Moflex Suspensions Pvt.Ltd., Baroda V. The ACIT.,Circle-4, Baroda

ITA 967/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0710 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-08-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Capital asset; Depreciation; Income from undisclosed sources; Source of fund
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: SHR I R.P. TOLANI , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER M/S. MOFLEX SUSPENSION PVT. LTD. 49, PUNIT NAGAR, 3 RD FLOOR, OLD PADRA ROAD, VADODARA - 390020 PAN: AABCM8271B (APPELLANT) VS THE ACIT, CIRCLE - 4, BARODA (RESPONDENT) REVENUE BY : S H RI K. MADHUSUDAN, CIT - D . R. ASSESSEE BY: S H RI M.K. PATEL , A.R. DATE OF HEARING : 08 - 08 - 2 016 DATE OF PRONOUNCEMENT : 23 - 08 - 2 016 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2007 - 08 , AR IS ES FROM ORDER OF THE CIT(A) - III, BARODA DATED 05 - 03 - 2012 IN APPEAL NO. CAB/III - 94 / 09 - 10 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 967 / A HD/2 0 12 A S SESSMENT YEAR 2007 - 08 I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 2 2. THE ASSESSEE HAS FILED THE INSTANT APPEAL RAISING FOLLOWING SUBSTANTIVE GROUNDS: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT S CASE IN CONFIRMING THE ACTION OF THE LD. A.O. OF DISALLOWING INTEREST PAID RS. 14,00,1 95/ - U/S. SECTION 36(1)(III) OF THE ACT. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS OF THE APPELLANT'S CASE IN NOT APPRECIATING THE FACT THAT ENTIRE EXPANSION HAS BEEN CARRIED OUT FROM OWN FUNDS AND HENCE NO PART OF INTEREST IS DISALLOWABLE . 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE APPELLANT'S CASE IN CONFIRMING THE ORDER OF THE LD. A.O. OF MAKING AN ADDITION OF RS. 3,10,014/ - ON THE ERRONEOUS PLEA THAT THE APPELLANT HAS UNDER INVO ICED ITS SALE OF SCRAPE. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS OF THE APPELLANT'S CASE IN NOT APPRECIATING THE FACT THAT THERE IS NO UNDER INVOICING IN SALE OF SCRAPE AS ALLEGED. GROUND NO. 1 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF LEAF SPRINGS. THE ASSESSEE HAS SHOWN CLOSING CAPITAL WORK - IN - PROGRESS AS ON 31 .3.2006 AT RS.1,80,50,823. THE A SSESSING OFFICER NOTED THAT THE ASSESSEE HAS ACQUIRED THE CAPITAL ASSETS PLA NT AND MACHINERY AS WELL AS BUILDING BY TA KING TERM LOAN. THE A SSESSING O FFICER FIND THAT THE ASSESSEE HAD PUT TO USE THE - PLANT AND MACHINERY [RS.1,18,53,819] ON 1.2.2007 AND BUILDING [RS.67,49,272] ON 31.8. 2006 , H OWEVER, THE ASSESSEE, HAD NOT CAPITALISED THE INTEREST ON LOANS TAKEN FROM BANKS AND OTHERS ATTRIBUTABLE TO THESE FIXED ASSETS. THE A SSESSING OFFICER I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 3 ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY INTEREST ON CAPITAL WORK IN PROGRESS OF PLANT AND MACHINERY AND BUILDING SHOULD NOT BE CAPITALISED FROM THE PERIOD 1.4.2006 TILL THE DATE OF CAPITALIZATION OF THESE ASSETS. THE ASSESSEE STATED THAT IT HA S SUBSTANTIAL FUNDS OF ITS OWN IN THE FORM OF RESERVES AND SURPLUS AND SHARE CAPITAL. THESE MONIES WERE NO N - INTEREST BEARING AND UTILISED TOWARDS THE LONG TERM INVESTMENTS OF THE COMPANY AS APPEARING IN IT S BALANCE SHEET. THE ASSESSEE FUR THER STATED THAT ADDITIONS TO WORK - IN - PROGRESS OF FACTORY BUILDING AT RS.2,65,706 AND PLANT AND MACHINERY AT RS.2,86,562 WERE MADE DURING THE YEAR OUT OF THE FUNDS A VAILABLE WITH THE COMPAN Y . AFTER CONSIDERING THE DETAIL PROVIDED BY THE ASSESSEE, THE A SSESSING O FFICER STATED THAT N O DOUBT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS MADE ADDITION TO CAPITAL WORK - IN - PROGRESS AT RS. 5.52 LAKHS ONLY , H OWEVER, TH ERE WAS AN OPENING BALANCE OF CAPITAL WORK - IN - PROGRESS AT RS. 1,80,50,823 , B UT THE ASSESSEE FAILED TO SHOW THAT THE FIXED ASSETS WERE PURCHASED OUT OF NON - INTEREST BEARING FUND. THE A SSESSING OFFICER NOT ICED THAT IN THE IMMEDIATE PRECEDING FINANCIAL YEAR, THE ASSESSEE HAD TAKEN TERM LOAN TO THE EXTENT OF RS.46,69,304 AND UNSECURED LOAN AMOUNTING TO RS.1 ,06,00,000 , DURING THE YEAR UNDER CONSIDERATION THE TERM LOAN WAS TAKEN AT RS.28 LAKHS , HOWEVER, THE INTEREST EXPENSES INCREASED DURING THE CURRENT YEAR TO RS.38,74,864 FROM RS.10,82,881 IN THE IMMEDIATE PRECEDING YE AR . AS PER THE EXPLANATION 8 TO SECTION 43 [DEFINITION OF ACTUAL COST OF ASSET], THE EXPENDITURE INCURRED FOR PURCHASE OF ANY ASSET REQUIRES TO BE CAPITALISED TILL THE DATE OF PUT IN USE OF SUCH ASSET. THE A SSESSING O FFICER FURTHER STATED THAT IN THIS CASE, IT PROVED BEYOND DOUBT THAT THE I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 4 ASSESSEE HAS UTILISED THE INTEREST BEARING FUND FOR PURCHASED OF CAPITAL ASSETS ,T HEREFORE, INTEREST AT THE RATE OF 12% ATTRIBUTABLE TO THE FIXED ASSETS ON ITS P UT TO USE WAS CAPITALIZE D BY THE ASSESSING OFFICER AS UNDER: - PLANT AND MACHINERY WORTH RS.1,18,53,819 PUT TO USE ON 1.2.2007 INTEREST CHARGEABLE FOR THE PERIOD FROM 1.4.2006 TO 1.2.2007 AT THE RATE OF 12% FOR 10 MONTHS ' RS.11,85,381 BUILDING WORTH RS.67,49,272 PUT TO USE ON 31.8.2006 - INTEREST CHARGEABLE FOR THE PERIOD FROM 1.4.2006 TO 31.8.2006 AT THE RATE OF 12% FOR 5 MONTHS RS. 3,37,463 TOTAL RS.15,22, 844 AFTER PROVIDING DEPRECIATION OF RS.1,22,649 A T OTAL ADDITION OF RS.14,00,195 WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE APPEALED BEFORE THE COMMISSIONER OF INCOME TAX(A) AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER. THE LD. COMMISSIONER OF INCOME TAX(A) DISMISSED THE APPEAL OF THE ASSESS EE AS PER HIS FINDING GIVEN BELOW: - 4.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE APPELLANT'S SUBMISSIONS. A PROVISO TO SECTION 36(I)(III) WAS INSERTED BY THE FINANCE ACT 2003 W.E.F 1.4.2004 WHICH STATES AS FOLLOWS: 'PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OF NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR AC QUISITION OF THE I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 5 ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION . THIS PROVISO CLEARLY CAST AN OBLIGATION ON THE ASSESSEE TO KEEP COMPLETE AND ACCURATE DETAILS OF SOURCES OF FUNDS WHICH HAVE BEEN UTILIZED F OR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION. WHEN AO ASKS THE ASSESSEE TO EXPLAIN AS TO WHETHER ANY CAPITAL HAS BEEN BORROWED FOR ACQUISITION OF A CAPITAL ASSET, THEN THE ASSESSEE MUST BE IN A POSITION TO EXPLAIN THE UTILIZA TION OF BORROWED CAPITAL AND ALSO THE SOURCES OF FUNDS UTILIZED FOR ACQUIRING THE CAPITAL ASSET. A GENERAL EXPLANATION, AS BEING ADVANCED BY THE APPELLANT IN THE PRESENT CASE, WILL NOT DO. MOREOVER,, THE APPELLANT HAS PAID INTEREST ON TERM LOAN AS WELL AS UNSECURED LOAN. THE TERM LOAN IS AVAILED OFF FOR ACQUISITION OF FIXED ASSETS. HENCE THE INTEREST ON SUCH LOAN UTILIZED FOR ACQUIRING THE OPENING WIP AND ADDITION TO THE WIP DURING THE YEAR TILL THE PUTTING TO USE OF THE FIXED ASSET, HAS TO BE CAPITALIZED. SO FAR AS OTHER LOANS ARE CONCERNED, THE APPELLANT HAS FAILED TO DEMONSTRATE THEIR UTILIZATION WITH THE HELP OF ENTRIES IN ITS BOOKS OF ACCOUNTS. ALSO, IT HAS NOT EXPLAINED THAT THE SOURCE OF FUNDS UTILIZED FOR ACQUISITION OF FIXED ASSETS ARE NOT THESE LOA NS. HENCE THE APPELLANT HAS FAILED TO DISCHARGE THE ONUS CAST UPON I T BY THE PROVISO TO SECTION 36(1 )(III). IN SUCH CIRCUMSTANCE, THE CONTENTIONS OF THE APPELLANT ARE NOT ACCEPTABLE. HENCE THIS GROUND OF APPEAL IS DISMISSED. 4. BEFORE US, T HE LEARNED COU NSEL CONTENDED THAT IT WAS EXPLAINED BEFORE THE A SSESSING OFFICER AND THE L D. CIT(A) THAT DURING THE YEAR ADDITIONS TO WORK - IN - PROGRESS OF FACTORY BUILDING WAS MADE AT RS. 2 , 65 , 706 / - AND PLANT AND MACHINERY AT RS. 2,86,562/ OUT OF THE FUNDS AVAILABLE WITH THE COMPANY FOR WHICH NO BORROWINGS WE RE MADE. THE L D. COUNSEL ALSO STATED THAT THE ASSESSEE HAD SUBSTANTIAL FUNDS OF ITS OWN IN THE FORM OF RE SERVE & SURPLUS AND SHARE CAPITAL WHICH WERE UTILIZED TOWARDS LONG TERM INVESTMENTS OF THE COMPA N Y AS APPEARING IN ITS BALANCE SHEET. REGARDING THE OPENING BALANCE OF CAPITAL WIP RS. 1 , 80 , 50 , 823 / - IT WAS STATED BY THE L D. COUNSEL THAT AUDIT ACCOUNTS I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 6 FOR THE YEAR 31 - 03 - 2005 REVEALED THAT DURING THE PREVIOUS YEAR 2004 - 05 RELEVANT TO THE ASSESSMENT YEAR 2005 - 06, THE C OMPANY HA S RECEIVED RS. 1,25,00 , 000/ - TOWARDS SHARE CAPITA L AND T HE CAPITAL WIP INCREASED FROM RS. 14,88,029/ - TO RS. 1 , 54 , 94 , 775/ - IN THE A.Y. 2005 - 06. THERE WER E NO BORROWINGS IN THE YEAR EITHER BY WA Y OF SECURED LOANS FROM BANKS AND FIS OR FROM INDIVID UALS ETC. AS UNSECURED LOANS. IN FACT, THERE IS A REDUCTION IN LOAN PORTFOLIO AND INCREASE IN CAPITAL WIP FINANCED BY TH E COMPANY S OWN FUNDS BY WAY OF SHARE CAPITAL AND RES ERVES & SURPLUS. IN SUPPORT OF ITS CLAIM THAT THE FIXED ASSETS WERE PURCHASED OUT OF NON - INTEREST BEARING FUNDS T HE L D. COUNSEL REFERRED TO THE VARIOUS PAGES OF THE PAPER BOOK AND ALSO REFERRED TO THE FOLLOWING TABLE OF INFORMATION : - A.Y. 2004 - 05 A.Y. 2005 - 06 A.Y. 2006 - 07 A.Y.2007 - 08 SHAREHOLDERS' FUND SHARE CAPITAL 4 9,00,300 1,74,00,300 1,74,00,300 1,74,00,300 RESERVES & SURPLUS 2,02,59,182 2,61,05,701 3,06,24,865 3,30,36,748 LOAN FUND SECURED LOANS 2,15,14,354 1,73,71,363 2,47,20,732 2,95,12,392 UNSECURED LOANS 0 1,00 ,000 1,07,94,319 1,19,44,301 CAPITAL WIP 14,88,029 1,54,94,775 1,80,50,823 0 I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 7 ON THE OTHER HAND, L D. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD BOTH THE S IDES AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE FIND FROM THE PERUSAL OF THE AUDITED ACCOUNTS OF THE COMPANY THAT THE A SSESSEE HAS RECEIVED RS . 1 , 25 , 00,000/ - TOWARDS SHARE CAPITAL DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2005 - 06. AND T HE CAPITAL WIP INCREASED FROM RS . 14,88,029 TO RS . 1 , 54 , 94 , 775 IN THE SAME YEAR. WE ALSO NOTICED THAT THERE WAS INCREASE OF ONLY RS . 25,56,048/ - IN THE WIP IN THE A. Y. 2006 - 07 AND NO INCREASE IN THE CAPITAL WIP I N THE A . Y . 2007 - 08. IT IS EVIDENT FROM THE ABOVE STATED FACTS AND CIRCUMSTANCES THAT THE ASSESSEE COMPANY HAS ITS OWN SUBSTANTIAL FUNDS IN THE FORM OF SHARE CAPITAL , RESERVES AND SURPLUS WHICH WERE USED FOR PURCHASE OF FIXED ASSETS . THE LOWER AUTHORITIES HAS NOT ESTABLISHED THAT ASSESSEE COMPAN Y PURCHASED THE FIXED ASSETS OUT OF THE NON - INTEREST BEARING FUNDS . IN VIEW OF ABOVE STATED FACTS AND FINDINGS THE ADDITION SUSTAINED BY THE LD. CIT(A) IS NOT JUSTIFIED, ACCORDINGLY WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. GROUND NO. 2 6. AS PER THE FACT OF THE CASE ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SURVEY FOR A.Y.2007 - 08 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS UNDER - INVOICED THE SALE OF I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 8 SCRAP BY RS. 8000/ - PER M.T. THE ASSESSEE OBJECTED THAT THE STAT EMENT RECORDED IN THE FINANCIAL YEAR 2007 - 08 RELEVANT TO ASSESSMENT YEAR 2008 - 09 CANNOT BE MADE BASIS FOR ADDITION IN THE YEAR UNDER ASSESSMENT. THE ASSESSING OFFICER HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSE ON THE REASONING THAT IN THE STATEMENT RE CORDED IN THE COURSE OF SURVEY, THE DIRECTOR OF THE COMPANY ADMITTED THE MODUS OPERANDI ADOPTED IN SALE OF SCRAP AND CATEGORICALLY STATED THAT THE ASSESSEE COMPANY USE TO ACCEPT RS. 8000 PER MT IN CASH OUT OF THE B OOKS OF ACCOUNT. THE A SSESSING O FFICER APPLIED THE SAME REASONING TO THIS YEAR WHICH IS THE IMMEDIATE PRECEDING YEAR IN WHICH SURVEY WAS CONDUCTED. HE DETERMINED THE VALUE OF UNDER INVOICING AT RS. 14,96,000/ - A FTER APPLYING THE RATE OF RS. 8000/ - TO THE 187 MT (164+23) OF SCRAP AS UNACCOUNT ED INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS FILED AN APPEAL BEFORE THE LD. CIT(A) AGAINST THE ADDITION MADE BY THE A.O. 7. THE LD. COMMISSIONER OF INCOME TAX (A) HELD THAT THE FLAT RATE OF RS. 8000 PER MT OF SCRAP ADOPT ED BY THE ASSESSING OFFICER TO COMPUTE THE UNACCOUNTED INCOME IS NOT CORRECT. HE STATED THAT THE RATIO OF CASH PART OF TH E CONSIDERATION IN SALE OF SCRAP HAS BEEN FOUND TO BE 15% AS MENTIONED IN THE STATE ME NT OF THE MANAGING D IRECTOR RECORDED ON 19 - 02 - 200 8. THE LD. COMMISSIONER OF INCOME TAX(A) FURTHER STATED THAT AS PER SCHEDULE 2 OF THE AUDITED ACCOUNTS OF THE ASSESSEE THE TOTAL INCOME FROM SCRAP SALE IS RS. 20,66,760/ - AND HE DETERMINED THE UNACCOUNTED CAS H RECEIVED @ 15% AT R S. 310014/ - . I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 9 THE LD. CO MMISSIONER OF INCOME TAX (A) ACCORDINGLY RESTRICTED THE ADDITION TO RS. 3 , 10 ,014/ - . THE L D. COUNSEL CONTENDED THAT THE STATEMENT ON THE BASIS OF WHICH THE ADDITION WAS MADE NOT RELEVANT TO THE YEAR UNDER CONSIDERATION. ON THE OTHER HAND , THE LD. DEPARTME NTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LOWER AUTHORITIES. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THE LD. COMMISSIONER OF INCOME TAX(A) HAS CORRECTLY SUSTAINED THE ADDITION UP TO RS. 3,10,014/ - OUT OF THE TOTAL A DDITION OF RS. 14,96,000/ - MADE BY THE A SSESSING OFFICER ON THE BASIS OF UNACCOUNTED CASH RECEIVED @ 15% ON SCRAP SALE AFTER TAKING INTO ACCOUNT THE PREVAILING PRACTICE IN THE BUSINESS OF THE ASSESSEE. IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMSTANCES, WE UPHOLD THE ADDITION SUSTAINED IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(A). THIS GROUND OF APPEAL OF THE ASSESSEE IS REJECTED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 23 - 08 - 2 01 6 SD/ - SD/ - ( R.P. TOLANI ) ( AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 23 /08 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) I .T.A NO. 967 /AHD/20 12 A.Y. 2007 - 08 PAGE NO M/S. MOFLEX SUSPENSION PVT. LTD VS. ACIT 10 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,