ACIT, Ludhiana V. Sh. Amrik Singh, Ludhiana

ITA 970/CHANDI/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73545 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 24-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Assessee Lawyers: JASWINDER SINGH
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.970/CHD/2009 ASSESSMENT YEAR : 2006-07 THE A.C.I.T., VS SHRI AMRIK SINGH, CIRCLE-I, PROP. M/S NEXO PRODUCTS (INDIA), LUDHIANA. E-92, FOCAL POINT, LUDHIANA. PAN : AFRPS2729E (APPELLANT) (RESPONDENT) APPELLANT BY : DR. AMARVEER SINGH RESPONDENT BY : SHRI JASWINDER SINGH DATE OF HEARING : 24.03.2014 DATE OF PRONOUNCEMENT : 27.03.2014 O R D E R PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DA TED 07.07.2009 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF TH E INCOME-TAX ACT, 1961 ( 'THE ACT' FOR SHORT). 2. THE APPEAL OF THE ASSESSEE WAS DECIDED VIDE ORDE R DATED 18.04.2013. HOWEVER, GROUND OF APPEAL NOS. 2 & 3 WE RE NOT ADJUDICATED UPON IN THE SAID ORDER DATED 18.04.2013. THE REVEN UE MOVED A MISCELLANEOUS APPLICATION AGAINST THE SAME AND VIDE MISCELLANEOUS APPLICATION NO. 79/CHD/2013 IN ITA NO. 970/CHD/2009 ORDER DATED 17.01.2014, THE ORDER OF THE TRIBUNAL WAS RECALLED FOR THE LIMITED PURPOSE OF ADJUDICATING THE GROUND NOS. 2 & 3 RAISE D BY THE REVENUE AND HENCE, THE PRESENT APPEAL WAS FIXED FOR HEARING BEF ORE US. 2 3. THE GROUND NO. 2 & 3 RAISED BY THE REVENUE READ AS UNDER : 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 25,91,099/- MADE BY THE ASSESSING OFFICER IN VIEW O F EXPLANATION 8 TO SECTION 43(1) OF THE INCOME TAX ACT,1961. 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 4,12,850/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CAPITALIZATION OF LOAN PROCESSING CHARGES. 4. THE ISSUE IN GROUND NO. 2 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION MADE IN VIEW OF EXPLANATION 8 TO SECTION 43(1) OF THE ACT AT RS. 25,91,099/-. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER NOTED AS UNDER : 2.1 THE ASSESSEE SHRI AMRIK SINGH PROP. M/S NEXO PRODUCT (INDIA) HAS FILED THE RETURN OF INCOME FOR THE A. Y. 2006-07 DECLARIN G A TOTAL INCOME OF RS. 31,91,402/- ON 31.10.2006. A PERUSAL OF THE BALANCE SHEET ANNEXED WITH THE RETURN OF INCOME REVEALS THAT ADVANCE RECEIVED AMOU NTING RS. 4,04,77,625.93 IS OUTSTANDING AS ON 31.03.2006 FROM M/S NEXO INDUSTRI ES PVT. LTD. THE COMPLETE COPY OF ACCOUNT ON M/S NEXO INDUS. PVT. LTD., IN TH E BOOKS OF ACCOUNT OF M/S NEXO PRODUCT (INDIA) WAS ALSO FILED DURING THE COUR SE OF HEARING, WHICH IS ON RECORD. THE COPY OF ACCOUNT REVEALS THAT HUGE AMOUN T OF MONEY HAS BEEN ADVANCED TO THE PROPRIETORSHIP CONCERN OF THE ASSES SEE M/S NEXO PRODUCT (INDIA) BY THE PVT. LIMITED COMPANY, NAMELY M/S NEX O INDS. PVT. LTD. THE OPENING BALANCE AS ON 01.04.2005 IS RS. 67,77,042.7 9 AND THE CLOSING BALANCE AS ON 31.03.2006 IS RS. 4,04,77,625.93. THERE IS ALWAY S A HUGE CREDIT BALANCE IN THE ACCOUNT AND THERE IS NO DEBIT BALANCE ON ANY DA TE, DURING THE PREVIOUS YEAR UNDER CONSIDERATION. THE MAXIMUM CREDIT BALANCE IN THE ACCOUNT IS DATED 14.12.2005 AMOUNTING TO RS. 6,79,62,621.93. 2.2 A STUDY OF THE COPY OF ACCOUNT FURTHER REVEALS THAT THESE ARE BASICALLY ENTRIES OF LOAN/ADVANCE TAKEN OR GIVEN. SOME PALTRY AMOUNT OF SALES HAS ALSO BEEN DEBITED IN THE ACCOUNT OF M/S NEXO INDS. PVT. LTD., TO GIVE IT A COLOUR THAT THERE ARE BUSINESS TRANSACTIONS OF PURCHASE AND SAL E. BUT THE AMOUNT OF SALES MADE BY THE ASSESSEE TO M/S NEXO INDS, PVT. LTD. AS REFLECTED IN THE COPY OF ACCOUNT ARE NEGLIGIBLE, WHEN COMPARED WITH THE ADVA NCES RECEIVED BY THE ASSESSEE FROM M/S NEXO INDS. PVT. LTD. THUS, THE AC COUNT IS BASICALLY A LOAN / ADVANCE ACCOUNT BETWEEN THE TWO SISTER CONCERNS. 6. THE ASSESSING OFFICER, IN VIEW OF THE EXPLANATIO N 8 TO SECTION 43(1) OF THE ACT DISALLOWED INTEREST TO THE EXTENT OF 12% OF THE FUNDS USED FOR ACQUISITION OF ASSETS I.E. 12% OF RS. 4,05 ,28,299/- ( RS. 3 48,63,396/-) TO THE EXTENT OF INTEREST PAID I.E. RS . 25,91,099/- IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSE SSEE TO BE TAKEN AS COST OF THE ASSETS. 7. THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE OBSERVING AS UNDER : I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE ID. COUNSELS FOR THE APPELLANT AND PERUSED THE RELEVANT RECORD. THE A.O. HAS MADE DISALLOWANCE CONSIDERING THAT THE ENTIRE ASSETS UNDER INSTALLATION AND THE ASSETS WHICH HAD- BEEN CAPITALIZED AS PER THE DETAILS GIVEN ABOVE, WERE AC QUIRED BY THE APPELLANT BY UTILIZING INTEREST BEARING BORROWE D FUNDS. THE A.O. HAS ALSO ASSUMED THAT THE ENTIRE INTEREST PAID BY THE APPELLANT AT RS. 25,91,099/- WAS IN RESPECT OF SUCH INTEREST BEARING FUNDS ONLY. HOWEVER, AS EXPLAINED IN THE WR ITTEN SUBMISSIONS OF THE ID. COUNSELS, WHICH HAVE BEEN RE PRODUCED ABOVE, BOTH THESE ASSUMPTIONS OF THE A.O. DO NOT AP PEAR TO BE CORRECT. AS ALSO DISCUSSED WHILE DEALING WITH EARLI ER GROUNDS OF APPEAL, AND EXPLAINED BY THE ID. COUNSELS IN THE WRITTEN SUBMISSIONS AS ABOVE, OUT OF THE TOTAL INTEREST PAI D BY THE APPELLANT ONLY INTEREST AMOUNTING TO RS. 2,32,389/- HAD BEEN PAID ON MACHINERY WORTH RS. 30,61,000/- AND THE BAL ANCE MACHINERY WAS FUNDED BY M/S NEXO INDUSTRIES (P) LTD . (M/S NIPL). THEREFORE, THE A.O. WAS NOT JUSTIFIED TO DIS ALLOW THE ENTIRE INTEREST CLAIMED BY THE APPELLANT IN THE PRO FIT AND LOSS ACCOUNT. FURTHER FROM THE DETAILS OF INTEREST BROUG HT OUT IN THE WRITTEN SUBMISSIONS OF THE ID. COUNSELS, THE APPELL ANT IS FOUND TO HAVE PAID MAJOR PART OF THE INTEREST ON BOOK DEB TS, CASH CREDIT, BILL DISCOUNT AND UNSECURED LOANS WHICH ARE OLD. NO PART OF THIS INTEREST COULD BE TAKEN TO BE IN RESPE CT OF THE AMOUNTS INVESTED BY THE. APPELLANT IN THE ASSETS IN QUESTION. IN VIEW OF THE ABOVE FACTUAL POSITION, IT IS ONLY THE INTEREST OF RS. 2,32,389/- PAID FOR THE AMOUNT INVESTED IN THE MACH INERY AT RS. 30,61,000/- WHICH IS REQUIRED TO BE EXAMINED FOR. T HE PURPOSE OF ANY' SUCH DISALLOWANCE. COMING TO THIS AMOUNT OF RS. 2,32,389/-, AGAIN AS EXPLAINED IN THE WRITTEN SUBMI SSIONS BOTH BEFORE THE A.O. AND DURING APPEAL PROCEEDINGS, THIS INTEREST WAS PAID FROM THE MONTH OF JULY, 2005 ONWARDS BECAU SE TERM LOAN, IN QUESTION, WAS DISBURSED ON 13.7.2005. HOWE VER, THE MACHINERY IN QUESTION WAS PURCHASED BY THE APPELLAN T ON 18.2.2005 AND WHICH WAS INSTALLED IN JUNE 2005 WHIC H HAPPENED TO BE BEFORE DISBURSEMENT OF LOAN I.E. ; 13.7.2005. ACCORDINGLY, AS RIGHTLY EXPLAINED BY THE ID. COUNSE LS, NO INTEREST ON THIS LOAN WAS PAID FOR THE PERIOD APRIL 2005 TO JUNE 2005 WHICH COULD BE CONSIDERED FOR CAPITALIZATION E TC. THEREFORE, THOUGH THIS INTEREST WAS PAID ON THE MON EYS BORROWED AND INVESTED IN THE MACHINERY, AS THE INTE REST CLAIM WAS IN RESPECT OF THE PERIOD AFTER THE MACHINERY WA S FIRST PUT TO USE IN JUNE, 2005, NO PART OF THIS INTEREST WAS FUR THER REQUIRED TO BE CAPITALIZED. 4 8. THE LD. DR FOR THE REVENUE HAS FAILED TO CONTROV ERT THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND IN THE ABSENCE OF THE SAME, WE FIND NO MERIT IN GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 9. THE ISSUE IN GROUND NO. 3 RAISED BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS. 412,850/- MADE BY THE A SSESSING OFFICER ON ACCOUNT OF CAPITALIZATION OF LOAN PROCESSING CHARGE S. THE SAID DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER AS T HE ASSESSEE HAD PAID ONE TIME FEE FOR THE PROCESSING OF LOAN WHICH EXPEN DITURE WAS NOT IN THE NATURE OF REVENUE EXPENDITURE AND AS PER THE ASSESS ING OFFICER, SHOULD HAVE BEEN CAPITALIZED AS SUCH. THE PLEA OF THE ASS ESSEE IN THIS REGARD WAS THAT THE PROCESSING CHARGES AGAINST THE TERM LOAN HAS NO T BEEN CAPITALIZED AS THE TERM LOAN HAS BEEN UTILIZED AGAI NST PURCHASE OF MACHINERY IN FEB.,2005 WHICH WAS INSTALLED IN JUNE DURING THIS YEAR WHICH IS BEFORE REIMBURSEMENT OF LOAN. 10. THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWE D THE CLAIM OF THE ASSESSEE HOLDING AS UNDER : I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE ID. COUNSELS AND PERUSED THE RELEVANT RECORD. THE A.O. HAS MADE DISALLOWANCE OF RS. 4,12,850/- CONSIDERING THE ENTI RE AMOUNT TO BE 'LOAN PROCESSING CHARGES'. HOWEVER, AS EXPLAINED BY THE ID. COUNSELS IN THE WRITTEN SUBMISSIONS REPRODUCED ABOV E, THIS INCLUDED RS. 1,72,500/- AS MTL PROCESSING FEE AND T HE REMAINING AMOUNT OF RS. 2,40,351/- WAS ON ACCOUNT O F BILL DISCOUNTING CHARGES AND OTHER DAY-TODAY CHARGES OF THE BANK. THEREFORE, OUT OF THE OF RS. 4,12,850/-, DISALLOWAN CE OF RS,. 2,40,351/- IS EVEN OTHERWISE NOT IN ORDER. THIS IS SO BECAUSE THE EXPENSES AS ABOVE WERE EVEN OTHERWISE ALLOWABLE AS EXPENDITURE AND THE A.O. HAS MADE THE DISALLOWANCE WRONGLY CONSIDERING THE SAME TO BE ON ACCOUNT OF LOAN PROCE SSING CHARGES. NOW COMING TO THE AMOUNT OF RS. 1,72,500/- INCLUDED IN THIS AMOUNT ON ACCOUNT OF LOAN PROCESSING CHARGE S, THE A.O. IS OF THE VIEW THAT THE SAME IS TO BE CAPITALIZED B ECAUSE IT WAS NOT IN THE NATURE OF RECURRING EXPENDITURE AND WAS ONLY ONE TIME FEE. HOWEVER, AS EXPLAINED IN THE SUBMISSIONS OF THE ID. COUNSELS, THE HON'BLE DELHI BENCH OF ITAT IN THE CA SE OF SHREE SITA RAM PAPER MILLS LTD. VS. DCIT 6 SOT 585, RELYI NG ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F INDIA 5 CEMENT LTD (SUPRA), HAVE HELD THAT SUCH LOAN PROCES SING CHARGES PAID TO A BANK FOR OBTAINING A LOAN FOR PUR CHASE OF EVEN CAPITAL ASSET, IS TO BE ALLOWED AS REVENUE EXP ENDITURE. IN VIEW OF THE RATIO OF THIS DECISION, EVEN THE DISALL OWANCE OF RS. 1,72,500/- IS NOT SUSTAINABLE. IN VIEW OF THE ABOVE DISALLOWANCE OF RS. 4,12,851/- IS ALSO DELETED AND THIS GROUND I S ALLOWED. 11. THE ISSUE RAISED VIDE GROUND NO. 3 IS LINKED TO THE ISSUE RAISED VIDE GROUND NO. 2 AND IN VIEW OF OUR ALLOWING THE C LAIM OF THE ASSESSEE IN RESPECT OF INTEREST EXPENDITURE, WE FIN D NO MERIT IN GROUND NO. 3 RAISED BY THE REVENUE. UPHOLDING THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS), WE DISMISS THE GROUND NO. 3 R AISED BY THE REVENUE. 12. IN THE RESULT, GROUND NOS. 2 & 3 RAISED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MARCH,2014. SD/- SD/- ( T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH MARCH,2014 POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR. ASSISTANT REGISTRAR ITA T,CHD.