CLP NOVA PETROCHEMICALS LTD.,,AHMEDABAD vs. DY.COMMISSIONER OF INCOME TAX,(OSD),, AHMEDABAD

The assessee has raised following grounds of appeal:- “1. On the facts & in the circumstances of the case it is most respectfully submitted that the Ld. CIT(A) has erred on facts by Confirming the addition to the extent of Rs.14,21,526/- in respect of interest disallowed on capital work in progress .

On the facts & in the circumstances of the case it is most respectfully submitted that the Ld. CIT(A) has erred in law and on facts by confirming the addition of Rs.10,30,757/- on account of interest disallowance on non Interest bearing Fund advances given.”

The fact in brief is that return of income declaring income at Rs. nil was filed on 20th Sep, 2011. The case was subject to scrutiny and notice u/s. 143(2) of the act was issued on 1st August, 2012. The assessment u/s. 143(3) of the act was finalized on 3rd Feb, 2014 and total income was determined at Rs. 2,37,01,545/-.

The assessee has filed appeal before the ld. CIT(A) and ld. CIT(A) has partly allowed the appeal of the assessee.

At the outset, the ld. authorized representative has submitted that both the issues has been adjudicated by the ITAT, Ahmedabad in the case of the assessee itself vide ITA Nos. 2875 & 2876/Ahd/2014 and vide ITA No. 1590/Ahd/2015 order dated 10-07-2018. The ld. departmental representative was fair enough not to contradict these undisputed facts that both the issues in the appeal has been decided in favour of the assessee vide above referred decision of the Co-ordinate Bench, Ahmedabad.

We have heard both the sides and perused the material on record and the decision of the Co-ordinate Bench of the ITAT as cited above. Regarding first issue in appeal pertaining to confirming the addition to the extent of Rs. 14,21,526/- in respect of interest disallowed on capital work in progress, it is noticed that vide ITA Nos. ITA Nos. 2875 & 2876/Ahd/2014 and 1590/Ahd/2015 in the case of the assessee itself as per para 13, the issue has been adjudicated on similar facts in favour of the assesssee. The relevant part of the decision is reproduced as under:- “13. We have gone through the relevant record in the impugned order. So far ground no. 1 is concerned, we can see that during the Course of assessment proceedings the Ld. Assessing Officer had made addition of Rs.8,91,121/-. in I.T.A No. 768/Ahd/2015 A.Y. 2011-12 Page No 3 this regard, we would like to mention here that in its balance sheet the appellant company had shown work in progress of Rs.1,00,77,253/-. The Ld. Assessing Officer had disallowed interest on capital work in progress by calculating interest on the Opening Capital Work in Progress of Rs.53,31,673/- (3)12% for Whole year and on remaining addition interest is calculated @12% on daily basis and disallowed total interest. As we can see investment has been made out of interest free loans and share capital available to the Company. And appellant contention should have been considered by the lower authorities and for the purpose of procurement of such assets, no new term loan has been taken by the appellant during the year and entire investment has been made out of the interest free founds available with the Company.” Respectfully following the decision of Co-ordinate Bench as cited above, the appeal of the assessee on this issue is allowed.

1 In respect of second ground of appeal on the issue of confirming the addition of Rs. 10,30,757/- on account of interest disallowance on non- interest bearing fund advances given, it is noticed by the above cited decision, the Co-ordinate Bench has adjudicated the similar issue as under:- “16. Now so far ground no. 2 is concerned with regard to confirming interest disallowance of s. 18,11,845/- on non-interest bearing fund advances is concerned that during the year also the assessee company had paid up capital of Rs. 13,50,000/- and interest free unsecured loans of Rs. 31,09,20,851/- and it was contended by the appellant since the advance has been made out of interest free fund no disallowance can be made. And lower authorities have been failed to appreciate the fact that without proving nexus between the amount borrowed and amount advanced to Super Nova Polyfab Pvt. Ltd., disallowance cannot be made. Thus, we allow this ground of appeal.”

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 08-01-2020 (MAHAVIR PRASAD) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 08/01/2020