M/S ORBIT RESORTS (P) LTD.,CHANDIGARH V. ADDL. CIT, R-1, CHANDIGARH

ITA 341/CHANDI/2019

AI Insights

The case involves M/s Orbit Resorts Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals) concerning the disallowance of interest expenditure capitalized in WIP for the assessment years 2007-08 and 2012-13. The primary issue was the confirmation of additions of Rs.13,09,146 and Rs.1,06,76,847 for the respective years. The Assessing Officer (AO) had disallowed proportionate interest expenditure, which was capitalized in WIP, arguing that it was not a permissible deduction. The CIT(A) upheld this decision for 2007-08 and partially for 2012-13. However, the Tribunal, after reviewing the financial records and relevant judgments, concluded that the assessee had more than adequate interest-free funds to cover the WIP, thus overturning the CIT(A)'s decision and allowing the appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46812 (ITAT-CHANDIGARH)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Other Referred Cases: ACIT Vs Janak Global Resources Pvt. Ltd., Bright Enterprises (P) Ltd Vs CIT, CIT Vs Kapson Associates, CIT Vs Max India Ltd., CIT Vs Max India Ltd (2016), Gordrej & Boyce Manufacturing Co. Ltd Vs DCIT, CIT Vs Reliance Ind Ltd., CIT v/s Reliance Utilities & Power Ltd, CIT Vs Shapoorji Palongi & Co, Decision of ITAT Chandigarh in ITA No. 184/Chd/2015
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANJIT KAUR
• Assessee Lawyers: ASHWANI KUMAR; ADITYA KUMAR; MUSKAN GARG
• Keywords: Proportionate interest

Judgement Text

"आयकर अपील य अ धकरण,च\u0010डीगढ़ \u0014यायपीठ, च\u0010डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘B’ CHANDIGARH BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 341/CHD/2019 नधा\u0011रण वष\u0011 / Assessment Year: 2007-08 M/s Orbit Resorts Ltd., House No. 256, Sector 9-C, Chandigarh. Vs The ACIT, Range-1, Chandigarh. \u0016थायी लेखा सं./PAN NO: AAACO4024H अपीलाथ\u001a/Appellant \u001b यथ\u001a/Respondent & आयकर अपील सं./ ITA No. 342/CHD/2019 नधा\u0011रण वष\u0011 / Assessment Year: 2012-08 M/s Orbit Resorts Ltd., House No. 256, Sector 9-C, Chandigarh. Vs The DCIT, Circle-1(1), Chandigarh. \u0016थायी लेखा सं./PAN NO: AAACO4024H अपीलाथ\u001a/Appellant \u001b यथ\u001a/Respondent Assessee by : Shri Ashwani Kumar, CA, Shri Aditya Kumar,CA & Ms.Muskan Garg, CA Revenue by : Dr. Ranjit Kaur, Addl. CIT Sr.DR Date of Hearing : 07.04.2025 Date of Pronouncement : 08.04.2025 HYBRID HEARING O R D E R PER RAJPAL YADAV, VP The assessee is in appeal against the orders of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] ITA No.341 & 342/CHD/2019 A.Y.2007-08 & 2012-13 2 dated 07.01.2019 and 11.01.2019 passed for assessment year 2007-08 and 2012-13 respectively. 2. The solitary substantial grievance of the assessee in both the years is that ld. CIT(A) has erred in confirming the addition of Rs.13,09,146/- and Rs.1,06,76,847/- in assessment year 2007-08 and 2012-13 respectively. 3. With the assistance of ld. Representative, we have gone through the record carefully. It emerges out from the record that assessee has filed return of income in both the years. It has declared loss in assessment year 2012-13 whereas positive income in assessment year 2007-08. The assessee has work-in-progress which was construed as a capital WIP and the AO has allocated interest expenditure towards WIP. Accordingly, he has disallowed proportionate interest expenditure. He made an addition of Rs. 13,09,146/- and Rs.2,34,39,318/-. This much interest expenditure was capitalized in the WIP. The ld. CIT(A) has confirmed the addition in assessment year 2007-08 and partially deleted in assessment year 2012-13. Addition has been confirmed at Rs.1,06,76,847/-. ITA No.341 & 342/CHD/2019 A.Y.2007-08 & 2012-13 3 4. On due consideration of the record, we find that assessee has more interest free funds than total value of WIP. The ld. Counsel for the assessee drew our attention towards page No. 33 and 56 of the Paper Book filed in assessment year 2007-08 and 2012-13 respectively. On these pages, Balance Sheet as on 31.03.2012 and 31.03.2007 has been placed. The assessee has Rs.698 Cr interest free funds in assessment year 2007-08. Similarly, it has more than Rs.742 Cr in assessment year 2012-13. Thus, assessee has surplus funds upon him and it was not required to pay interest. The value of CWIP in assessment year 2007-08 is only Rs.13,09,14,640/-, as against this, the interest free fund was Rs.698 Cr. Thus, we are of the view that alleged interest free funds can take care of this capital work-in-progress and no interest expenditure is required to be allocated. For buttressing our above view, we rely upon the following judgements : a) ACIT Vs Janak Global Resources Pvt. Ltd. 175 ITD 365 (Chd) b) Bright Enterprises (P) Ltd Vs CIT 381 ITR 107 (P&H.) c) CIT Vs Kapson Associates 381 ITR 204 (P&H.) d) CIT Vs Max India Ltd. 398 ITR 209 (Pb.) e) CIT Vs Max India Ltd (2016) 388 ITR 81 (P&H) ITA No.341 & 342/CHD/2019 A.Y.2007-08 & 2012-13 4 f) Gordrej & Boyce Manufacturing Co. Ltd Vs DCIT (2017) 394 ITR 449 (SC) g) CIT Vs Reliance Ind Ltd. 410 ITR 466 (SC) h) CIT v/s Reliance Utilities & Power Ltd 313 ITR 340-344 (Bom) i) CIT V/s Shapoorji Palongi & Co 423 ITR 220 (Bom) j) Decision of ITAT Chandigarh in ITA No. 184/Chd/2015 5. In view of the above, no disallowance is sustainable. We allow both the appeals and delete the disallowance. 6. In the result, both appeals are allowed. Order pronounced on 08.04.2025. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE PRESIDENT “Poonam” आदेश क\u0002 \u0003ितिलिप अ ेिषत/ Copy of the order forwarded to : 1. अपीलाथ\u000f/ The Appellant 2. \u0003\u0010यथ\u000f/ The Respondent 3. आयकर आयु\u0014/ CIT 4. िवभागीय \u0003ितिनिध, आयकर अपीलीय आिधकरण, च\u0018डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "