DCIT, New Delhi V. M/s Mahle Migma Pvt. Ltd., New Delhi

ITA 945/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3972 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 29-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Capital asset; Rule of consistency; Capital expenditure
• Section: 143(3)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO.945/DEL/2011 ASSESSMENT YEAR: 2006-07 DCIT, VS. MAHLE MIGMA PVT. LTD., CIRCLE 6(1), C.R. BLDG., 30, 2 ND FLOOR, AMRIT NAGAR, NEW DELHI. NDSE PART-1, NEW DELHI. AAACM0096K (APPELLANT) (RESPONDENT) APPELLANT BY : MS. Y. KAKKAR, SR. DR RESPONDENT BY : SH. K. SAMPATH, ADV. ORDER PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DI RECTED AGAINST ORDER PASSED BY LD. CIT(A) DATED 12.11.2010 FOR A.Y. 2006 -07. GROUNDS OF APPEAL READ AS UNDER: - 1. THE ORDER OF LD. CIT(A) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 49,802/- MADE BY THE AO ON ACCOUNT OF CITRIX CHARGES U/S 40(A)(I) OF THE I.T. ACT. 2.1THE LD. CIT(A) IGNORED THE FINDING RECORDED BY T HE AO AND THE FACT THE ASSESSEE DID NOT DEDUCT THE MANDATORY TAX AT SO URCE. ITA NO. 945/DEL/2011 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3, 36,000/- MADE BY AO BEING THE 10% OF TOOLING AND PATTERN EXPENSES. 3.1 THE LD. CIT(A) IGNORED THE FINDINGS RECORDED B Y AO AND ALSO THE FACT THAT THE ASSESSEE COULD NOT EXPLAIN WHAT TREATMENT WAS GIVEN TO DISCARDED TOOLS CAVITIES AND PATTERNS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTED THE ADDITION OF RS. 15,07,595/- TO RS. 61,835/- MADE BY AO ON ACCOUNT OF INTEREST EXPENSES . 4.1 THE LD. CIT(A) IGNORED THE FINDINGS RECORDED B Y AO AND ALSO THE FACT THAT THE PROPORTIONATE DISALLOWANCE OF INTEREST WAS CORRECTLY MADE BY THE AO ON THE BASIS OF THE FUNDS UTILIZED BY THE AS SESSEE FOR INVESTMENT IN CWIP. 5. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTU RE OF AUTOMOBILE COMPONENT MAINLY CAMSHAFTS AND VALVE TAPPETS AND SU PPLYING THEM IN INDIA AND OUTSIDE INDIA. THE ASSESSEE FILED ITS RE TURN OF INCOME AT RS. 7,42,39,535/- AND ITS INCOME HAS BEEN ASSESSED VIDE IMPUGNED ASSESSMENT ORDER DATED 22.12.2009 AT 7,62,69,194/-, INTERALIA INCLUDING THE THREE ADDITIONS DESCRIBED IN THE GROUNDS OF APPEAL TO THE EXTENT WHICH HAVE BEEN DELETED BY THE CIT(A). 3. GROUND NO. 1 IS GENERAL IN NATURE AND IN GROUND NO. 2 THE REVENUE IS AGGRIEVED BY THE DELETION OF A SUM OF RS. 1,49,802/ - ADDED TO THE INCOME OF THE ASSESSEE WHICH HAS BEEN DELETED BY CIT(A). THI S ISSUE HAS BEEN DISCUSSED BY THE AO AT PAGE 2 IN PARA 2 OF THE ASSE SSMENT ORDER. IT WAS ITA NO. 945/DEL/2011 3 NOTICED BY THE AO THAT ASSESSEE HAD DEBITED A SUM O F RS. 1,49,802/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF CITRIX CHARG ES. THE ASSESSEE EXPLAINED THAT CITRIX IS A HARDWARE/SOFTWARE PROGRA MME WHICH PROVIDES THE TOOL FOR REMOTE CONNECTIVITY THROUGH VPN. BY USING SUCH TOOL THE USER COULD BE CONNECTED TO THE REPORTING SOFTWARE/PACKAGE AND REPORTING/WORKING COULD BE DONE FROM ANY LOCATION FROM WORLDWIDE. THE COST IN THIS REGARD HAS BEEN REIMBURSED BY DIFFERENT LOCATIONS ON THE BASIS OF U SER/LICENSE. THE AO NOTICED THAT SUCH PAYMENT WAS MADE BY THE ASSESSEE COMPANY TO ITS HOLDING COMPANY FOR SERVICES PROVIDED TO THE ASSESS EE WHICH IS IN THE NATURE OF TECHNICAL SERVICES COVERED BY THE PROVISI ONS OF SEC. 9(I)(VII)(B), EXPLANATION 2 OF THE I.T. ACT, 1961 AND RELYING ON CERTAIN DECISIONS, LD. AO HAS OBSERVED THAT AS THE ASSESSEE DID NOT DEDUCT TA X THEREON THE SAME WAS TO BE ADDED BACK TO THE INCOME OF THE ASSESSEE. IT IS IN THIS MANNER, THE ADDITION HAS BEEN MADE IN THE ASSESSMENT ORDER. IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAS NEITHER PURCHASED THE SOFT WARE/HARDWARE NOR UTILIZED ANY TECHNICAL SERVICES FROM A SERVICE PROV IDER. IT WAS SUBMITTED THAT HOLDING COMPANY IS ENGAGED IN THE BUSINESS OF MANUF ACTURING OF CHILLED CAST IRON CASTINGS AND VALVE TRAIN SYSTEMS AND IS N OT IN THE BUSINESS OF SERVICE PROVIDERS FOR SOFTWARE. THE SOFTWARE WORKS AUTOMATICALLY AND DOES NOT REQUIRE ANY EXPERT HANDLING. IT WAS ONLY AN AL LOCATION OF COST AMONG THE VARIOUS LOCATION/SUBSIDIARIES WHICH IS DONE ON THE BASIS OF ACTUAL UTILIZATION OF RESOURCES AND SUCH REIMBURSEMENT WOULD NOT AMOUN T TO PROVIDE TECHNICAL SERVICES. SUCH REIMBURSEMENT IS NOT AN I NCOME IN THE HANDS OF HOLDING COMPANY AS TAXABLE INCOME RELIANCE WAS PLAC ED ON CERTAIN ITA NO. 945/DEL/2011 4 DECISIONS. RELIANCE BY THE AO ON THE DECISION OF S AMSUNG ELECTRONICS 185 TAXMAN 313 (KARN.) WAS DISTINGUISHED AS JURISDICTIO NAL DELHI HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA PVT. LTD. VS. CIT 23 ITR 130, HAS EXPRESSED DIFFERENT OPINION FROM THE SAMSUNG DECISI ON. IT WAS SUBMITTED THAT IN ALL THE EARLIER YEARS SUCH PAYMENT HAS BEEN ALLOWED AND ACCORDING TO PRINCIPLE OF CONSISTENCY DISALLOWANCE HAS WRONGLY B EEN MADE. ON THESE SUBMISSIONS LD. CIT(A) HAS OBSERVED THAT THE PAYMEN T MADE BY THE ASSESSEE WAS IN THE NATURE OF REIMBURSEMENT OF FIXE D CHARGES ALLOCATED FOR THE TIME FOR WHICH THE SAID SOFTWARE WAS USED BY TH E ASSESSEE AND SUCH REIMBURSEMENT CANNOT BE EQUATED WITH RENDERING OF T ECHNICAL SERVICES. PLACING RELIANCE ON THE DECISION OF DELHI HIGH COUR T IN THE CASE OF VAN OORD ACZ INDIA PVT. LTD. (SUPRA) LD. CIT(A) HAS HELD THA T SUCH REIMBURSEMENT OF EXPENSES IS NOT COVERED U/S 195 HENCE DISALLOWED U/ S 40(A)(I) WAS NOT CALLED FOR AND IS DELETED. 4. RELYING UPON THE ORDER OF AO, IT WAS PLEADED BY LD. DR THAT DISALLOWANCE WAS RIGHTLY MADE BY THE AO ON THE GROU ND OF NON PAYMENT OF TDS ON SUCH PAYMENT WHICH WAS IN THE NATURE OF TECH NICAL SERVICES. HE SUBMITTED THAT LD. CIT(A) HAS WRONGLY DELETED THE A DDITION. 5. ON THE OTHER HAND, RELYING UPON THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE CIT(A) AND THE FINDINGS OF LD. CIT( A), IT WAS THE SUBMISSION OF LD. AR THAT DISALLOWANCE HAS RIGHTLY BEEN DELETE D. ITA NO. 945/DEL/2011 5 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. A FINDING OF FACT HAS B EEN RECORDED BY LD. CIT(A)THAT THE PAYMENT MADE BY THE ASSESSEE TO ITS HOLDING COMPANY IS FOR THE USER OF THE SOFTWARE BASED ON THE TIME FOR WHIC H SUCH SOFTWARE WAS UTILIZED BY THE ASSESSEE FOR THE PURPOSES OF ITS BU SINESS. IT IS ALSO THE FINDING OF LD. CIT(A) THAT THIS PAYMENT WAS IN THE NATURE OF REIMBURSEMENT ONLY. NO MATERIAL WHATSOEVER HAS BEEN BROUGHT ON R ECORD BY THE DEPARTMENT TO CONTROVERT THESE FINDINGS OF FACT REC ORDED BY LD. CIT(A). IN ABSENCE OF SUCH CONTRADICTION, THE DELETION MADE BY LD. CIT(A) APPEARS TO BE CORRECTED IN THE LIGHT OF DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF VAN OORD ACZ INDIA PVT. LTD. (SUPRA). WE DECLIN E TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. 7. APROPOS, GROUND NO. 3 THIS ISSUE IS DISCUSSED BY THE AO AT PAGE 3 IN PARA 3 OF THE ASSESSMENT ORDER. THE AO FOUND THAT THOUGH THERE WAS NOMINAL INCREASE IN THE SALES OF THE ASSESSEE WHICH FOR THE YEAR UNDER CONSIDERATION IS RS. 59 CRORE AGAINST THE SALE OF 5 7.72 CRORE PERTAINING TO IMMEDIATE PRECEDING YEAR BUT THERE WAS FOUR TIME IN CREASE IN THE EXPENDITURE OF PATTERN & TOOLING WHICH ROSE TO 33 .60 LAKH FROM RS. 9.30 LAKH. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SAM E. IT WAS SUBMITTED THAT THE EXPENSES ARE IN THE NATURE OF CONSUMABLES AS THEY ARE BORNE OUT FREQUENTLY AND HAD TO BE REPLACED WHEN DISCARDED. THE AO DID NOT ACCEPT SUCH EXPLANATION OF THE ASSESSEE ON THE GROUND OF E XCESSIVENESS OF THE EXPENDITURE AND ALSO ON THE GROUND THAT IT COULD NO T BE UNDERSTOOD AS TO ITA NO. 945/DEL/2011 6 WHY THE CAVITIES, PATTERNS, PINS, MATCH PLATES ARE DISCARDED WHEN THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING LIMITE D PRODUCTS. THOSE TOOLS COULD BE REUSED AS AND WHEN REQUIRED BY THE ASSESSE E. THE AO OBSERVED THAT NO PRUDENT BUSINESSMEN WOULD INCUR SUCH HEAVY EXPENDITURE ON THESE ITEMS WHICH ARE REUSABLE. HE ALSO ASKED THE ASSESS EE AS TO WHY DISCARDED TOOLS WERE DISPOSED OFF AS REJECTED AND SCRAP. IN REPLY IT WAS SUBMITTED THAT SUCH REJECTED GOODS AND SCRAP WAS REUSED AFTER MELT ING AS RAW MATERIAL. HOWEVER, THE AO OBSERVED THAT AS ASSESSEE DID NOT R EUSE SUCH MATERIAL THE EXPENSES CLAIMED BY THE ASSESSEE IS NOT FULLY A LLOWABLE. HE DISALLOWED 10% OF THE ENTIRE CLAIM AND ADDED A SUM OF RS. 3.36 LAKH TO THE INCOME OF THE ASSESSEE. 8. THE SUBMISSIONS MADE BEFORE AO WERE REITERATED B EFORE CIT(A). THE DATA RELATING TO EARLIER YEAR OF SIMILAR EXPEND ITURE WAS ALSO PRODUCED IN THE FORM OF TABLE WHICH IS REPRODUCED BELOW: - F.Y. AMOUNT OF EXPENDITURE SALES REMARKS 2002-03 19,82,212 33.16 CRORE ASSESSED U/S 143(3) 2003-04 47,92,183 38.23 CRORE ASSESSED U/S 143(3) 2004-05 9,38,365 57.38 CRORE ASSESSED U/S 143(3) 2005-06 33,67,548 58.82 CORE ASSESSED U/S 143(3) 9. IT WAS SUBMITTED THAT THOUGH THE DISCARDED ITEMS APPEARS TO BE MORE BUT AT THE SAME TIME THERE WAS INCREASE IN THE MISC ELLANEOUS INCOME WHICH REPRESENT SALE OF DISCARDED PATTERNS WHICH HAS INCR EASED FROM 0.6 LAKH TO 20.26 LAKH FOR THE YEAR UNDER CONSIDERATION. IT WA S SUBMITTED THAT GP RATE HAS ALSO INCREASED TO 29.62% FOR THE CURRENT YEAR A GAINST 27.67% FOR ITA NO. 945/DEL/2011 7 IMMEDIATE PRECEDING YEAR AND THUS, IT WAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO WAS NOT CALLED FOR. ON THESE SUBMIS SIONS LD. CIT(A) HAS RECORDED A FINDING THAT THE CHART OF THE PREVIOUS Y EARS EXPENDITURE ON SUCH ITEM AND SALES MADE HAS CLEARLY SHOWN THAT SUCH EXP ENDITURE HAS NO CORRELATION WITH THE SALES AFFECTED BY THE ASSESSEE . HE OBSERVED THAT HE HAS CALLED FOR THE COPIES OF INVOICES/BILLS FOR MAK ING PURCHASES OF TOOLING AND PATTERNS, THE DETAILS OF PAYMENTS MADE AGAINST SUCH PURCHASES AND CONFIRMATION OF ACCOUNTS FROM THE PARTIES FROM WHOM THOSE PURCHASES WERE MADE DURING THE YEAR UNDER CONSIDERATION AND THE AS SESSEE HAS BEEN ABLE TO PROVE THE GENUINENESS OF ALL THE TRANSACTIONS. THE AO HAS NOT GIVEN ANY SPECIFIC FINDING ABOUT THE BOGUS BILLING OR AN EXPE NDITURE WHICH IS NOT FOUND GENUINE. THE DISALLOWANCE IS MADE ONLY ON ADHOC BA SIS. THESE EXPENDITURES ARE NOT IN THE NATURE OF PERSONAL EXPE NDITURE. THESE ARE ALSO NOT IN THE NATURE OF CAPITAL EXPENDITURE. THE GP O F THE ASSESSEE HAS INCREASED. THE SALE OF DISCARDED PATTERNS HAS ALSO INCREASED TO 20.26 LAKH AS COMPARED TO 6.06 LAKH AND RELYING UPON THESE FAC TS HE HAS DELETED THE ADDITION IN ITS ENTIRETY. THE DEPARTMENT IS AGGRIE VED, HENCE IN APPEAL. 10. AFTER NARRATING THE FACTS, LD. DR RELYING UPON THE ASSESSMENT ORDER PLEADED THAT EXPENSES ON SUCH ACCOUNT HAD INCREASED FOUR TIMES WHEN IT WAS COMPARED WITH THE IMMEDIATE PRECEDING YEAR. TH E ASSESSEE COULD NOT PRODUCE ANY JUSTIFICATION FOR THE SAME. HENCE, HE SUBMITTED THAT AO WAS RIGHT IN MAKING THE DISALLOWANCE AND CIT(A) HAS WRO NGLY DELETED THE SAME. ITA NO. 945/DEL/2011 8 11. ON THE OTHER HAND, RELYING UPON THE SUBMISSION MADE BEFORE CIT(A) AND THE FINDINGS RECORDED BY HIM, IT IS THE CASE OF THE LD. AR THAT DISALLOWANCE HAS RIGHTLY BEEN DELETED AND HIS ORDER SHOULD BE UPHELD. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. LD. CIT(A) HAS RECORDED A FINDING THAT HE HAS CALLED FOR THE RELEVANT RECORD OF SUCH EXPENDITURE AND THUS, THE ASSESSEE HAS BEEN ABLE TO PROVE THE GENUINENESS OF ALL THE T RANSACTIONS. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO JU STIFY THE DISALLOWANCE MADE WHICH IS AN ADHOC DISALLOWANCE. THE JUSTIFICA TION HAS BEEN SUBMITTED BY THE ASSESSEE IN THE SHAPE OF INCREASE IN GP AND ALSO INCREASE IN SALE VALUE OF THE DISCARDED MATERIAL. CAREFULLY CONSIDE RING ALL THESE FACTS, WE ARE OF THE OPINION THAT LD. CIT(A) HAS RIGHTLY DELE TED THE ADDITION BY CONSIDERING ALL THE ASPECTS OF THE ADDITION. THE A O HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUGGEST THAT THE EXPENSES CLA IMED BY THE ASSESSEE WERE NOT FOR THE PURPOSES OF ITS BUSINESS AND THOSE EXPENDITURES WERE NOT GENUINE. THESE EXPENDITURES WERE INCURRED BY THE A SSESSEE FOR THE PURPOSE OF ITS BUSINESS. THEREFORE, WE FIND NO INF IRMITY IN THE ORDER OF CIT(A) VIDE WHICH ADHOC DISALLOWANCE MADE BY THE AO IS DELETED. THIS GROUND OF THE REVENUE IS DISMISSED. 13. COMING TO GROUND NO. 4, THIS ISSUE HAS BEEN DIS CUSSED BY THE AO AT PAGE 4 OF THE ASSESSMENT ORDER. FROM THE ACCOUNTS OF THE ASSESSEE, IT WAS NOTICED BY THE AO THAT AN EXPENDITURE OF RS.1,50,75 ,951/- WAS INCURRED ON ITA NO. 945/DEL/2011 9 NEW PLANT AND IT WAS SHOWN AS CAPITAL WORK IN PROG RESS. TO THAT EXTENT, IT WAS OBSERVED BY THE AO THAT BORROWED FUNDS WERE UTI LIZED FOR THE PURPOSE OF CAPITAL EXPENDITURE. THEREFORE, HE DISALLOWED A N INTEREST OF RS. 15,07,595/- BEING 10% OF THE CAPITAL WORK IN PROGRE SS ON ACCOUNT OF INTEREST ON BORROWED FUND UTILIZED FOR CAPITAL EXPENDITURE. HE APPLIED THE PROVISO TO SEC. 36(1)(III) AND MADE THE DISALLOWANCE. 14. BEFORE CIT(A), IT WAS PLEADED THAT THE BORROWED FUNDS WERE MAINLY USED FOR THE PACKING CREDITS AND THUS, THEY WERE US ED FOR THE PURPOSE OF CARRYING ON BUSINESS AND NOT FOR THE PURPOSE OF MAK ING CAPITAL EXPENDITURE. DURING THE HEARING BEFORE LD. CIT(A) THE DETAILS WE RE CALLED FOR AND ASSESSEE WAS ASKED TO SUBMIT THE DETAILS PROVING TH AT TO WHAT EXTENT THE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSES OF TH E BUSINESS AND FOR THE PURPOSES OF ACQUIRING CAPITAL ASSET. AFTER EXAMINI NG THOSE DETAILS DISALLOWED AMOUNT HAS BEEN WORKED OUT AT RS. 61,835 /- IN PLACE OF RS. 15,07,595/- DISALLOWED BY THE AO. 15. LD. DR RELYING UPON THE ASSESSMENT ORDER PLEADE D THAT ACCORDING TO PROVISO TO SEC. 36(1)(III) SUCH INTEREST WAS RIGHTL Y DISALLOWED BY THE AO AND LD. CIT(A) HAS WRONGLY DELETED THE SAME. 16. ON THE OTHER HAND, RELYING UPON THE SUBMISSIONS MADE BEFORE CIT(A) AND THE FINDINGS RECORDED BY LD. CIT(A), IT WAS SUB MITTED BY LD. AR THAT DISALLOWANCE HAS CORRECTLY BEEN WORKED OUT BY LD. C IT(A) AND APPROPRIATE ITA NO. 945/DEL/2011 10 RELIEF HAS BEEN GRANTED TO THE ASSESSEE, THEREFORE, HIS ORDER SHOULD BE UPHELD. 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THE RELEVANT FINDINGS O F THE CIT(A) ON THIS ISSUE AS RECORDED IN HIS ORDER ARE AS FOLLOW: - I HAVE CALLED FOR THE ENTIRE RECORDS OF BANK BORRO WINGS AND AMOUNTS INVESTED IN CWIP. I HAVE ALSO LOOKED INTO THE AVAILABILITY OF THE FUNDS WITH THE APPELLANT. SINCE BOTH, THE OWN FUNDS OF THE APPELLANT AS WELL AS BORROWED WORK ING CAPITAL FUNDS GOT MIXED THEY LOST THEIR IDENTITY. THE MIXED FUNDS WERE THEREFORE, UTILIZED FOR BUSINESS AS WELL AS ACQUISITION OF CWIP. IT WOULD THEREFORE, BE FAIR TO CALCULATE THE UTILIZATION OF FUNDS FOR CWIP IN THE RATIO OF O WN FUNDS AND BORROWED WORKING CAPITAL FUNDS. ACCORDINGLY, THE L D. ARS WERE ASKED TO SUBMIT DETAILS OF UTILIZATION OF FUND S AND CALCULATION OF INTEREST ON SUCH UTILIZATION. THESE CALCULATIONS HAVE BEEN EXPLAINED TO ME IN DETAIL BY THE APPELLAN T AND ARE BASED ON FOLLOWING BASIS: - I) INTEREST HAS BEEN CALCULATED @ 8% AS THIS WAS T HE AVERAGE RATE AT WHICH FUNDS WERE OBTAINED BY THE AP PELLANT FOR ITS WORKING CAPITAL REQUIREMENTS. (COPIES OF S ANCTION LETTERS OF BANKS HAVE BEEN SUBMITTED). II) AMOUNTS SPENT ON CWIP HAVE BEEN BIFURCATED IN THE RATIO OF OWN FUNDS AND FUNDS BORROWED FOR WORKING CAPI TAL AS AT THE BEGINNING OF THE YEAR. THIS HAS BEEN DONE O N THE PRESUMPTION THAT MINGLED UP FUNDS HAVE BEEN USED FO R CWIP IN THE ABOVE RATIO. III) INTEREST HAS BEEN CALCULATED ON THE AMOUNT AS PER (B) ABOVE FROM THE DATE ON WHICH THE AMOUNT WAS DEBITED TO THE ITA NO. 945/DEL/2011 11 CWIP ACCOUNT TILL THE AMOUNT WAS TRANSFERRED TO RES PECTIVE ASSET AFTER IT WAS PUT TO USE. AS ON THE BASIS OF THE ABOVE, AMOUNT OF INTEREST PAID ON THE BORROWED FUNDS UTILI ZED FOR INVESTMENT IN THE CWIP COMES TO RS. 61,835/-. 7.6 THUS, AS PER THIS CALCULATION SUBMITTED BY THE APPELLANT AN AMOUNT OF RS. 61,835/- REPRESENT THE AMOUNT OF INTE REST PAID ON THE BORROWED FUNDS WHICH WERE UTILIZED FOR EARNING EXEM PT INCOME. ACCORDINGLY, I HOLD THAT INTEREST OF RS. 61,835/- C ALCULATED ON THE ABOVE BASIS IS TO BE DISALLOWED AS PER PROVISO TO S EC. 36(1)(III) OF THE ACT AS INTEREST ON AMOUNTS UTILIZED FOR ACQUIRI NG ASSETS OF CAPITAL NATURE OR CWIP. THE AO IS DIRECTED TO REST RICT THE DISALLOWANCE TO RS. 61,835/- FROM RS. 15,07,595/- O N ACCOUNT OF INTEREST ON BORROWED CAPITAL RELATING TO CWIP. THE APPELLANT THUS, GETS A RELIEF OF RS. 14,45,760/-. THE GROUND NO. 4 OF THE APPEAL IS PARTLY ALLOWED. 18. LD. DR HAS NOT CONTROVERT THOSE FINDINGS RECORD ED BY LD. CIT(A) BY SHOWING THAT THERE WAS ANY DEFECT IN THE CALCULATIO NS SUBMITTED BY THE ASSESSEE BEFORE CIT(A). THEREFORE, TO THE EXTENT B ORROWED FUNDS WERE UTILIZED FOR ACQUIRING CAPITAL ASSET, THE INTEREST HAS BEEN DISALLOWED BY THE LD. CIT(A). WE FOUND NO INFIRMITY IN SUCH FINDING OF FACT RECORDED BY LD. CIT(A). WE DECLINE TO INTERFERE AND THIS GROUND OF THE REVENUE IS DISMISSED. ITA NO. 945/DEL/2011 12 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED IN THE MANNER AFORESAID. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 13.5.2011 SD/- SD /- (K.G. BANSAL) (I.P. BANSAL) ACCOUNTANT MEMBE R JUDICIAL MEMBER * KAVITA DATED: 13.05.2011 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT