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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
ITA No. 2023/Ahd/2015 Marck Biosciences Ltd Vs. DCIT Assessment Year : 2011-12 Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH, AHMEDABAD [Coram: Pramod Kumar, VP and Ms. Madhumita Roy, JM] ITA No. 2023/Ahd/2015 Assessment Year: 2011-12 Marck Biosciences Ltd .......…………...........Appellant (Now Amanta Healthcare Ltd), 5th Floor, Haritage, Nr. Gujarat Vidhyapith, Usmanpura, Ashram Road, Ahmedabad – 380 014 [PAN : AABCM 0366 P] Vs. Dy. Commissioner of Income-tax (OSD)-1 ............................Respondent Circle-4, Ahmedabad
Appearances by:
SN Soparkar & Parin Shah, for the Appellant Mudit Nagpal, for the Respondent Date of concluding the hearing : 29.11.2018 Date of pronouncing the order : 28.02.2019 O R D E R Per Pramod Kumar, Vice President : 1. By way of this appeal, the assessee has challenged correctness of learned CIT(A)’s order dated 14th May 2015 for the assessment year 2011-12.
In ground no.1, the assessee has raised the following grievance:-
“1. The learned Assessing Officer and Hon’ble CIT(A) have erred in law and on facts in making the confirming addition of Rs.27,16,919/- being the amount of fixed deposits written off of defunct bank.”
During the relevant previous year, the assessee had written off Rs.27,16,919/- in its profit and loss account towards fixed deposits with the bank. This amount reflected fixed deposit that the assessee had with Madhavpura Co-operative Bank. There is no dispute that the amount has become unrecoverable but yet the deduction was declined on the ground that deposits were made for earning interest income taxable under the head income from other sources, and, therefore, deduction cannot be allowed. Aggrieved, assessee carried the matter in appeal but without any success. While doing so, the CIT(A) observed that “the claim of the assessee that FDR was made in order to avail bank guarantee, and was margin money is not supported by any documentary evidence”. The CIT(A) also declined to admit any
ITA No. 2023/Ahd/2015 Marck Biosciences Ltd Vs. DCIT Assessment Year : 2011-12 Page 2 of 5 additional evidence at this stage. As regards assessee’s claim that this issue is covered, in favour of the assessee, by Hon’ble jurisdictional High Court’s judgment in the case of CIT Vs. Rao Constructions Pvt Ltd (TA No. 579 of 2012; judgement dated 25.03.2013), it was observed that, “the reliance placed by the appellant on the judgment of Gujarat High Court in the case of Rao Constructions (supra) is of no help as in that case there were clear evidences to show that the deposit with the bank was for the purpose of business (but) there is no evidence to show that deposit was for the purpose of business.” Aggrieved by the stand so taken by the CIT(A), the assessee is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
We find that the FDs in question were made for the purpose of the business, as is clearly evident from the terms of bank’s sanction letter dated 22.01.2011; a copy of which was placed before us at page nos. 60 to 63 of the paper book. In view of this factual position, and in the light of law laid down by Hon’ble jurisdictional High Court in the case of Rao Construction (supra), the deduction of this business loss is clearly admissible. The loss, on account of fixed deposit having become bad, is clearly in the nature of business loss. The authorities below were thus in error. We, therefore, delete the impugned disallowance of Rs.27,16,919/-. The assessee gets the relief accordingly.
Ground no.1 is thus allowed.
Ground no. 2 is not pressed and is dismissed as such.
In ground no.3, the assessee has raised the following grievance:-
“3. The learned Assessing Officer and Hon’ble CIT(A) have erred in law and on facts in making and confirming addition of Rs.1,88,92,153/- stated to be possible interest on work in progress disregarding submissions of assessee.”
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has invested a sum of Rs.16,13,19,455/- in capital work in progress, and, in this backdrop, required the assessee to show cause as to why the proportionate interest not be disallowed. It was explained by the assessee that during the year, the assessee had borrowed term loan from State Bank of India, Industrial Finance Branch, Ahmedabad and interest thereon has been duly capitalized. That, however, did not satisfy the Assessing Officer. He noticed that the details of cash credit account, from which payments towards capital work in progress were made, constantly showed negative balance and that complete details were not available. On these facts, the Assessing Officer concluded as follows:-
“Since the assessee failed to furnish, the complete details of source of fund for making investment in CWIP despite several opportunities, the possibilities of utilization of borrowed fund for this purpose cannot be ruled out. Therefore, it will be justifiable to disallow the proportionate interest on the CWIP of Rs.16,13,19,455/- at reasonable rate of interest i.e. 12%, which is worked out
ITA No. 2023/Ahd/2015 Marck Biosciences Ltd Vs. DCIT Assessment Year : 2011-12 Page 3 of 5 at Rs.1,93,58,335/-. Since the assessee has already capitalised interest of Rs.4,66,182/- the net interest of Rs.1,88,92,153/- (1,93,58,335-4,66,182) is capitalised and added to the total income of the assessee being the expense incurred to acquire the capital assets which were not put to use during the year as per the provisions of section 36(1)(iii) of the Act. Penal proceedings under section 271(1)(c) of the Income tax Act, 1961 are initiated separately as the assessee furnished inaccurate particulars of its income.”
Aggrieved, assessee carried the mater in appeal before the CIT(A) but without any success. While confirming the action of the Assessing Officer, learned CIT(A) observed as follows:-
“I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has disallowed interest under section 36(1)(iii) in proportion to the capital work in progress shown by the appellant in the balance sheet. It has been held by the AO that since, the assets were not put to use till 31/03/2011 the interest cannot be allowed. The claim of the appellant regarding non-incurring of interest expenditure on acquisition of capital asset has also been suitably dealt by the AO in the order and it has been held by him that the sources of funds clearly indicate that the interest-bearing funds have been utilised for acquisition of capital assets.
The appellant on the other hand has submitted that since, there was no 'extension' of business the interest cannot be capitalised. It has been pointed out by the appellant that there was no provision of the income tax Act for disallowing the interest for 'expansion' of business. The provisions are for extension of business. It has also placed reliance on the judgement of honourable Gujarat High Court in the case of Arvind Polycot Ltd (supra).
On a careful consideration of entire facts of the case, it is noted that the claim of the appellant that the section 36(1)(iii) deals with 'extension' of business and not 'expansion' of business is misplaced. The language of the Act is very clear and the facts also show that the appellant was in the process of installing a new unit in Goa for which the new plant and machinery were purchased. The AO has suitably dealt with the similar claim of the appellant in the assessment proceedings and I am in full agreement with him. The installation of new unit at Goa and purchase of plant and machinery for the same is clearly an extension of business.
In view of the above discussion, I am in complete agreement with the findings given by the AO on the issue and the disallowance made by him is therefore, upheld.”
The assessee is not satisfied and is in further appeal before us.
We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
ITA No. 2023/Ahd/2015 Marck Biosciences Ltd Vs. DCIT Assessment Year : 2011-12 Page 4 of 5 13. We find that the cash generated from operations, during the year, aggregates to Rs.38,09,16,422/- and proceeds from issue of share capital and premium aggregates to Rs.3,32,50,000/-. These details are clearly discernible from financial statements, at page no. 3 of the paper-book, and, as against this, the total investment in the capital work in progress is Rs.16,13,19,445/-. We have also noted that the funds used in the capital work in progress were from cash credit account which had mixed funds. On these facts, in our considered view, that there is insufficient material to come to the conclusion that there was diversion of interest bearing funds to the capital work in progress. In any case, the interest computation on purely adhoc basis. The very foundational facts are, however, far from having been established fairly. Having held so, we have also noted that the assessee has not furnished complete details about source of funding the capital work in progress and the nature thereof.
In view of the above discussions, and bearing in mind entirety of the case, we deem it fit and proper to remit the matter to the file of the Assessing Officer for examination de novo after giving yet another opportunity of hearing in accordance with the law and by way of a speaking order. We order so.
Ground no. 3 is thus allowed for statistical purposes.
Ground nos. 4 and 5 are not pressed and are dismissed as such.
In the result, the appeal is partly allowed in the terms indicated above. Pronounced in the open court today on the 28th February, 2019.
Sd/- Sd/-
Ms. Madhumita Roy Pramod Kumar (Judicial Member) (Vice President) Ahmedabad, the 28th day of February, 2019 *bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File
By order