G.S. PHARMBUTOR PVT. LTD.,MEERUT vs. DCIT CIRCLE-10(1), NEW DELHI

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ITA 1541/DEL/2019Status: DisposedITAT Delhi14 February 2023AY 2013-143 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found that the issue of disallowance of interest on convertible debentures was decided in the assessee's own case for a prior year and declined to support the CIT(A)'s rationale. For the interest on borrowed funds for work in progress, the case was remanded to the AO for re-computation.

What were the facts?

The assessee appealed against the disallowance of interest on investments in convertible debentures and interest on borrowed funds used for work in progress. The Assessing Officer disallowed interest on both counts, and the CIT(A) partially upheld the disallowance for interest on borrowed funds.

What were the issues?

Whether interest on borrowings for investment in convertible debentures is disallowable. Whether interest on borrowed funds utilized for work in progress should be disallowed and how to compute it considering own funds.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHIBENCH ‘C’, NEW DELHI

Before: Sh. C. M. GargDr. B. R. R. Kumar

Hearing: 08.02.2023Pronounced: 14.02.2023

Per Dr. B. R. R. Kumar, Accountant Member:

1.

The present appeal has been filed by the assessee against the order of the ld CIT(A)-4, New Delhi dated 28.12.2018.

2.

The assessee has raised the following grounds of appeal:

“1. That the Ld. A.O has erred in law as well as on facts in making addition of Rs 3,36,00,000/- on account of disallowance of interest u/s 36(1 )(iii) on account of investment in convertible debentures. The action of Ld. A.O in making addition is bad in law and against the facts and circumstances of the case.

2. That the Ld. AO has erred in law as well as on facts in making disallowance of Rs. 1,99,83,172/- on account of interest on borrowed funds. In first appeal Ld CIT(A) has restricted the disallowance to Rs. 1,55,01,937/-. The action of Ld. A.O in making addition is bad in law and against the facts and circumstances of the case.”

G. S. Pharmbutor Pvt. Ltd Disallowance of Interest u/s 36(1)(iii):

3.

Suffice it to state that, the AO disallowed interest on borrowings which has been confirmed by the ld. CIT(A). The same issue has been dealt by the Tribunal in extenso in the order dated 08.1.2021 in assessee’s own case for the A.Y. 2015-16 in ITA No.6716/Del/2018. In the absence of any change in the facts of the case and legal proposition, we decline to support the rationale of the ld. CIT(A) on this issue.

Disallowance of Interest:

4.

The assessee incurred expenditure of Rs.13.15 crores in capital work in progress on cumulative basis. During the year under consideration an amount of Rs.9.7 crores has been added to work in progress. The AO disallowed Rs.1.99 crores on account of the interest paid. The AO held that the interest on borrowed funds utilized on work in progress needs to be disallowed. The ld. CIT(A) restricted the disallowance to Rs.1.55 crores. It was argued before us that the assessee has earned an amount of Rs.5.27 crores from the advances given and also paid an interest of Rs.5.78 crores. In that case, the net interest incurred would be Rs.50,99,073/- which needs to be disallowed being the interest incurred on specified business loans which are not directly related to any specific purpose. Hence, the case is being remanded to the file of the AO with direction to re- compute the disallowance after taking into consideration the own funds available in the form of share capital and reserves & surplus that the funds utilized for non-business purposes be re- computed after deducting the amount of the own funds available as per the balance sheet.

5.

In the result, the appeal of the assessee is allowed for statistical purpose.

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