ACIT, Ludhiana V. M/s Sunder Forging, Ludhiana

ITA 968/CHANDI/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64077 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-12-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 21-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, J M ITA NO. 968/CHD/2012 ASSESSMENT YEAR : 2006-07 A.C.I.T. CIRCLE I, LUDHIANA V M/S SUNDER FORGING INDUSTRIAL AREA C SUA ROAD, DHANDARI KALAN LUDHIANA AANFS 7430 H (APPELLANT) (RESPONDENT) APPELLANT BY SHRI J.S. NAGAR RESPONDENT BY: SHRI ASHWANI KUMAR DATE OF HEARING 13.12.2012 DATE OF PRONOUNCEMENT 18.12.2012 O R D E R PER T.R.SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX(A), LUDHIANA DATED 6 .7.2012. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION OF RS. 3,71,734/- MADE BY THE ASSESSING OFFICER TREATING THE EXPENDITURE INCURRED ON THE PURCHASE OF TUP AND RENOVATION OF BRICK LINING OF F URNACE AS CAPITAL EXPENDITURE, SINCE THE EXPENDITURE RESUL TED IN AN ENDURING ADVANTAGE TO THE ASSESSEE. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AT RS. 8,63,337/- BY DISALLOWING EXCESS INTEREST TO THE T UNE OF 3% PAID TO THE PERSONS COVERED U/S 40A(2)(B) OF THE ACT. 3. GROUND NO. 1 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAD PURCHASED A S AW BLOCK WHICH IS BASICALLY DIE HOLDER AND ALSO PURCHASED A NEW TUP (BATTA). IN RESPONSE TO THE QUERY IT WAS CLAIMED T HAT SAW BLOCK 2 WAS PURCHASED FOR REPAIR / MAINTENANCE ITEM FOR THE HAMMER. IT WAS EXPLAINED THAT SAW BLOCK WHICH IS BASICALLY A DIE HOLDER WHICH HOLDS DIES AND ON IT TUP (BATTA) STROKES. SU CH SAW BLOCKS CAN BE CRACKED AT ANY MOMENT AS ON IT STROKE S ARE MADE BY THE TUP. THEREFORE, SAME REQUIRE REPLACEMENT. THE ASSESSEE RELIED ON VARIOUS CASE LAWS. ON THE OTHER HAND, THE ASSESSING OFFICER RELIED ON THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN CASE OF CIT V. RAMESHWAR PARSHAD KE JRIWAL AND SONS (1994) 76 TAXMAN 124 (CAL) WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED ON REPLACEMENT OF SOME OF THE PARTS OF AN OLD MACHINERY WOULD ALSO QUALIFY AS CAPITAL EXPENDI TURE. 4 ON APPEAL THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE ASSESSING OFFICER HAS HIMSELF OB SERVED IN PARA 4.1 THAT SAW BLOCK AND TUP PARTS ARE INTRINSIC PARTS OF THE MACHINERY ENGAGED IN THE PROCESS OF FORGING. 5 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY RE LIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER H AND, THE LD. COUNSEL OF THE ASSESSEE SUPPORTED THE IMPUGNED ORDE R. 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSING OFFICER HAS CATEGORICALLY OBSERVED IN PAR A 4.1 THAT SAW BLOCK AND TUP ARE PART OF THE MACHINERY ENGAGED IN THE PROCESS OF FORGING. IF A PARTICULAR PART OF THE MA CHINE IS DAMAGED AND THEN REPLACED THEN IN OUR OPINION, THE SAME WOULD DEFINITELY CONSTITUTE REPAIR BECAUSE THE SAID SEPARATE CAN NOT CONSTITUTE A MACHINE. ACCORDINGLY WE CONFI RM THE ORDER OF THE LD. CIT(A). 3 7 GROUND NO. 2 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER OBSERVED THAT THE ASSESSEE HAD PAID INTERE ST TO VARIOUS PEOPLE AND TO SOME OF THE RELATED PARTIES W HICH ARE COVERED U/S 40A(2)(B) AND INTEREST WAS PAID AT 15%. ACCORDING TO THE ASSESSING OFFICER 12% INTEREST WAS REASONABL E AND THEREFORE, HE DISALLOWED INTEREST @ 3% AND DISALLO WED INTEREST AMOUNTING TO RS. 8,63,337/-. 8 ON APPEAL THE LD. CIT(A) OBSERVED THAT THE ASSES SING OFFICER HAS NOT GIVEN ANY REASON FOR ADOPTING 12% I NTEREST AS AGAINST 15% PAID BY THE ASSESSEE AND THEREFORE, TH E ADDITION WAS DELETED. 9 BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED T HE ORDER OF THE ASSESSING OFFICER. 10 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THIS ISSUE IS COVERED BY THE ORDER O F THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 803/CHD/2011 FOR ASSESSMENT YEAR 2007-08. 11 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION FOR ASSES SMENT YEAR 2007-08 AND THE SAME WAS ADJUDICATED BY THE TRIBUNA L VIDE PARA 15 TO 20. THE RELEVANT PARA 20 IS REPRODUCED AS UNDER: 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT THE LD. CIT(A) HAS ADJUDICATED THE ISSUE VIDE PARA 9 WH ICH IS AS UNDER: 9 I HAVE CONSIDERED THE BASIS OF DISALLOWANCE MAD E BY THE ASSESSING OFFICER WHICH IS PRIMARILY FOCUSED ON THE OBSERVATION THAT INTEREST @ 9% HAD BEEN PAID TO ONE MS. KAUSHALYA WANTI WHEREAS @ 15% TO OTHER FAMILY MEMBERS. THE ASSESSING OFFICER OBSERVED THAT THE 4 FUNDS WERE AVAILABLE FROM BANKS @ 12% AND THEREFORE , ANY INTEREST PAID IN EXCESS OF THIS RATE WAS UNREAS ONABLE AND EXCESSIVE ESPECIALLY WHEN THE BORROWING HAS BEE N DONE FROM THE SPECIFIED PERSONS AS PROVIDED IN SECT ION 40A(2). HOWEVER, IT IS MATTER OF RECORD THAT THE ASSESSEE HAS BEEN PAYING INTEREST @ 15% FOR SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED AS FAIR AND REASONABLE AS PER ORDER PASSED U/S 143(3). THE A.R HAS CLAIMED THAT FUNDS BORROWED FROM THE BANK ARE SUBJE CT TO A NUMBER OF RESTRICTIONS AND REQUIRE THE APPELLANT TO COMPLY WITH A LOT OF PROCEDURES IS CORRECT. THE FU NDS AVAILABLE FROM THE FAMILY MEMBERS ARE HOWEVER, AVAILABLE FOR LONGER PERIOD OF TIME AND WITHOUT ANY FORMALITIES EVEN THOUGH THE SAME REMAIN UNSECURED. THERE IS OBVIOUSLY RISK ELEMENT IN ADVANCING FUNDS TO ANY ONE WITHOUT TAKING ANY SECURITY AND THEREFORE, SUCH A RISK IS ALWAYS GOING TO FETCH CERTAIN HIGHER RATE OF INTEREST AND THEREFORE, RATE OF 15% AS AGAINST 12% CHARGED BY THE BANK CAN NOT BE SEEN AS EXCESSIVE/UNREASONABLE. THEREFORE, I DONT SEE TH AT THE PAYMENT OF INTEREST @ 15% BY THE APPELLANT FIRM TO SPECIFIED PERSONS IS ANY WAY MEANT TO REDUCE THE TA X LIABILITY OF THE APPELLANT FIRM. AS SUCH DISALLOWA NCE MADE BY THE ASSESSING OFFICER IS DELETED. THE LD. CIT(A) HAS CORRECTLY ADJUDICATED THE ISSUE BECAUSE THE FUNDS BORROWED FROM BANK AND FINANCIAL INSTITUTIONS ARE SUBJECT TO NUMBER OF RESTRICTIONS AND ARE MORE THAN SECURE WHEREAS MONEY BORROWED FROM THE RELATIVES WAS UNSECURED AND GENERALLY INTEREST RATE IS MORE IN CASE OF UNSECURE D LOANS. THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND CONFIRM THE SAME. FOLLOWING THE ABOVE, WE CONFIRM THE ORDER OF THE LD . CIT(A). 12 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON 18.12.2012. SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 18.12. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 5