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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad, (‘CIT(A)’ in short), dated 29.09.2017 arising in the assessment order dated 21.12.2016 passed by the
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Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
As per the grounds of appeal filed by the assessee, the assessee is aggrieved by the disallowance of Rs.25,49,201/- towards interest expenses incurred on term loans availed by the assessee.
When the matter was called for hearing, the learned counsel for the assessee submitted at the outset that there is a delay of 73 days in filing the appeal for AY 2014-15 before the ITAT against the order of the CIT(A). In this connection, the learned counsel referred to the affidavit filed by the assessee dated 16th September, 2019 alongwith a petition of even date and urged for condonation of delay and disposal of the appeal on merits. Referring to the contents of the affidavit, the learned counsel pointed out that the assessee company inadvertently left the first appellate order to be appealed against in the drawer of one of Director which got mixed with other papers. The first appellate order was thus unattended due to a brief lapse on the part of the Director, which was prayed to be condoned. It was further pointed out that the delay occurred is not intentional or deliberate and the aforesaid delay of 73 days occurred has not caused any serious prejudice to the Revenue. No malafide can be imputed for such delay. The learned counsel referred to the decision rendered by the Hon’ble Supreme Court in the case of Collector of Land Acquisition vs. Mst. Katiji & Ors. 167 ITR 471 (SC) to contend that the substantial justice deserves to be preferred over the technical glitch committed by the assessee in belated filing for plausible reasons.
On merits, learned counsel for the assessee pointed out that interest expenditure on term loan in the impugned AY 2014-15 was disallowed for the reason that the term loan taken from lender SREI Equipments Pvt. Ltd. is in the nature of capital expenditure. To rebut
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the allegation of the Revenue, the learned counsel referred to a letter dated 23.12.2016 filed with the AO on 5th January, 2017 to clarify that the representative of the assessee has wrongfully agreed for the proposed disallowance before the AO on misconstruction of underlying facts. On facts, the learned counsel referred to the Notes to the audited financial statement of the assessee company for the year ended 31st March, 2015 which explains that loans from non-banking financial company including loan from SREI Equipments Pvt. Ltd. was secured against the asset belonging to holding company Corrtech International Pvt. Ltd. The loan was wrongly understood to have been taken for acquisition of capital asset which admittedly have not been acquired. The loan was only secured against the capital asset. It was submitted that this fact was duly brought to notice of the first appellate authority as well. As noted in para 2.2(3) of the first appellate order, it was alleged that after recording the relevant facts as represented on behalf of the assessee, the CIT(A) by a very cryptic order, dismissed the case of the assessee on the ground that assessee has failed to establish with evidence that interest claimed has been utilized for the purpose for which it has taken the loan. It was reiterated that the lender was only a non-banking finance company from whom a loan facility was availed against the security of asset i.e. bending machine. The loan facility so availed has been utilized ‘for the purpose of business’ as contemplated under s.36(1)(iii) of the Act. It was submitted that the AO has not alleged that any expenditure has been incurred for non-business purposes. Learned counsel finally submitted that the disallowance of interest on loan facility so availed is totally unjustified in the ostensible facts of the case.
The learned DR for the Revenue, on the other hand, submitted that the assessee does not deserve condonation of delay on such a vague ground quoted in the affidavit. The learned DR further submitted on merits that the assessee has not discharged its onus to
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establish with evidence that interest claimed has been utilized for the purpose for which loans were taken.
On appraisal of the arguments from both sides, we find that sufficient cause, when seen liberally, exists in the instant case deserving condonation of short delay. Although, there appears to be some negligence on the part of the assessee in not preferring appeal in time after the order of the CIT(A) was delivered, but negligence does not appear to be of such a degree that the appeal can be dismissed being barred by limitation when seen in conjunction with the merits involved in the case of the assessee. The short delay occurred in preferring appeal has also not shown to have caused any serious prejudice to the Revenue. It is the admitted position that assessee has not acquired any capital asset during the year and consequently, interest on loan facility obtained from the non-banking finance company has arisen to the assessee after the asset was put to use, even if, the loan was borrowed for acquisition of asset. The case on merit is prima facie tenable in the light of plethora of judicial precedents. The prima facie case on merits also gives an impression that the delay was not malafide per se. Hence, delay of 73 days in filing appeal before the Tribunal stands condoned and the appeal of the assessee deserves to be proceeded on merits.
As recorded in the first appellate order in conjunction with the audited balance sheet, it is evident that the loan facility has been taken against the security of the capital asset. The diversion of loan funds for non-business purposes has not been alleged by the revenue authorities. Besides, the findings of the CIT(A) is quite vague indeed. Section 36(1)(iii) of the Act governs allowability of interest paid in respect of capital borrowed for the purposes of business or profession. As held in Dy. CIT v. Core Health Care Ltd. [2008] 167 Taxman 206 (SC), there is no distinction in Section 36(1)(iii) of the Act capital
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borrowed for revenue purpose and capital borrowed for a capital purpose. The assessee is entitled to claim interest paid on borrowed capital after the asset is put to use for business purposes. The loan having been utilized for acquisition of capital asset in the earlier years is thus not an obstacle for treating interest expenditure as revenue expenditure under s.36(1)(iii) of the Act r.w.s. Explanation 8 to s.43A of the Act. The CIT(A) has wrongly applied the tests laid down for applicability on Section 36(1)(iii) of the Act in its non-descript order. We thus find merit in the plea of the assessee for allowability of interest claim in question.
In the result, the appeal of assessee is allowed.
This Order pronounced in Open Court on 19/02/2021
Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 19/02/2021 S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।