ITAT CHANDIGARH BENCH IN THE CASE OF LIBERTY PLYWOOD PVT. LTD. IN ITA 727/2012 V IDE ORDER DATED 17.12.2012. THE LD. CIT(APPEALS) CONFI RMED THE ADDITION OF RS. 50 LACS ON ACCOUNT OF DEEMED IN COME UNDER SECTION 69, 60A, 69B AND 69C OF THE INCOME TA X ACT. 6. ON THE SAME ISSUE, THE ASSESSEE ALSO CONTENDED THAT ADJUSTMENT OF DEPRECIATION OF CURRENT YEAR AGA INST DEEMED INCOME IS PERMISSIBLE. THE ASSESSING OFFICER HELD THAT INCOME OF THE ASSESSEE SURRENDERED DURING SURVEY UNDER SECTION 133A TO BE TREATED AS DEEMED INCOME UNDER SECTION 69, 69A, 69B AND 69C AND THE SAME CANNOT BE SET OFF AGAINST BUSINESS LOSS/DEPRECIATION LOSS. THE ASSESSEE REITERATED TH E SAME SUBMISSIONS BEFORE LD. CIT(APPEALS) AND SUBMIT TED THAT THERE WAS NO ISSUE OF SET OFF OF DEPRECIATION 4 INCLUDING UNABSORBED DEPRECIATION UNDER SECTION 32 AGAINST THE AMOUNT SURRENDERED IN SURVEY AND TREATE D AS DEEMED INCOME. ON THE SAME FACTS, ITAT CHANDIGAR H BENCH IN THE CASE OF LIBERTY PLYWOOD PVT. LTD. (SUP RA), AFTER CONSIDERING DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KIM PHARMA PVT. L TD. (SUPRA) HAS HELD THAT DEPRECIATION UNDER SECTION 32 CAN BE ADJUSTED AGAINST THE SO CALLED DEEMED INCOME, TH E AMOUNT SURRENDERED IN SURVEY WITHOUT HAVING ANY NEX US OF NATURE AND SOURCE. IT WAS SUBMITTED THAT FACTS OF THE CASE OF THE ASSESSEE ARE SIMILAR TO THAT OF IN THE CASE OF M/S LIBERTY PLYWOOD PVT. LTD. (SUPRA). THE ASSESSE E, THEREFORE, CLAIMED THAT UNABSORBED DEPRECIATION MAY BE ALLOWED SET OFF AGAINST DEEMED INCOME. THE LD. CIT(APPEALS), FOLLOWING THE DECISION OF CHANDIGARH BENCH IN THE CASE OF M/S LIBERTY PLYWOOD PVT. LTD. (SUPRA) AND SPECIAL BENCH IN THE CASE OF DCIT VS TI MES GUARANTY LTD. (SUPRA), ALLOWED THE APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 4.2 OF THE APPELLAT E ORDER ARE REPRODUCED AS UNDER : 4.2 I HAVE CONSIDERED THE FACTS OF THE CASE, THE BA SIS OF ADDITION AND THE SUBMISSIONS DURING THE COURSE OF THE ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. THE ASSESSING OFFICER CONSIDERED THE S URRENDERED INCOME AS DEEMED INCOME U/S 69A,69B AND 69C AND THE SAME WAS NOT ALLOWED TO BE SET OFF AGAINST BUSINESS LOSS/DEPRECIATION LOSS BY RELY ING ON THE JUDGMENT OF THE HON'BLE ITAT CHANDIGARH BENCH IN THE CASE OF M/S LI BERTY PLYWOOD PVT. LTD., ITA NO.727/CHD/2012 VIDE ORDER DATED 17/12/2012. HO WEVER, ON A PERUSAL OF THE SAID DECISION IT IS SEEN THAT IT HAS BEEN DIREC TED IN THE SAID ORDER TO ALLOW SET-OFF OF UNABSORBED DEPRECIATION OF CURRENT YEAR FROM DEEMED INCOME 5 SURRENDERED DURING THE SURVEY. IN THE SAID CA SE IT HAS BEEN OBSERVED THAT THE DECISION OF HON'BLE PUNJAB AND HARYANA HIGH COURT I N THE CASE OF M/S KIM PHARMA (P) LTD. VS. CIT. IT WAS HELD THAT SURRENDER ED INCOME DURING THE SURVEY HAS TO BE ASSESSED SEPARATELY AS DEEMED INCO ME AND SET-OFF OF LOSSES UNDER SECTION 70 AND 70(1) WAS NOT POSSIBLE AGAINST SUCH INCOME. HOWEVER, THE SAID DECISION DOES NOT DEAL WITH THE ISSUE OF SETTI NG OFF OF DEPRECIATION UNDER SECTION 32(2) AND THAT UNABSORBED DEPRECIATIO N WHICH IS CARRIED FORWARD AS CURRENT DEPRECIATION U/S 32(2) IS CLEAR LY AVAILABLE FOR SETTING-OFF. THE HON'BLE 1TAT REFERRED TO THE CASE OF THE SPECIAL BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF DC1T VS. GUARAN TY LTD. (2010) 4 ITR (TRIB) 210 (MUM) SB FOR THE SAME AND HELD AS UNDER: - 'FROM THE ABOVE IT IS CLEAR THAT UNABSORBED DEPRECI ATION FOR THE BLOCK OF ASSESSMENT YEAR 1997-98 TO 2001-02 WHI CH COULD NOT HAVE BEEN SET OFF EARLIER, CANNOT BE ALLO WED TO BE SET OFF NOW. THEREFORE, WE SET ASIDE THE ORDER OF T HE ID. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASS ESSING OFFICER WITH A DIRECTION TO ONLY ALLOW SET OFF OF UNABSORBED DEPRECIATION WHICH IS OUTSIDE THE BLOCK OF ASSESSMENT YEAR 1997-98 TO 2001-02.' ACCORDINGLY, THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN NOT ADJUSTING DEPRECIATION OF CURRENT YEAR AGAINST THE DEEMED INC OME. THUS, THESE GROUNDS OF APPEAL ARE ALLOWED. 7. THE LD. DR RELIED UPON ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT IN THE CASE OF M/S KIM PHARMA PVT. LTD. (SUPRA), THE DECISION OF GUJRAT HI GH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN V CIT 247 ITR 290 HAVE BEEN FOLLOWED AND HON'BLE HIGH COURT H ELD THAT THE SAID DECISION FULLY APPLY TO THE FACTS OF THE CASE. THEREFORE, UNABSORBED DEPRECIATION CANNOT BE SET OFF. 6 7(I) ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT THE IDENTICAL ISSUE WAS CONSIDERED BY ITAT CHANDIGARH BENCH IN THE CASE OF M/S LIBERTY PLYWOOD PVT. LTD. (SUPRA) IN WHICH THE TRIB UNAL CONSIDERED THE DECISION IN THE CASE OF M/S KIM PHAR MA PVT. LTD. AND HELD AS UNDER : 10 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY . THE MAIN CONTROVERSY INVOLVED IS WHETHER THE SURRENDER INCOM E AMOUNTING TO RS. 70.00 LAKHS SHOULD BE TREATED AS B USINESS INCOME SO AS TO SET OFF BROUGHT FORWARD LOSSES U/S 70 OF THE ACT AS WELL AS THE DEPRECIATION U/S 32(2). AS FAR A S THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. D.P. SANDHU BROS. CHEMBUR, P. LTD. (SUPRA) IS CONCERNED, WE FIND THAT FACTS IN THAT CASE ARE TOTALLY DIFFERENT. IN THAT CASE THE ASSESSEE HAD SOLD TENANCY RIGHTS FOR RS. 35.00 LAKHS WHICH WERE CLAIMED TO BE NON-TAXABLE. HOWEVER, THE ASSESSING OFFICER ASSESSED THE SAME AS INCOME FROM OTHER SOURCES U/S 10(3) OF THE ACT. ON ASSESSEE'S APPEAL THE COMMISSIONER HELD THAT THE SUM WAS TAXABLE UNDER THE HEAD 'CAPITAL GAIN'. HE DETERMINED THE COST OF ACQU ISITION ON THE BASIS OF FAIR MARKET VALUE AND SUBJECTED THE RECEIPT FOR TENANCY RIGHTS AFTER REDUCING THE COST OF SUCH RIGHTS AS ASSESSABLE UNDER THE HEAD 'CAPITAL GAIN'. ON FURTHE R APPEAL, THE TRIBUNAL HELD THAT THOUGH THE INCOME WAS ASSESS ABLE UNDER THE HEAD 'CAPITAL GAIN' BUT SINCE THERE WAS N O COST OF ACQUISITION AND THEREFORE, FOLLOWING THE DECISION O F HON'BLE SUPREME COURT IN CASE OF CIT V. B.C. SRINIVASA SETT Y, 128 ITR 294 IT WAS HELD THAT SINCE THE CAPITAL GAIN CAN NOT BE COMPUTED, THE SAME WAS NOT TAXABLE. ON REVENUE'S AP PEAL TO THE HIGH THE ISSUE WAS DECIDED AGAINST THE DEPARTME NT. WHEN THIS MATTER TRAVELED TO THE HON'BLE SUPREME COURT A FTER 7 DETAILED DISCUSSION, IT WAS HELD THAT TENANCY RIGHT S CONSTITUTED CAPITAL ASSETS. WHILE DEALING WITH THE ALTERNATIVE ARGUMENT OF THE REVENUE THAT SALE TENANCY RIGHTS SHOULD BE T AXABLE UNDER THE HEAD OF INCOME FROM OTHER SOURCES THE HON 'BLE APEX COURT OBSERVED AT PLACITUM 14 TO 16 AS UNDER:- 'SECTION 14 OF THE INCOME-TAX ACT, 1961 AS IT STOOD AT EH RELEVANT TIME SIMILARLY PROVIDED THAT 'ALL INCOME S HALL FOR THE PURPOSE OF CHARGE OF INCOME-TAX AND COMPUTATION OF TOTAL INCOME BE CLASSIFIED UNDER SIX HEADS OF INCOME', NA MELY:- (A) SALARIES; (B) INTEREST ON SECURITIES; (C) INCOME FROM HOUSE PROPERTY; (D) PROFITS AND GAINS OF BUSINESS OR PROFESSION; (E) CAPITAL GAINS; (F) INCOME FROM OTHER SOURCES UNLESS OTHERWISE, PROVIDED IN THE ACT HAS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THE ACT, ONLY IF IT IS NOT CHARGEABLE TO INCOME TAX UNDER ANY OF THE HEADS SPECIFIED IN SECT ION 14, ITEMS A TO E. THEREFORE, IF THE INCOME IS INC LUDED UNDER ANY ONE OF THE HEADS, IT CANNOT BE BROUGHT TO TAX UNDER THE RESIDUARY PROVISIONS OF SECTION 56. THERE IS NO DISPUTE THAT A TENANCY RIGHT IS A CAPIT AL ASSET THE SURRENDER OF WHICH WOULD ATTRACT SECTION 45 SO THAT THE VALUE RECEIVED WOULD BE CAPITAL RECEIPT AND ASSESSA BLE IF AT ALL ONLY UNDER ITEM E OF SECTION 14. THAT BEI NG SO, IT CANNOT BE TREATED AS A CASUAL OR NONRECURRING RECEI PT U/S 10(3) AND BE SUBJECTED TO TAX U/S 56. THE ARGUMENT OF THE APPELLANT THAT EVEN IF THE INCOME CANNOT BE CHARGEABLE U/S 45. BECAUSE OF THE INAPPLICABILITY O F THE COMPUTATION PROVIDED U/S 48, IT COULD STILL IMP OSED TAX UNDER THE RESIDUARY HEAD AS FHUS UNACCEPTABLE. IF T HE INCOME CANNOT BE TAXED U/S 45, IT CANNOT BE TAXED A T ALL. (SEE S.G. MERCANTILE CORPORATION P. LTD. V CIT (197 2) 83 ITR 700 (S.C).' 11 THUS IT IS CLEAR FROM THE ABOVE THAT ONCE THE ITEM OF RECEIPT IS HELD TO BE FALLING UNDER A PARTICULAR HEAD THEN THE SAME CANNOT BE CHARGED ALTERNATIVELY UNDER ANOTHER HEAD PARTICULARLY UNDER THE HEAD 'INCOME FROM OTHER SOUR CES'. THIS OBSERVATION CAN NOT LEAD TO THE CONCLUSION IF INCOM E DOES NOT BELONG TO A PARTICULAR HEAD SAME CANNOT BE CHARGED AT ALL. AS FAR AS THE DECISION OF AHMEDABAD BENCH OF THE TR IBUNAL IN CASE OF FASHION WORD V ACIT, ITA NO. 1634/AHD/2006 (SUPRA) IS CONCERNED INTERPRETING THE DECISION OF H ON'BLE HIGH COURT IN CASE OF FASHION WORD V ACIT, ITA NO. 1 634/AHD/2006 (SUPRA) HAS TO GIVE A WAY TO INTERPRET ATION PUT ON THE SAME DECISION BY THE HON'BLE PUNJAB & HARYAN A HIGH COURT IN CASE OF M/S KIM PHARMA (P) LTD. V. CIT, IT A NO. 8 106 OF 2011 (O&M), HON'BLE HIGH COURT CLEARLY HELD THAT SURRENDERED INCOME CAN BE TAXED AS DEEMED INCOME WI THOUT SETTING OFF OF THE LOSSES U/S 70 & 71. WE ARE BOUND TO FOLLOW THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT AND FOLLOWING THE SAME, WE HOLD THAT SURRENDERED INCOME HAS TO BE ASSESSED SEPARATELY AS DEEMED INCOME. 12. COMING TO THE ISSUE OF SETTING OFF OF DEPRECIAT ION U/S 32(2), FIRST OF ALL IT HAS TO BE NOTICED THAT T HE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF M /S KIM PHARMA (P) LTD. V. CIT, (SUPRA) HELD THAT SURRE NDERED INCOME DURING THE SURVEY HAS TO BE ASSESSED SEPARAT ELY AS DEEMED INCOME AND SET OFF OF LOSSES U/S 7 0 & 71 WAS NOT POSSIBLE AGAINST SUCH INCOME. HOWEVER, IT IS CLEAR THAT THIS DECISION DOES NOT DEAL WITH THE ISSUE OF SETTI NG OFF OF DEPRECIATION U/S 32(2). SECTION 32(2) READS AS UNDE R : 32(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FUL L EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB-SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE TO THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE B EING LESS THAN THE ALLOWANCE, THEN SUBJECT TO THE PROVISIONS OF SUB-SE CTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS TH E CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR D EPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DEEMED TO BE PART OF TH AT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEA R, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS.] THE PLAIN READING OF THE ABOVE CLEARLY SHOWS THAT I F THE DEPRECIATION CANNOT BE FULLY ADJUSTED AGAINST PROFITS AND GAINS CHARGEABLE IN THE RELEVANT YEAR BECAUSE OF INEFFICIENCY OF THE PROFIT S THEN THE SAME WOULD BE ADDLED TO THE DEPRECIATION OF THE FOLLOWING YEAR . THIS MEANS THAT UNABSORBED DEPRECIATION WHICH CAN NOT BE SET OFF IN A PARTICULAR YEAR, WOULD BECOME CURRENT DEPRECIATION IN THE FOLLOWING YEAR AND THERE IS NO RESTRICTION AGAINST SUCH SET OFF. THEREFORE, UN- ABSORBED DEPRECIATION WHICH IS CARRY FORWARD AS CURRENT DEPRECIATION U/S 32(2) IS CLEARLY AVAILABLE FOR SETTING OFF AND SIMILAR VIEW WAS TAKE N BY THE AHMEDABAD 9 BENCH OF THE TRIBUNAL IN CASE OF ITO V. HYTAISUN MA GNETICS LTD. ITAS NO. 2897 & 2898/AHD/2008 HELD AS UNDER: 'WE FIND THAT IT IS NOT IN DISPUTE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD INCOME OF RS. 2,34,10,540/- ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES IN VIEW OF PROVISIONS OF SECTION 69 OF THE ACT. FURTHER IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAD BROUGHT FORWARD UNABSORBED DEPRECIATION OF RS. 10.13 CRORES IN ASSESSMENT YEAR 1993-94 , RS. 1.59 CRORES IN ASSESSMENT YEAR 1994-95 AND RS. 68.14 LAKHS IN ASSESSMENT YEAR 1995-96 WHICH IS AVAILABLE FOR SET OFF AGAINST INCOME OF THE CURRENT YEAR. AS PER PROVISIONS OF SECTION 32(2) UNABSORBED DEPRECIATION ARE DEEMED AS PART OF CURRENT YEAR'S DEPRECIATION TO THE EXTENT OF AVAILABLE INCOME. FURTHER THERE IS NO PROVISIONS UNDER THE INCOME TAX ACT TO PROHIBIT SET OFF OF CURRENT YEAR'S BUSINESS LOSS AGAINST INCOME OF THE ASSESSEE WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. SECTION 70 DOES NOT PROHIBIT SUCH SET OFF. 13 HOWEVER, THIS PROVISION HAS BEEN AMENDED TWICE W .E.F. 1.41997 BY FINANCE ACT (NO. 2 OF 1996) AND AGAINST ON 1.4.2002 BY FINANCE ACT, 2001. CERTAIN RESTRICTIONS WERE INTRODUCED AGAIN SET OFF OF BY SUCH UNABSORBED DEPRECIATION. CONTROVERSY ALSO AROSE IN THIS RESPECT. ULTIMATELY THE MATTER TRAVELED TO THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DCI T V. TIMES GUARANTY LTD. (2010) 4 ITR (TRIB ) 210 (MUM)(SB). I N THIS CASE IT WAS HELD AS UNDER : 'UNDER SECTION 32(2) OF THE INCOME-TAX ACT, 1961, P RIOR TO ITS SUBSTITUTION, BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM APRIL 1,1997 THE CURRENT DEPRECIATION UNDER SECTION 32(1) COULD BE ADJUSTED AGAINST INCOME UNDER ANY HEAD INCLUDING 'C APITAL GAINS' AND 'INCOME FROM HOUSE PROPERTY' IN THE SAME YEAR. IF THERE REMAINED SOME UNADJUSTED DEPRECIATION ALLOWANCE, THAT WAS CA RRIED FORWARD IN THE FOLLOWING YEAR(S) FOR SET OFF AGAINST INCOME UNDER ANY OTHER HEADS JUST LIKE CURRENT DEPRECIATION ALLOWANCE UNDER SECTION 32(1) PERTAINING TO SUCH YEAR. UNDER SUB-SECTION (2) OF SECTION 32 AS SUBSTITUTED BY THE FINANCE (NO. 2) ACT, 1996, WITH EFFECT FROM APRIL 1,1997, T HE SCOPE OF SET-OFF OF THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE W AS RESTRICTED TO THE INCOME UNDER THE HEAD 'PROFITS AN D GAINS OF BUSINESS OR PROFESSION'. UNDER CLAUSE (I) OF SUBSTITUTED SUB -SECTION (2), THE 10 UNABSORBED DEPRECIATION ALLOWANCE COULD BE SET OFF AGAINST 'PROFITS AND GAINS' OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSES FOR THAT ASSESSMENT YEAR. UNDER CLAUSE (II) OF SUB-SECT ION (2) IF THE UNABSORBED DEPRECIATION ALLOWANCE COULD NOT BE WHOL LY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF COULD BE SET OFF FROM THE 'INCOME UNDER ANY OTHER HEAD', IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR. THE PROVISION FOR CARRY FORWARD AND SET-OFF OF UNAB SORBED DEPRECIATION FOR ANY NUMBER OF YEARS AGAINST INCOME UNDER ANY HEAD, WAS FURTHER DILUTED BY WAY OF CLAUSE (III)(B) TO SECTION 32(2) RESTRICTING THE RIGHT TO SET-OFF OF UNABSORBED DEPR ECIATION FOR A PERIOD OF NOT MORE THAN EIGHT ASSESSMENT YEARS SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE ALLOWANCE WAS FIRST COMPUTED. THIS PART O F THE PROVISION DID NOT DEAL WITH THE TREATMENT OF UNADJUSTED BROUGHT F ORWARD DEPRECIATION ALLOWANCE FOR AND UP TO THE ASSESSMENT YEAR 1996-97 . THE FINANCE MINISTER CLARIFIED THE AMENDMENT AS PROSPECTIVE INA SMUCH AS THE CUMULATIVE UNABSORBED DEPRECIATION BROUGHT FORWARD AS ON APRIL 1, 1997, COULD BE SET OFF AGAINST TAXABLE PROFITS OR I NCOME UNDER ANY OTHER HEAD FOR THE ASSESSMENT YEAR 1997-98 AND SEVE N SUBSEQUENT ASSESSMENT YEARS. IN OTHER WORDS, THE PERIOD OF EIG HT YEARS UNDER CLAUSE (III)(B) OF SECTION 32(2) CAME TO BE RECKONED FROM ASSESSMENT YEAR 1997-98 IRRESPECTIVE OF THE FACT THAT THE UNADJUSTED BROUGH T FORWARD DEPRECIATION AROSE IN AN EARLIER ASSESSMENT YEAR. THUS, ON THE S TRENGTH OF THE CLARIFICATION GIVEN BY THE FINANCE MINISTER, THE UN ADJUSTED DEPRECIATION BROUGHT FORWARD UP TO APRIL 1,1997 BECAME ELIGIBLE FOR SET OFF NOT ONLY AGAINST THE BUSINESS INCOME BUT ALSO AGAINST INCOME UNDER OTHER HEADS IN EIGHT ASSESSMENT YEARS. TWO LIKE EXPRESSIONS ARE USED IN SUB-SECTION (2), VIZ, FIRSTLY, 'PROFITS OR GAINS ' IN THE MAIN PART OF SUB-SECTION (2) AND THEN 'PROFITS AND GAIN' IN CLAUSE (I). THE EXPR ESSION 'PROFITS AND GAINS' AS USED IN CLAUSE (I) OR (III)(A) REFERS ONL Y TO INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SECTION 32(2) WAS AGAIN SUBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM APRIL 1, 2002 RESTORING THE PROVIS ION AS PREVAILING PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM APRIL 1,1997. 11 SUB-SECTION (2) OF SECTION 32 IS A SUBSTANTIVE PROV ISION AND NOT A PROCEDURAL ONE. IT IS SETTLED LEGAL POSITION THAT THE AMENDMENT TO A SUBSTANTIVE PROVISION IS NORMALLY PROSPECTIVE UNLES S EXPRESSLY STATED OTHERWISE OR IT APPEARS SO BY NECESSARY IMPLICATION . IT IS NOWHERE SEEN EITHER FROM THE NOTES ON CLAUSES OR MEMORANDUM EXPL AINING THE PROVISION OF THE FINANCE BILL 2001, THAT SUBSTITUTI ON OF SUB-SECTION (2) OF SECTION 32 IS RETROSPECTIVE. THEREFORE, THE SUBS TANTIVE PROVISION CONTAINED IN SECTION 32(2) AS SUBSTITUTED BY THE FI NANCE ACT, 2001 WITH EFFECT FROM APRIL 1, 2002, IS PROSPECTIVELY APPLICA BLE TO 'THE ASSESSMENT YEAR 2002-03 ONWARDS. SECTION 32(2) IS A DEEMING PROVISION AND BY A LEGAL FICTION, THE AMOUNT OF DEPRECIATION ALLOWANCE UNDER SECTION 32(1 ) WHICH IS NOT FULLY ABSORBED AGAINST INCOME FOR THAT YEAR IS DEEM ED TO BE PART OF THE DEPRECIATION ALLOWANCE FOR THE SUCCEEDING YEAR(S). A DEEMING PROVISION CANNOT BE EXTENDED BEYOND THE PURPOSE FOR WHICH IT IS INTENDED. SECTION 32(1) DEALS WITH DEPRECIATION ALL OWANCE FOR THE CURRENT YEAR. IT IS ONLY WHEN THE ASSESSMENT OF THE ASSESSES FROM ASSESSMENT YEAR 2002-03 ONWARDS IS MADE IN WHICH DE PRECIATION ALLOWANCE FOR THE CURRENT YEAR UNDER SECTION 32(1) CANNOT BE GIVEN FULL EFFECT, OWING TO THE INADEQUACY OF PROFITS, TH AT THE DIRECTIVE OF THE DEEMING PROVISION UNDER SECTION 32(2) SHALL APPLY. WHEREVER THERE IS MENTION OF LOSS UNDER A PARTICULA R HEAD FOR THE CURRENT YEAR WHICH IS SOUGHT TO BE SET OFF AGAINST THE INCOME UNDER THE SAME HEAD OR OTHER HEADS OF THE INCOME FOR THAT VER Y YEAR, THE WORDS 'CANNOT BE' AND 'HAS NOT BEEN' HAVE BEEN BROUGHT IN TO PLAY. THE WORDS, 'CANNOT BE' AND 'HAS NOT BEEN' USED IN THE P RESENT TENSE IN SECTION 32(2) SUGGEST THAT THE REFERENCE TO DEPRECI ATION ALLOWANCE UNDER SECTION 32(1), WHICH COULD NOT BE ADJUSTED DU E TO INADEQUACY OF PROFITS, IS FOR THE CURRENT YEAR ALONE STARTING FRO M ASSESSMENT YEAR 2002-03 ONWARDS. THE BROUGHT FORWARD UNABSORBED DEP RECIATION OF EARLIER YEARS CANNOT BE INCLUDED WITHIN THE SCOPE O F SECTION 32(2). IN SECTION 32(2) THE DEPRECIATION ALLOWANCE FOR THE CURRENT YEAR TO WHICH FULL EFFECT CANNOT BE GIVEN DUE TO THE PAUCIT Y OF PROFITS, HAS BEEN REFERRED TO AS 'UNABSORBED DEPRECIATION ALLOWA NCE'. SUCH UNABSORBED DEPRECIATION ALLOWANCE FOR THE ASSESSMEN T YEARS 1997-98 TO 2001-02 STRICTLY COMES UNDER SECTION 32(2) AS 'U NABSORBED 12 DEPRECIATION ALLOWANCE'. AS THE LANGUAGE OF THIS DE EMING PROVISION DOES NOT TALK OF ANY BROUGHT FORWARD 'UNABSORBED DE PRECIATION ALLOWANCE' OR DEPRECIATION ALLOWANCE WHICH COULD NO T BE GIVEN EFFECT TO IN THE EARLIER YEARS THAT RESULTANTLY BECAME PAR T OF SECTION 32(2), THERE IS NO QUESTION OF EXPANDING THE SCOPE OF THE LEGAL FICTION. THE PURPOSE OF A LEGAL FICTION IN SECTION 32(2) IS TO MAKE THE UNABSORBED CARRIED FORWARD DEPRECIATION PARTAKE OF THE SAME CHARACTER AS THE CURRENT DEPRECIATION IN THE FOLLOW ING YEAR. IN OTHER WORDS THE OBJECT OF THE PROVISION IS TO TREAT THE W HOLE OR PART OF THE DEPRECIATION ALLOWANCE UNDER SECTION 32(1), WHICH C OULD NOT BE ADJUSTED IN THE FIRST YEAR, AS THE CURRENT DEPRECIA TION UNDER SECTION 32(1) IN THE SECOND YEAR. IN THE SECOND YEAR, SUCH DEPRECIATION OF FIRST YEAR BECOMES PART AND PARCEL OF DEPRECIATION UNDER SECTION 32(1) OF THE SECOND YEAR. IF AGAIN IN THE SECOND YEAR, THE T OTAL OF DEPRECIATION UNDER SECTION 32(1) (INCLUDING THE AMOUNT OF ALLOWA NCE WHICH CAME FROM FIRST YEAR AND BECAME DEPRECIATION UNDER SECTI ON 32(1) IN THE SECOND YEAR) CANNOT BE ABSORBED, IT SHALL BECOME CU RRENT DEPRECIATION FOR THE THIRD YEAR TO BE DEALT WITH IN THE SAME MANNER AS THE AMOUNT OF DEPRECIATION IN THE THIRD YEAR AND SO ON. ONCE THE UNABSORBED DEPRECIATION LOR THE FIRST YEAR IS GIVEN THE CHARACTER OF CURRENT DEPRECIATION IN THE SECOND YEAR, THE PURPOS E OF SECTION 32(2) IS FULFILLED. THE 'UNABSORBED DEPRECIATION ALLOWANC E' OF THE PERIOD AFTER SUBSTITUTION BY THE FINANCE (NO. 2) ACT, 1996 CANNOT BE GIVEN THE CHARACTER OF CURRENT DEPRECIATION IN THE ASSESS MENT YEARS AFTER SUBSTITUTION WITH EFFECT FROM APRIL 1, 2002. 711 (SC) RELIED ON. THEREFORE, THE LAW PREVAILING AS ON THE 1ST APRIL O F THE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS DOES NOT PERMIT T HE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE OF THE PE RIOD AFTER SUBSTITUTION BY THE FINANCE (NO. 2) ACT, 1996 TO AS SUME THE CHARACTER OF DEPRECIATION UNDER SECTION 32(1) IN THESE ASSESS MENT YEARS. IF THERE IS BOTH REPEAL OF THE OLD PROVISION AND SI MULTANEOUS INSERTION OF A NEW PROVISION IN ITS PLACE, IT IS CALLED 'SUBS TITUTION'. BUT FOR THE RELAXATION GIVEN BY THE FINANCE MINISTER IN PARLIAM ENT, THE BROUGHT 13 FORWARD UNADJUSTED DEPRECIATION OF THE PERIOD PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT F ROM APRIL 1,1997 WOULD HAVE ELAPSED. THERE IS NO SUCH CONCESSION GIV EN BY THE FINANCE MINISTER WHILE SUBSTITUTING THE PROVISIONS OF SECTI ON 32(2) WITH EFFECT FROM APRIL 1, 2002. THEREFORE, THE BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE OF THE PERIOD AFTER SUBSTITU TION BY THE FINANCE (NO. 2) ACT, 1996 CANNOT BE TREATED AS THE CURRENT DEPRECIATION IN THE ASSESSMENT YEARS UNDER CONSIDERATION. THE POSITION CAN BE SUMMED UP AS FOLLOWS : FOR THE ASSESSMENT YEARS 1997-98 TO 2001-02 BROUGHT FORWARD UNADJUSTED DEPRECIATION ALLOWANCE FOR AND UP TO ASS ESSMENT YEAR 1996- 97 (THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE'), WHICH COULD NOT BE SET OFF UP TO ASSESSMENT YEAR 1996-97, SHALL BE CAR RIED FORWARD FOR SET OFF AGAINST INCOME UNDER ANY HEAD FOR A MAXIMUM PER IOD OF EIGHT ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 1997 -98. CURRENT DEPRECIATION FOR THE YEAR UNDER SECTION 32(1) (FOR EACH YEAR SEPARATELY STARTING FROM ASSESSMENT YEARS 1997-98 UP TO 2001-0 2) CAN BE SET OFF FIRSTLY AGAINST BUSINESS INCOME AND THEN AGAINST IN COME UNDER ANY OTHER HEAD. THE AMOUNT OF CURRENT DEPRECIATION FOR ASSESS MENT YEARS 1997-98 TO 2001-02 WHICH CANNOT BE SO SET OFF, THE 'SECOND UNABSORBED DEPRECIATION ALLOWANCE', SHALL BE CARRIED FORWARD F OR A MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS FROM THE ASSESSMEN T YEAR IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH IT WAS FIR ST COMPUTED, TO BE SET OFF ONLY AGAINST THE INCOME UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. FOR THE ASSESSMENT YEAR 20 02-03 ONWARDS THE 'FIRST UNADJUSTED DEPRECIATION ALLOWANCE' CAN BE SE T OFF UP TO ASSESSMENT YEAR 2004-05, THAT IS, THE REMAINING PER IOD OUT OF MAXIMUM PERIOD OF EIGHT ASSESSMENT YEARS AGAINST INCOME UND ER ANY HEAD. THE 'SECOND UNABSORBED DEPRECIATION ALLOWANCE' CAN BE S ET OFF ONLY AGAINST THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION' WITHIN A PERIOD OF EIGHT ASSESSMENT YEARS SUCCEEDIN G THE ASSESSMENT YEAR FOR WHICH IT WAS FIRST COMPUTED. CURRENT DEPRE CIATION FOR THE YEAR UNDER SECTION 32(1), FOR EACH YEAR SEPARATELY, STAR TING FROM ASSESSMENT YEAR 2002-03 CAN BE SET OFF AGAINST INCOME UNDER A NY HEAD. THE AMOUNT OF DEPRECIATION ALLOWANCE NOT SO SET OFF (TH E 'THIRD UNADJUSTED DEPRECIATION ALLOWANCE') SHALL BE CARRIED FORWARD T O THE FOLLOWING YEAR. THE 'THIRD UNADJUSTED DEPRECIATION ALLOWANCE SHALL BE DEEMED 14 DEPRECIATION UNDER SECTION 32(1), THAT IS DEPRECIAT ION FOR THE CURRENT YEAR IN THE FOLLOWING YEAR(S) TO BE SET OFF AGAINST INCO ME UNDER ANY HEAD, LIKE CURRENT DEPRECIATION, IN PERPETUITY,' 14 FROM THE ABOVE IT IS CLEAR THAT UNABSORBED DE PRECIATION FOR THE BLOCK OF ASSESSMENT YEAR 1997-98 TO 2001-02 WHICH COULD NOT HAVE BEEN SET OFF EARLIER, CANNOT BE ALLO WED TO BE SET OFF NOW . THEREFORE , WE SET ASIDE THE ORDER OF THE LD . CIT (A ) AND R EMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WI TH A DIRECTION TO ONLY ALLOW SET OFF OF UNABSORBED DEPRECIATION WH ICH IS OUTSIDE THE BLOCK OF ASSESSMENT YEAR 1997-98 TO 200 1-02. 7(II) IN THIS DECISION, THE TRIBUNAL CONSIDERED THE DECISION IN THE CASE OF M/S KIM PHARMA PVT. LTD. IN WHICH SET OFF OF THE LOSSES UNDER SECTION 70 AND 71 WAS NOT FOUND POSSIBLE AGAINST SUCH INCOME. THE TRIBUN AL ALSO NOTED THAT IN THIS DECISION, THE SET OFF OF DEPRECIATION UNDER SECTION 32(2) WAS NOT CONSIDERED . THE TRIBUNAL ALSO FOLLOWED DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF TIMES GUARANTY LTD. (SUPRA) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE. THE ISSUE IS, THEREFORE, COVERED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE ITAT CHANDIGARH BENCH IN THE CA SE OF M/S LIBERTY PLYWOOD (SUPRA). FOLLOWING REASONS FOR DECISION IN THIS CASE, WE DISMISS THE DEPARTMENTAL APPEAL. 8. ON GROUND NO.3, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS. 3,79158/- UNDER SECTION 36(1)(III) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED THAT ASSESSEE HAD SHOWN BUILDING UNDER CONSTRUCTION 15 FOR RS. 31,59,651/-. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME MAY NOT BE CAPITALIZE D AS THE BUILDING HAD NOT BEEN PUT TO USE DURING THE YEA R UNDER CONSIDERATION. THE ASSESSEE SUBMITTED THAT T HE ASSESSEE FIRM IS IN CONSTRUCTION OF BUILDING AT DOR AHA AND CONSTRUCTION WAS STARTED IN FINANCIAL YEAR 2005 -06. THE PLACE IS BEING USED FOR STORAGE. SIMILARLY, LA ND AT DORAHA WAS ALSO PURCHASED ON WHICH THE BUILDING IS BEING CONSTRUCTED. THE ASSESSEE HAD PURCHASED THE LAND AT DORAHA DURING 2004-05 AND PAID INTEREST OF RS. 29 LACS DURING THE SAME YEAR. THERE WERE INTEREST FREE UNSECURED LOANS OF RS. 817.00 LACS AND CAPITAL OF R S. 690.81 LACS ON WHICH NO INTEREST WAS PAID. MOST OF THE FUNDS WITH THE FIRM EITHER IN THE SHAPE OF CAPITAL OR UNSECURED LOANS ARE NON INTEREST BEARING AS THESE R ELATE TO FAMILY MEMBERS ONLY. NO PART OF THE AMOUNT BORROWED BY THE FIRM HAD BEEN UTILIZED IN THE ACQUISITION OF THESE ASSETS AND NO INTEREST HAS BEE N CAPITALIZED IN PART. THE ASSESSING OFFICER DID NOT ACCEPT CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE CONTENTION OF THE ASSESSEE WAS NOT CORRECT AND RELIED UPON DECISION OF HON'BLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 286 I TR 1. THE ASSESSING OFFICER ALSO NOTED THAT NO INTEREST H AD BEEN CAPITALIZED AND ADDED TO THE COST OF BUILDING WHICH HAVE NOT BEEN PUT TO USE TILL THE END OF THE FINANC IAL YEAR CONCERNED. THE ASSESSING OFFICER CONTENDED TH AT EXPLANATION-8 TO SECTION 43(1) IS CLEAR THAT IF ANY 16 INTEREST IS PAID BY THE ASSESSEE FOR ACQUISITION OF AN ASSET BEFORE THE PERIOD WHEN SUCH ASSET IS FIRST PU T TO USE SHALL BE CAPITALIZED AND ADDED TO THE COST OF A SSET. THE ASSESSING OFFICER, ACCORDINGLY, DISALLOWED ABOV E INTEREST. 9. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND WRITTEN SUBMISSIONS WERE REPRODUCE D IN THE IMPUGNED ORDER IN WHICH ASSESSEE EXPLAINED T HAT IT HAS INTEREST FREE AMOUNTS AVAILABLE IN THE BOOKS OF ACCOUNT WHICH IS CAPITAL OF THE PARTNERS ETC. IN A SUM OF RS. 7.59 CR. THE ASSESSING OFFICER MERELY PRESUMED THAT TOTAL AMOUNT USED FOR CONSTRUCTION OF BUILDING IS OUT OF BORROWED FUNDS, THOUGH NO NEXUS HAS BEEN ESTABLISHED OR MENTIONED IN THE ASSESSMENT ORDER EX CEPT THAT ASSESSING OFFICER FOLLOWED DECISION IN THE CAS E OF ABHISHEK INDUSTRIES LTD. (SUPRA). THE ASSESSEE HAS AVAILED THE SECURED LOAN FROM BANKS HAVING BALANCE OUTSTANDING AS ON 31.03.2011 IN A SUM OF RS. 3.80 CRORES. THE CAPITAL WORK-IN-PROGRESS IS FOR THE PU RPOSE OF BUSINESS OF THE ASSESSEE FIRM. THE TERM LOANS A RE OLD AND AGAINST THE MACHINERY INSTALLED IN EARLIER YEAR . COPY OF THE BALANCE SHEET WAS FILED IN SUPPORT OF T HE SAME CONTENTION. SINCE INTEREST FREE FUNDS OF THE PARTNERS IS MORE THAN THE AMOUNT UTILIZED IN THE CONSTRUCTION OF BUILDING AND ALSO BALANCES OUTSTAND ING IN THE CURRENT ACCOUNT IS VERY LESS THAN THE STOCK, TH EREFORE, NO ADDITION MAY BE MADE. THE ASSESSEE RELIED UPON 17 DECISION OF ITAT CHANDIGARH BENCH IN THE CASE OF CI T V AVON CYCLES LTD. WHICH IS REPRODUCED AT PAGE 21 OF THE IMPUGNED ORDER. THE LD. CIT(APPEALS), CONSIDERING EXPLANATION OF THE ASSESSEE, DELETED THE ADDITION A ND ALLOWED APPEAL OF THE ASSESSEE. HIS FINDINGS IN PA RA 5.2 OF THE ORDER ARE REPRODUCED AS UNDER : 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE, THE BA SIS OF ADDITION AND THE SUBMISSIONS MADE DURING THE COURSE OF THE A SSESSMENT AS WELL AS APPELLATE PROCEEDINGS. THE APPELLANT HAS SHOWN BUILDING UNDER CONSTRUCTION FOR RS.31,59,651/-. FOR ATTR ACTING THE PROVISO TO SEC 36(I)(III) TWO CONDITIONS ARE .REQUIRED TO BE F ULFILLED I.E. CAPITAL SHOULD BE BORROWED FOR ACQUISITION OF THE ASSET AN D THE ASSET SHOULD BE ACQUIRED FOR EXPANSION OF EXISTING BUSINESS. HOWEVE R, THERE IS NO FINDING OF THE ASSESSING OFFICER ON THE FULFILLMEN T OF THESE TWO CONDITIONS. THE TERM LOANS RAISED ARE OLD AND AGAIN ST THE MACHINERY INSTALLED IN EARLIER YEARS. THE ASSESSING OFFICER H AS NOT DISPUTED THIS FACT. FURTHER, THERE IS NO FINDING OF THE ASSESSING OFFIC ER TO THE EFFECT THAT THE ASSET IS FOR THE EXPANSION OF THE EXISTING BUSINESS . IT IS NOWHERE HELD THAT THE PRODUCTION CAPACITY HAS INCREASED AS A RESULT O F THE SAME. THE APPELLANT HAD EXPLAINED THAT THE FIRM IS CONSTRUCTI NG A BUILDING AT DORAHA AND THE PLACE IS USED FOR STORAGE. THE ASSESSING OF FICER HAS NOWHERE HELD THAT THE BUILDING BEING CONSTRUCTED IS FOR EXPANSIO N OF THE EXISTING BUSINESS. UNDER THE CIRCUMSTANCES PROVISO TO SEC 36 (L) R/W/S 43(1) IS NOT ATTRACTED IN THE APPELLANT'S CASE IN THE ABSENCE OF ANY FINDING BY THE ASSESSING OFFICER REGARDING ANY TERM LOAN HAVIN G BEEN RAISED FOR BUILDING CONSTRUCTION AND REGARDING THE BUILDING BEING CONSTRUCTED FOR THE EXPANSION OF EXISTING BUS INESS OF THE APPELLANT. ACCORDINGLY, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE SAID DISALLOWANCE UNDER SECTION 36(1) (III). HENCE THIS GROUND OF APPEAL IS ALLOWED. 10. AFTER CONSIDERING RIVAL SUBMISSIONS, I DO NOT F IND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LD. DR CONTENDED THAT NO DETAILS ARE FILED BEFORE T HE 18 ASSESSING OFFICER REGARDING AVAILABILITY OF THE FUN DS. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT AVAILABILITY OF MORE FUNDS WITH THE ASSESSEE WERE SPECIFICALLY PLEADED BEFORE AUTHORITI ES BELOW SUPPORTED BY THE BALANCE SHEET. THEREFORE, N O ADDITION COULD BE MADE AS ASSESSEE HAS SHOWN BUILDI NG UNDER CONSTRUCTION. THE LD. CIT(APPEALS) RECORDED SPECIFICALLY THAT THERE IS NO FINDING OF THE ASSESS ING OFFICER ON FULFILLMENT OF THE CONDITIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT. TERM LOANS RAISED W ERE FOUND OLD AND AGAINST MACHINERY INSTALLED IN EARLIE R YEARS WHICH FACT WAS NOT DISPUTED BY THE ASSESSING OFFICER. THERE WAS NO FINDING OF THE ASSESSING OFF ICER TO THE EFFECT THAT ASSET IS FOR THE EXPANSION OF THE E XISTING BUSINESS. THE ASSESSEE EXPLAINED THAT IT IS CONSTR UCTING A BUILDING AT DORAHA AND THE PLACE IS USED FOR STOR AGE. THE ASSESSING OFFICER HAS NOWHERE HELD THAT BUILDIN G BEING CONSTRUCTED IS FOR EXPANSION OF THE EXISTING BUSINESS. THEREFORE, PROVISIONS OF SECTION 36(1)(I II) AND 43(1) WOULD NOT BE ATTRACTED IN THIS CASE. FURTHER, THE ASSESSEE EXPLAINED THAT IT HAS SUFFICIENT FUNDS AVA ILABLE FOR RAISING THE CONSTRUCTION ON WHICH NO INTEREST H AS BEEN PAID. THE LD. CIT(APPEALS) HAS GIVEN A SPECIF IC FINDING THAT IN THE ABSENCE OF ANY FINDING BY THE ASSESSING OFFICER REGARDING ANY TERM LOAN HAVING BE EN RAISED FOR BUILDING CONSTRUCTION, THE LD. CIT(APPEA LS) WAS JUSTIFIED IN DELETING THE ADDITION. THERE IS N O MERIT 19 IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME I S ACCORDINGLY, DISMISSED. 11. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED: 1 ST AUGUST,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD