DCIT, Chandigarh V. M/s Samrat Forging Ltd., Chandigarh

ITA 975/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60860 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-05-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: A K JINDAL
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.975/CHD/2011 (ASSESSMENT YEAR: 2007-08) THE D.C.I.T., VS. SAMRAT FORGING LTD., CIRCLE 1(1), H.NO.245, SECTOR 15-A, CHANDIGARH. CHANDIGARH. PAN: AACCS7510E (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.JAISHREE SHARMA, DR RESPONDENT BY : SHRI A.K.JINDAL DATE OF HEARING : 01.05.2012 DATE OF PRONOUNCEMENT : 24.05.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE PRESENT APPEAL FILED BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DA TED 12.07.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORD ER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT (IN SHORT THE ACT). 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) HAS GRAVELY ERRED IN DELETING THE ADDITION MADE BY THE A.O. IN DISALLOWING & CAPITALIZING INTEREST AMOUNTING TO RS . 6,33,729/-AS PER PROVISIONS OF SECTION 36(I)(III) OF THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A)HAS GRAVELY ERRED IN DELETING THE ADDITION MA DE BY THE A.O. ON THE ISSUE OF DISALLOWANCE OF RS. 2,89,995/- U/S 40( A)(IA) OF THE INCOME TAX ACT1961 FOR THE PAYMENT MADE ON ACCOUNT OF INTEREST PAID TO M/S SREI INTERNATIONAL FINANCE LTD. ON WHIC H NO TDS WAS DEDUCTED. 2 3. THE ISSUE IN GROUND NO.1 RAISED BY THE REVENUE I S AGAINST THE DELETION OF ADDITION MADE UNDER SECTION 36(1)(III) OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN SUM OF RS.75,6 9,289/- AS CAPITAL WORK-IN-PROGRESS IN ITS BALANCE SHEET. THE ASSESSI NG OFFICER INVOKED THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT AND COMPUTED THE INTEREST RELATABLE TO CAPITAL WORK-IN-PROGRESS, I.E. THE AMOUNT UTILIZED FOR ACQUISITION OF NEW ASSET FOR EXTENSION OF EXIST ING BUSINESS, FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED TILL THE DATE ON WHICH SAID ASSET WAS PUT TO USE AND DISALLO WED SUM OF RS.6,33,729/-. THE COMPUTATION OF INCOME RELATABLE TO THE CAPITAL WORK- IN-PROGRESS OF FURNACE AND FACTORY BUILDING IS TABU LATED AT PAGES 3 AND 4 OF THE ASSESSMENT ORDER. 5. THE CIT (APPEALS) VIDE PARA 3.2 OF THE APPELLATE ORDER OBSERVED THAT THE CAPITAL INVESTMENT WAS MADE IN FURNACE AND BUILDING FROM INTERNAL ACCRUAL. THE CIT (APPEALS) NOTED THAT THE NET PROFIT OF THE ASSESSEE COMPANY WAS RS.1.97 CRORES AND ONLY SUM OF RS.42.46 LACS HAD BEEN SPENT ON FURNACE AND RS.33.23 LACS HAD BEEN SP ENT ON BUILDING. THE FINDING OF THE CIT (APPEALS) WAS THAT THUS NO LOAN HAD BEEN RAISED BY THE COMPANY FOR PURCHASE OF FURNACE OR FOR CONSTRUC TION OF BUILDING . THE CIT (APPEALS) ALSO NOTED THAT THE ASSESSING OFF ICER HAD NOT REFERRED TO ANY BORROWINGS FOR ACQUISITION OF ASSET ON WHICH INTEREST WAS PAID. CONSEQUENTLY ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF TH E CIT (APPEALS). THE LEARNED D.R. FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 3 7. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANC E ON THE ORDER OF THE CIT (APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED IN GROUND NO.1 IS IN RELATION TO THE A PPLICATION OF PROVISO TO SECTION 36(1)(III) OF THE ACT. THE SAID SECTION 36 (1)(III) OF THE ACT TALKS OF DEDUCTION TO BE ALLOWED ON THE AMOUNT OF INTERES T PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF BUSINESS OR PR OFESSION, WHILE COMPUTING THE INCOME FROM PROFITS AND GAINS OF BUSI NESS. THE PROVISO TO SECTION 36(1)(III) OF THE ACT PROVIDES THAT WHERE A NY AMOUNT OF INTEREST WAS PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUIS ITION OF ASSET, THEN SUCH INTEREST WHICH IS RELATABLE TO THE PERIOD BEGI NNING FROM THE DATE ON WHICH CAPITAL WAS BORROWED FOR ACQUISITION OF ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS A DEDUCTION. 9. THE PROVISIONS OF MAIN SECTION AND THE PROVISO A RE IN RELATION TO THE AMOUNT OF INTEREST PAYABLE ON CAPITAL BORROWED. THE FIRST JUNCTURE THUS TO BE SEEN IS WHETHER THE ASSESSEE HAD BORROWE D ANY CAPITAL FOR THE PURPOSES OF INVESTMENT IN CAPITAL ASSET FOR EXTENSI ON OF EXISTING BUSINESS OR PROFESSION. IN THE FACTS OF THE PRESENT CASE, T HERE IS NO FINDING BY THE ASSESSING OFFICER IN RESPECT OF THE BORROWALS MADE BY THE ASSESSEE FOR THE PURPOSES OF INVESTMENT IN CAPITAL WORK-IN-PROGR ESS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD SHOWN CAPITAL W ORK-IN-PROGRESS IN ITS BALANCE SHEET AND CONSEQUENTLY COMPUTED DISALLOWANC E IN VIEW OF THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT. THE CIT (APPEALS) HAS GIVEN THE FINDING THAT NO LOAN HAD BEEN RAISED BY THE ASSESSEE COMPANY FOR THE PURCHASE OF FURNACE OR FOR THE CONS TRUCTION OF BUILDING. THE SAID FINDING OF THE CIT (APPEALS) HAD NOT BEEN CONTROVERTED BY THE LEARNED D.R. FOR THE REVENUE. FURTHER THE CIT (APP EALS) HAS ALSO NOTED 4 THAT THE TOTAL INVESTMENT MADE BY THE ASSESSEE DURI NG THE YEAR ON CAPITAL WORK-IN-PROGRESS WAS RS.42.46 LACS SPENT ON FURNACE AND RS.33.23 LACS ON THE BUILDING AS AGAINST THE NET PROFIT OF THE AS SESSEE FOR THE YEAR AT RS.1.97 CRORES. IN VIEW OF THE ABOVE SAID FACTS AN D CIRCUMSTANCES, WE FIND NO MERIT IN THE DISALLOWANCE MADE BY THE ASSES SING OFFICER. UPLOADING THE ORDER OF THE CIT (APPEALS) WE DISMISS GROUND NO.1 RAISED BY THE REVENUE. 10. THE ISSUE IN GROUND NO.2 RAISED BY THE REVENUE IS IN RELATION TO THE DISALLOWANCE OF ADDITION MADE BY INVOKING PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT. 11. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD MADE PAYMENT OF RS.2 ,89,995/- ON ACCOUNT OF INTEREST. AS PER THE ASSESSING OFFICER, THE SAID PAYMENT WAS MADE TO M/S SREI INFRASTRUCTURE FINANCE LTD., WHICH WAS A NON-BANKING COMPANY AND CONSEQUENTLY TDS WAS TO BE DEDUCTED OUT OF SUCH INTEREST PAYMENT. THE ASSESSING OFFICER IN VIEW OF THE PROV ISIONS OF SECTION 40()(IA) OF THE ACT, DISALLOWED SUM OF RS.2,89,995/ - BEING INTEREST PAID WITHOUT DEDUCTION OF TAX AT SOURCE. 12. THE CIT (APPEALS) ALLOWED THE CLAIM OF THE ASSE SSEE FOLLOWING HE ORDER OF THE TRIBUNAL IN THE PRECEDING YEAR. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE CONTENTION OF THE ASSESSEE IN RESPECT OF THE ABOVE SAID PAYMENT OF INTEREST WAS THAT THE BORROWALS WERE MADE FROM UTI BANK LTD. AND M/S SREI FINANCE LTD. WAS ONLY A REPRESENTATIVE OF THE UTI BANK FOR PROCESSING THE APPLICATION AND CERTAIN OTHER DUTIES AS PROVIDED IN THE AGREEMENT EXECUTED BETWEEN UTI BANK AND THE BORROWE R I.E. THE ASSESSEE COMPANY. THE LEARNED A.R. FOR THE ASSESSEE DREW OU R ATTENTION TO THE 5 COPY OF THE LOAN AGREEMENT WITH UTI BANK AND M/S S REI INTERNATIONAL FINANCE LTD., WHICH IS PLACED AT PAGES 7 TO 21 OF T HE PAPER BOOK. THE LEARNED A.R. FOR THE ASSESSEE ALSO REFERRED TO THE LOAN APPLICATION MADE TO UTI BANK WHICH IS PLACED AT PAGES 22 & 23 OF THE PAPER BOOK. THE PERUSAL OF THE LOAN AGREEMENT REFLECTS THAT THE SAI D AGREEMENT WAS BETWEEN THE ASSESSEE AND M/S UTI BANK LTD. AND ALSO M/S SREI INTERNATIONAL FINANCE LTD. THE ASSESSEE HAD BORROW ED THE LOAN FOR PURCHASE OF PLANT AND MACHINERY AND AS PER CLAUSE 1 .1), THE SAID LOAN WAS BORROWED FROM UTI BANK BY THE ASSESSEE BORROWER AND THE SAID LOAN WAS GRANTED BY UTI BANK TO THE BORROWER AS STATED I N SCHEDULE ON THE TERMS AND CONDITIONS CONTAINED IN THE AGREEMENT. A S PER CLAUSE 2.2), THE MODE OF PAYMENT IN INSTALLMENTS BY THE BORROWER TO UTI BANK. AS PER CLAUSE 2.3), THE BORROWER I.E. THE ASSESSEE BEFORE US WAS TO DELIVER TO UTI BANK/ M/S SREI INTERNATIONAL FINANCE LTD. POSTD ATED CHEQUES IN FAVOUR OF M/S SREI INTERNATIONAL FINANCE LTD. FOR T HE INSTALLMENTS DUE. THE SAID AGREEMENT EXECUTED BETWEEN THE ASSESSEE BO RROWER, UTI BANK AND M/S SREI INTERNATIONAL FINANCE LTD. IS FOR THE LOAN OF RS.30,20,500/- ADVANCED TO THE ASSESSEE. THE SAID AMOUNT WAS TO BE REPAID BY WAY OF INSTALLMENT OF RS.1,06,300/- EACH. THE INTEREST RELATABLE ON SUCH INSTALLMENTS PAID BY THE ASSESSEE ARE IN FACT DUE ON THE LOAN BORROWED BY THE ASSESSEE FROM M/S UTI BANK LTD . THE COMPANY M/S SREI INTERNATIONAL FINANCE LTD. IS CONDUIT AND THE CHEQUES ARE ISSUED IN FAVOUR OF M/S SREI INTERNATIONAL FINANCE LTD. IN VIEW OF THE TERMS AND CONDITIONS AGREED UPON BETWEEN THE ASSESS EE, UTI BANK AND M/S SREI INTERNATIONAL FINANCE LTD. AS PER LOAN AGR EEMENT DATED 6.9.2005, COPY OF WHICH IS PLACED AT PAGES 7 TO 21 OF THE PAPER BOOK. THE PAYMENT OF INTEREST BEING MADE TO A BANK IS OUT SIDE THE PURVIEW OF DEDUCTION OF TAX UNDER SECTION 194A OF THE ACT. TH US, THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS ON SUCH PAYMENT OF INTERES T ON THE INSTALLMENT 6 DUE TO M/S UTI BANK LTD. UPHOLDING THE ORDER OF TH E CIT (APPEALS) WE DISMISS GROUND NO.2 RAISED BY THE REVENUE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF MAY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 24 TH MAY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH