NAHAR SPINNING MILLS LTD.,LUDHIANA vs. ACIT, C-7, LUDHIANA

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ITA 1160/CHANDI/2019Status: DisposedITAT Chandigarh06 May 2021AY 2014-1513 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the issue of disallowance under Section 14A should be determined on a proportionate basis, following a previous decision in the assessee's own case. Regarding the disallowance of interest on the CC account, the Tribunal found merit in the assessee's contention of having sufficient own funds and remanded the issue to the AO for fresh adjudication.

What were the facts?

The assessee, engaged in manufacturing and trading of yarn, cloth, and garments, filed its return of income. The Assessing Officer (AO) made additions on account of disallowance under Section 14A read with Rule 8D and for disallowance of interest on a CC account used for purchasing fixed assets.

What were the issues?

Whether disallowance under Section 14A should be computed on a proportionate basis and whether interest paid on borrowed funds for fixed asset acquisition is disallowable when the assessee has sufficient own funds.

Which sections of the Income-tax Act were involved?

Section 14A,Section 36(1)(iii)

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per the order of the Tribunal rendered in the case of Oswal Woolen Mills (supra), the working submitted by the assessee cannot be accepted as correct without verifying the same by the AO. Accordingly, the Ld. DR submitted that the issue may be sent back to the AO for determining the disallowance considering the plea of the assessee that the issue involved is covered by the order of the Tribunal. The assessee has placed on record the working of proportionate disallowance after including the personal expenditure. Under these circumstances, we do not find any reason to take a different view in this assessment year. Hence, respectfully following the decision of the coordinate Bench rendered in assessee’s own case for the assessment year 2010-11, we send this issue back to the AO for determining the disallowance on proportionate basis in accordance with the direction given by the coordinate Bench in the case of Oswal Woolen Mills Ltd. Vs. ACIT (supra) or to restrict the disallowance to the amount computed in working furnished by the assessee if found in accordance with the order of the Tribunal.

10.

Since, we have allowed the main ground of the appeal of the assessee for statistical purposes and send the issue back to the AO for further necessary action, the grounds raised by the assessee, without prejudice to the main ground do not require adjudication.

11.

Vide ground No. 2, the assessee has challenged the action of the Ld. CIT(A) in affirming the disallowance of interest amounting to Rs. 57,26,985/-out of CC Assessment year 2014-15 account for purchase of fixed assets. The Ld. Counsel submitted that since the assessee had own sufficient funds in the shape of capital and reserves and internal accruals,the ld. CIT(A) has wrongly confirmed the said addition. The ld. Counsel relied on the judgments of the Hon’ble Supreme Court in the case of CIT vs. Reliance Ind. Ltd. 410 ITR 466 (SC) and Godrej & Boyce Manufacturing Co. Ltd vs. DCIT 394 ITR 449, Judgments of the Hon’ble Punjab and Haryana High Court in the case of Bright Enterprise (P) Ltd. vs. CIT 381 ITR 107 (Pb.), CIT vs. Kapson Associates 381 ITR 204 (Pb.),CIT vs. Max India Ltd. 398 ITR 209 (Pb.), CIT vs. Max India Ltd 388 ITR 81 (P&H) and the decisions of the Chandigarh Bench of the Tribunal in the case of Group Company M/s Monte Carlo Fashion Ltd. ITANo.1341/Chd/2016 AY 2012-13. to substantiate his contention.

12.

On the other hand, the Ld. DR supporting the action of the Ld. CIT(A) submitted that the assessee had made addition to fixed assets amounting to Rs. 186.80 Crore including plants and machinery and had capital work in progress amounting to Rs. 61.47 Crore.

1.

Further, the assessee had capitalized interest of Rs. 226.73 Lacs on assets capitalized. Hence, the AO disallowed the interest of Rs. 95,44,976/- and after applying the debt equity ratio of 60:40 computed interest disallowance, rightly holding that the disallowance is to be made in above ratio out of the interest paid on working Assessment year 2014-15 capital loan. The Ld. DR further submitted thatthe Ld. CIT(A) has rightly confirmed the action of the AO.

13.

We have perused the material on record including the cases relied upon by the Ld. Counsel for the assessee and the authorities below. The contention of the assessee is that it had sufficient funds in the shape of capital reserve and surplus, therefore the findings of the Ld. CIT(A) are contrary to the settled principles of law. We notice that the authorities below have not rebutted the contention of the assessee that it had sufficient funds for acquiring assets in question. As pointed out by the Ld. Counsel, the coordinate Bench has dealt with the identical issue the case of Monte Carlo Fashions vs. AICT (supra) and set aside to the file of the AO holding that:

“The judgment of various Courts in the case of Hero Cycles(P) Ltd. Vs. CIT, Ludhiana C.A.No 514 of 2008 dt. 05/11/2015., Bright Enterprises Pvt Ltd. Vs. CIT Jalandhar (2016)381 ITR 107(P&H) held that no disallowance of interest is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. If the sufficient own funds are available, no disallowance is called for. This ground may be treated as set aside to the file of Assessing Officer.”

14.

The coordinate Bench has dealt with the identical issue in the case of assessee’s group company M/s Monte Carlo Fashions Ltd (supra). Further, the facts of the said case are similar to the facts of the present case. Therefore, we find merit in the contention of the decision of the coordinate Bench in the aforesaid case we set aside the findings of the ld. CIT(A) and send this issue back to the AO for deciding the issue afresh in accordance with the direction given by the coordinate Bench in the case discussed above, after giving a reasonable opportunity of being heard to the assessee.

In the result, the appeal filed by the assessee for the assessment year 2014- 15 is allowed for statistical purposes.

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