Dy.CIT, Circle-13(1), Hyderabad V. M/s. RA Chem Pharma Ltd., Hyderabad

ITA 933/HYD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69876 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BHANU V PRASAD REDDY
• Keywords: Depreciation; Proportionate interest; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.933/HYD/12 : ASSESSMENT YEAR 2006 - 07 ASST. COMMISSIONER OF INCOME - TAX CIRCLE 13(1), HYDERABAD V/S. M/S. R.A CHEM PHARMA LTD., HYDERABAD (PAN AAACI 6448 M) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI BHANU V. PRASAD REDDY RESPONDENT BY : NONE DATE OF HEARING 3.10.2013 DATE OF PRONOUNCE MENT 24.10.2013 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR DATED 13.4.2011 FOR THE ASSESSMENT YEAR 2006 - 07. 2. SOLITARY ISSUE ARISING FOR CONSID E RA T ION IN THIS APPEAL REL A TES T O DISALLOWANCE OF INTER E ST PAYMENTS MADE BY THE ASSESSING OFFICER, WHICH HAS B E EN DELETED BY THE CIT(A). 3. A T THE OUTSET, IT MAY BE NOTED THAT NONE APPEARED ON BEHALF OF THE ASSESSEE - RESPONDENT. THE NOTICE OF HEARING ISSUE D BY RPAD HAS BEEN RETURNED BY THE POSTAL AUTHO R ITI E S WITH THE REMARK LEFT . IN THE ABSENCE OF ANY ALTERNATIVE/CHANGED ADDRESS, AVAILABLE ON RECORD, WE ARE CONSTRAINED TO DISPOSE OF THIS APPEAL EX - PARTE QUA THE ASSESSEE - ON THE BASIS O F THE MATERIAL AVA ILABLE ON RECORD. ITA NO. 933 / HYD/2012 M/S. R.A CHEM PHARMA LTD. , HYDERABAD 2 4. WE HEARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WHILE F R AMING THE ASSESSMENT UNDER S.143(3) OF THE ACT, THE ASSESSING OFFICER NOTICED FROM THE DEPRECIATION STATEMENT THAT THE ASSESSEE MADE CERTAIN ADDITIONS TO FIXED ASSETS AMOUNTING TO RS.9,13,55,370. ON VERIFICATION OF THE BALANCE SHEET IT WAS NOTICED THAT THE OPENING WORK IN PROGRESS AS ON 1.4.2006 IS RS.6,11,26,972 AND RS.6 CRORES RECEIVED TOWARDS LOAN WAS INVESTED IN FIXED ASSETS . ON VERIFICATION OF THE ASSETS STATEMENT, IT WAS NOTICED THAT THE ASSESSEE HAS CONVERTED CLOSING WORK IN PROGRESS INTO FIXED ASSETS DURING THE MONTH OF NOVEMBER, 2005. THEREFORE, HE NOTED THAT THE INTEREST ON THE ABOVE ADDITION TO FIXED ASSETS OF RS.9,1 3,55,370 TO BE CHARGED FORM APRIL, 2005 TO NOVEMBER, 2005, I.E. FOR EIGHT MONTHS WAS WORKED OUT TO RS.73,08,430 (I.E. RS.9,13,55,370 @ 12% PER ANNUM). OUT OF THE IN TE REST WORKED OUT, AN AMOUNT O F RS .12,26,423 HAS BE E N CAPITALIZED AND THE BALANCE PORTION OF INTEREST AMOUNTIN G TO RS.60,82,006 H AS NOT BEEN CAPITALISED BU T CLAIMED AS REVENUE EXPENDITURE, WHICH, ACCORDING TO THE ASSESSING OFFICER, IS NOT ALLOWABLE. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE INTEREST CLAIMED TO TH E E X TENT OF RS.60,82,00 6 ON THIS COUNT. ON APPEAL THE CIT(A), ON GOING THROUGH THE DETAILED FUNDING AND PATTER OF THE PROJECT, FOUND THE EXPLANATION OF THE ASSESSEE TO BE ACCEPTABLE. HE ACCORDINGLY DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH THE FOLLOWI NG OBSERVATIONS - ,IT IS SEEN THAT THE APPELLANT HAS EMBARKED ON A P R OJECT FOR MODERNIS A TION AND EXPANSION OF I T S PLANT FACILITIES AT JAGGAIAHPET. THE WORKS WERE COMPLETED BY 30 TH SEPTEM B ER, 2005. I T IS ALSO SEEN TH A T THE APPELLANT RAISED FUNDS F R O M THE ECB S , LOAN FROM AXIS BANK, INTERNAL ACCRUALS OF THE COMPANY ETC. WHILE IT I S A FACT THAT OUT O F THE TOTAL ADDITION S O F PROJ EC T MODERNIZATION MET OUT OF TERM LOANS AND ECBS, THE ASSESSING OFFICER HAS GRIEVOUSLY ERRED IN ESTIMATING THAT THE TOTAL P R OJ E CT WAS FUN D ED BY TE RM LOANS WHEN IN FACT IT WAS PARTLY FUNDED BY TER M LOANS AND THE BALANCE WAS FUNDED BY ECBS AND INTERNAL ACCRUALS. THU S , THER E IS A M E RIT IN SAYIN G THAT THE ASSESSING OFFICER HAS PROCEEDED ON PR E SUMPTION S AND A S SUMPTION S HAVING NO BEARI NG TO THE ACTUAL PATT E RN OF ITA NO. 933 / HYD/2012 M/S. R.A CHEM PHARMA LTD. , HYDERABAD 3 FUNDING UN D ERTAKEN BY THE COMPANY. I N THE LIGHT OF THIS, I AM INCLINED TO ACCEPT THE ARGUMENT O F THE AR.. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE FILED A NOTE ON THE POINT ON ISSUE, WHEREIN IT IS SUBMITTED AS FOLLOWS - DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SHOWED THE FIXED ASSETS @ RS.9,13,55,730. THE OPENING FIGURE AS ON 01.04.2006 WAS SHOWN AT RS.6,11,26,972. THE ASSESSEE HAS CONVERTED CLOSING WORK IN PROGRESS INTO FIXED ASSET DURING THE MONT H OF NOVEMBER 2005. THEREFORE THE ASSESSING OFFICER DISALLOWED THE INTEREST ON ABOVE ON PROPORTIONATE BASIS @ 12% PA. FOR THIS PURPOSE, THE AMOUNT OF LOAN WAS TAKEN @ RS.9.13 CRORES. BEFORE THE CIT(A), THE ASSESSEE CONTENDED THAT FOR THE PURPOSE OF INTERE ST, THE ASSESSING OFFICER HAD ERRONEOUSLY CONSIDERED THE EXTERNAL COMMERCIAL BORROWINGS (ECBS) APART FORM THE TERM LOAN OF RS.375 LACS. THE CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE AND DIRECTED THE AO TO DELETE THE ADDITION. IN THIS REGARD, IT I S SUBMITTED THAT THE PROPORTIONATE INTEREST CHARGEABLE ON THE TERM LOAN COMPONENT IS AS FOLLOWS RS.3,75,00,000 X 12%X8 MONTHS WHICH COMES TO RS.30 LAKHS OUT OF THIS THE ASSESSEE HAD CAPTIALISED RS.12.26 LAKHS. SO THE BALANCE IN T ER E ST OF R S .17,74,000 SHO ULD B E DISALLOWED AND ADDED BACK TO INCOME RETURNED. THE ITAT IS REQUESTED TO MODIFY THE CIT(A) ORDER TO THIS EXTENT. THUS, EVEN ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THERE IS SOME MISTAKE IN THE QUANTUM OF DISALLOWANCE MADE BY THE ASSESS ING OFFICER, AND AS AGAINST RS.60,82,006 DISALLOWED BY HIM, ONLY AN AMOUNT OF RS.17,74,000 SHOULD HAVE BEEN DISALLOWED. 6. IN THE ABSENCE OF ANY APPEARANCE ON BEHALF OF THE ASSESSEE, WE ARE UNABLE TO ASCERTAIN THE CORRECTNESS OF THE ABOVE WORKING OF THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE IMPUGNED ORDER O F THE CIT(A), AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO REDETERMINE THE ISSUE AFRESH. ITA NO. 933 / HYD/2012 M/S. R.A CHEM PHARMA LTD. , HYDERABAD 4 HE SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, AND REDETERMINE THE QUANTUM OF DISALLOWANCE, IF ANY WARRANTED, IN ACCORDANCE WITH LAW, AND AFTER CONSIDERING ALL THE ASPECTS OF THE MATTER AND THE EVIDENCE THAT THE ASSESSEE MAY ADDUCE IN SUPPORT OF ITS CLAIM. 7 . IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 24.10.2013 SD/ - SD/ - (CHANDRA POOJARI) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED/ - 24 TH OCTOBER, 2013 COPY FORWARDED TO: 1 M/S. R.A CHEM PHARMA LTD., 6 - 3 - 123/2, AMAR HOSUE, 4 TH FLOOR, RAJ BHAVAN ROAD, SOMAJIGUDA, HYDERABAD 2 DY. COMMISSIONER OF INCOME - TAX CIRCLE 13 ( 1 ), HYDERABAD 3 COMMISSIONER OF INCOME - TAX(APPEALS) GUNTUR 4 COMMISSION ER OF INCOME - TAX GUNTUR 5 DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S