ORACLE GRANITO LIMITED,AHMEDABAD V. THE DY.CIT, CIRCLE-3(1)(2) NOW CIRCLE-3(1)(1), AHMEDABAD

ITA 336/AHD/2024

AI Insights

The case involves Oracle Granito Limited appealing against the order of the Commissioner of Income-Tax (Appeals), which confirmed the disallowance of interest expenses by the Assessing Officer. The disallowance pertained to interest expenses amounting to Rs.10,43,063, which were claimed to be related to funds used for acquiring capital assets. The ITAT had previously restored the matter to the AO for a fresh decision after the assessee failed to provide a fund flow statement. In the second round, the AO reiterated the disallowance, leading to the current appeal. The Tribunal, after considering the submissions and evidence provided by the assessee, including bank statements and the sufficiency of interest-free funds, decided in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 298734 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Other Referred Cases: CIT Vs. Reliance Industries Ltd., 410 ITR 466 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGH
• Assessee Lawyers: ASEEM THAKKAR
• Keywords: Capital asset
• Section: 143(3); 250

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘D’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No.336/Ahd/2024 Assessment Year : 2008-09 Oracle Granito Limited 206, Dev Arc, Second Floor Nr.Fun Republic Opp: Big Bazar S.G. Highway Road Ahmedabad 380 015. PAN : AAACO 6238 P Vs The DCIT, Cir.3(1)(2) Now Cir.3(1)(1) Ahmedabad. (Applicant) (Responent) Assessee by : Shri Aseem Thakkar, AR Revenue by : Shri Amit Pratap Singh, Sr.DR सुनवाई क\t तारीख/Date of Hearing : 09/01/2025 घोषणा क\t तारीख /Date of Pronouncement: 07/03/2025 आदेश आदेश आदेश आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “ld.CIT(A)] dated 27.12.2023 under section 250 of the Income Tax Act, 1961 (\"the Act\" for short) dismissing the appeal of the assessee against the order of the Assessing Officer (AO) passed under section 143(3) read with section 254 the Act pertaining to Assessment Year 2008-09. 2. The grounds raised in the appeal read as under: ITA No.336/Ahd/2024 2 “1. The ld.CIT(A), has erred in confirming the disallowance of Rs.10,43,063/- made by the AO out of interest expenses u/36(1)(iii) of the Act. 2. The appellant craves leave to add, alter, amend or modify all or any of the grounds of appeal before or at the time of hearing.” 3. As is evident form a bare perusal of the grounds raised before us, the solitary grievance of the assesse is against the confirmation by the ld.CIT(A) of disallowance of interest expenses amounting to Rs.10,43,063/- made by the AO in terms of provisions of section 36(1)(iii) of the Act. 4. This is the second round before the Tribunal. In the first round, the AO had noted that the interest attributable to funds utilized for acquiring capital assets during the year by the assessee had not been capitalized and further noting that no fund flow statement had been provided by the assessee explaining the source of investment in capital assets, accordingly, he disallowed the interest attributable to the funds deployed for acquiring the fixed assets during the year, which worked out to Rs.10,43,063/-. The ld.CIT(A), however, deleted the disallowance noting that the AO had not identified capital borrowed for acquiring the capital assets. 5. The matter was carried in appeal before the Tribunal. The ITAT noted that since the assessee had not furnished necessary break-up of the fund flow statements for reconciliation of funds utilized in acquiring the capital assets, therefore, in the interest of justice the matter was restored back to the AO to decide the issue afresh after examining all the relevant details furnished by the assessee. ITA No.336/Ahd/2024 3 6. In the second round before the AO, the disallowance was reiterated by the AO noting that the assessee had failed to furnish necessary details as directed by the ITAT and merely reiterated the contentions made before the AO in the first found. That nothing new was brought on record by the assessee. The relevant finding of the AO at para 5.5 of the order are as under: 7. The same was confirmed by the ld.CIT(A) in his ex parte order passed. 8. Before us, the ld.counsel for the assessee contended that the disallowance of interest made was grossly against the settled law that where sufficient interest free funds are available with the assessee, the presumption is that the same fund has been deployed for investment in capital assets, calling for no disallowance of interest ITA No.336/Ahd/2024 4 under section 36(1)(iii) of the Act. In this regard, he drew our attention to the order of the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466 (SC). He, thereafter, pointed out that in the first round itself, the assessee had pointed out the sufficiency of own funds available for making investment in the capital assets which was noted by the ld.CIT(A) also. He pointed out that the assessee had also demonstrated through his bank accounts that the investment in fixed assets had been made from his current account, where all the sale proceeds of the business was deposited. 9. In this regard, he drew our attention to page no.20 of the order of the ld.CIT(A) in the first round, reproducing written submissions filed by the assessee to the above effect before the ld.CIT(A) and to para 6.2.1 of the order of the ld.CIT(A), noting the fact of sufficiency of funds for making investment in capital assets as under; ITA No.336/Ahd/2024 5 ITA No.336/Ahd/2024 6 10. The ld.DR relied on the orders of the ld.AO/CIT(A) contending that since the assessee had failed to furnish any fund flow statements, as directed by the ITAT, the disallowance had been rightly made by the AO in the second round also. 11. We have heard contentions of both the parties carefully, and also gone through the orders of both the Revenue authorities in the first and second round of the proceedings, as pointed out to us during the course of hearing. Undisputedly, this is the second round of appeal before us for adjudicating the issue of disallowance of interest under section 36(1)(iii) of the Act. The fact noted by the AO for making the impugned disallowance being that the assessee has made huge investment in capital assets during the year, and no disallowance made of interest with regard to funds deployed for making the same. That no fund flow statement had been furnished by the assessee for demonstrating the funds utilized in investment/capital assets. The ITAT in the first round had noted the fact of the assessee having not furnished any fund flow statement either before the AO or before the CIT(A) for reconciliation of funds used in acquiring capital assets, and noting so, had restored the matter back to the AO to decide afresh after examination of relevant details furnished by the assessee. The relevant finding of the ITAT at para 10 of its order are reproduced hereunder: “10. Regarding disallowance of interest made by the Ld.AO as per the provision of sec.36( 1 )(iii) as discussed above in the ground no.2 of the assessee, we noticed that the Assessing Officer has stated that interest attributable to the funds utilized for acquiring fixed assets has not been capitalized by the assessee and he further held that assessee has also not proved the fund flow statement. We further noticed that the Ld.CIT(A) held that the Assessing Officer had not identified capital ITA No.336/Ahd/2024 7 borrowed for acquiring capital assets. We observed after perusal of the records {hat assessee had not furnished necessary break-up with the fund flow statement for reconciliation of funds used in acquiring capital assets. Therefore, we do not incline with the decision of Ld.CIT(A) and in the interest of justice we restore this matter to the file of the Assessing Officer to decide a fresh after examination of the relevant details furnished by the assessee and after providing due opportunity to the assessee. 12. Clearly, the ITAT merely noted the non-furnishing of fund flow statement by the assessee, but there was no direction by the ITAT to decide the issue of allowance of interest only after examining of the fund flow statements. The ITAT had noted the absence of fund flow statement for restoring the matter back to the AO since it was of the view that there was no reason or basis given by the ld.CIT(A) for treating the amount invested in capital assets by the assessee as out of interest free funds. 13. Having noted so, we do not agree with the ld.DR that the disallowance of interest needs to be upheld merely for the reasons that the assessee has not furnished fund flow statement. As rightly pointed out by the ld.counsel for the assesse, it is a settled law that when sufficient own funds are available with the assessee, presumption is that the owned funds are utilized for making the investment in capital assets, calling for no disallowance of interest under section 36(1)(iii) of the Act, Reliance Industries (supra). The assessee had reiterated the fact of sufficient own interest free funds available with it for making investments in capital assets during the year to the AO, as noted above by us. 14. Besides, we have noted that the even if the assessee had not furnished fund flow statements, it has demonstrated usage of own funds for the purpose of investment in capital assets by furnishing copies of bank accounts, being current accounts, from where the ITA No.336/Ahd/2024 8 assessee demonstrated the fact that all the sale proceeds received during the course of business deposited therein were utilized for acquiring capital assets and no interest bearing loans were used for the same. 15. In our view, this demonstration of the facts by the assessee, coupled with the ratio of Hon’ble Apex Court, as noted above, is sufficient for accepting the plea of the assessee that no interest bearing funds had been deployed for acquiring capital assets, therefore calling for no disallowance of interest under section 36(1)(iii) of the Act. In the light of the above, we are unable to agree with the ld.CIT(A), and we therefore, direct the deletion of disallowance of interest made under section 36(1)(iii) of the Act amounting to 10,43,063/-. Grounds raised by the assessee are allowed. 16. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 7th March, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 07/03/2025 vk* "