M/S PHARMA TRADERS PVT. LTD.,INDORE vs. THE ACIT 3(1), INDORE

This appeal is time barred by 386 days. Ld. counsel for the assessee requested for condoning the delay and admitting the appeal by referring to the affidavit and the condonation application thereby submitting that the order of Ld. CIT(A) received on 12.02.2006. At that point of time, the appellant company was passing through a bad phase and suffered heavy financial losses. During the F.Y. 2014-15 and 2015-16 loss suffered by the company stood at Rs.0.19 crores and Rs.18.20 crores respectively. The Financial Manager was looking after the legal and taxation matters also left the company during the period when the impugned order was received. The ld. counsel further placed reliance on the judgment of Hon'ble Apex Court in the case of Collector, Land Acquisition, Anantnag vs. Mst. Katiji (1987) 2 SCC 107 (SC) wherein the Hon'ble Court has held that “liberal approach is to be adopted in the matter of condonation of delay”. On the other hand, Ld. DR raised objection submitting that there was unreasonable delay of 386 days and the same should not be condoned.

We have heard the rival contentions and perused the affidavit, condonation application and also gone through the judgment relied by the Ld. Counsel for the assessee. We find that the assessee company which is registered since 03.01.2001 is regularly complying with the tax provisions in filing its income tax return and paying due tax. The assessee company was having surplus profit up to F.Y. 2013-14 but subsequently during the F.Ys. 2014-15 & 2015-

In the affidavit, it is mentioned that the person looking after the legal and taxation matter left the job and there was no one to look after the taxation work at the point of time when the appeal against impugned order was required to be filed. The ld. counsel has requested for taking liberal judicious approach and to condone the delay.

We observe that Hon'ble Apex Court in the case of Collector, Land Acquisition, Anantnag vs. Mst. Katiji (supra), dealing with the issue of condoning delay decided in favour of assessee observing as follows: “The legislature has conferred the power to condone delay by enacting s.5 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on “merits”. The expression “sufficient cause” employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice- that being the life-purpose of the existence of the institution of Courts. The doctrine of equality before law demands that all litigants, including the state as a litigant, are accorded the same treatment and the law is administered in an even-handed manner. There is no warrant for according a step-

From perusal of the above judgment of Hon'ble’ Apex Court as well as given facts and circumstances of the case, we observe that the assessee had reasonable cause which prevented it from complying to the statuary requirement of filing the appeal within 60 days of the receipt of order of Ld. CIT(A). We also observe that the assessee on receiving the penalty order on 31.03.2017 made for the A.Y. 2012-13 immediately took the action and inquired about the status of appeal order for the quantum addition which in itself shows about its vigilant approach to the taxation matters.

Brief facts as culled out from the records are that the assessee is Private Limited Company, engaged in the business of Trading of Medicines, Automobile spare part, Mobile Handsets Recharge vouchers and FMCG Goods. E-return of income declaring income of Rs.49,41,517/- filed on 19.10.2012. The case was selected for scrutiny under CASS. Necessary notices u/s 143 & 142(1) of the Act were duly served upon the assessee. The audited books of account and vouchers were examined by the AO. The Ld. AO apart from making adhoc disallowance of various expenses, viz Telephone & Trunkcall, stationary and freight expenses totaling to Rs.4,40,000/- also made on disallowance of interest u/s 36(1)(iii) of the Act at Rs.37,58,361/-. The issues raised in this appeal relates only to the disallowance of interest of Rs.37,58,361/-. The Ld. AO observed that the assessee has shown addition to capital work in progress of Rs.1,69,33,529/- in schedule 9 of the balance sheet and the closing work in progress on 31.03.2012 is shown at Rs.3,51,44,166/-. This capital work in progress related to the construction of new warehouse and office building and it was shown under construction at the end of the year. This construction was carried out since F.Y. 2010-11 and assessee took the loan of Rs.3,20,00,000/- from TATA Capital Limited. The Ld. AO observed that the assessee had claimed interest expenditure of

Aggrieved the assessee preferred an appeal before the Ld. CIT(A). The assessee made written submissions before the ld. CIT(A) but thereafter on subsequent date of hearing did not attend. As a result Ld. CIT(A) passed an ex-parte order giving partial relief to the assessee. 9. Aggrieved the assessee is now in appeal before the Tribunal raising following grounds of appeal: “Ground no.1 Addition of Rs.37,58,361/- on account of disallowances of interst u/s 36(1)(iii). 1. That on the facts and in the circumstances of the case the ld. CIT(A)-I, Indore has erred in confirming the order of the Ld. AO held that the building was under construction and it was being

Though the assessee has raised four grounds of appeal sole grievance is against the order of the Ld. CIT(A) confirming the disallowance of interest expenditure Rs.37,58,361/-.

The ld. counsel for the assessee submitted that the alleged building was partly completed. The basement and ground floor was used for the business purpose. After the sanctioning of loan, the amount is released in parts at various stages of completing the construction work and for this purpose certificate from architect is to be given to the lender company for releasing of the loan amount. He submitted that 14,000 sq ft area comprising of basement being completed and the Ground Floor was under construction as on 31.03.2011 and subsequently up to 31.03.2012, 42,000 sq ft area was constructed and Ground, First and Second Floor was complete

The Ld. Counsel tried to convey that the assessee for business expediency started using the completed portion for its business use which in this case was go-down facility. It is practically impossible to believe that a businessman is having a place complete in all aspect to be used as go-down facility but is not used for business for the want of completion of total building area. The ld. counsel further referred to the audited balance sheet and countered the observation of Ld. AO mentioning that the assessee is not dealing solely in pharmaceutical products as it accounts for only around 40% of the total turnover. The assessee also deals in Automobile spare part which too accounts for 40% of the total turnover. And apart from this assessee also deals in FMCG and Electrical goods. The completed portion of the building was used as a go-down for Automobile spare parts.

The Ld. counsel referring and relying to the judgment of Hon'ble Apex Court in the case of Kedarnath Jute Manufacturing Co. vs. CIT (1971) 82 ITR 363(SC), submitted that the assessee is entitled to a particular deduction of interest because it is actually being used for business purpose and this rightful claim cannot be denied for the sake that necessary entries were absent in the books of account which in this case was transferring of capital work in progress to fixed assets and charging of depreciation.

On the other hand, Ld. DR vehemently argued supporting the order of Ld. CIT(A) and mentioned that the assessee has not made any entry in the regular books of account nor it has shown as a business asset used for business and therefore, no claim of the impugned interest should be entertained.

We have heard the rival contentions and perused the record place before us. The issue relates to the disallowance of interest of Rs.37,58,361/- claimed by the assessee on loan of Rs.3.20 crores taken by the assessee from TATA Capital Ltd. for the purpose of constructing multi story building comprising basement, Ground Floor, and Third Floor. The AO on the basis of the audited books of account and financial statements came to the conclusion that the assessee has accepted that the impugned building was under construction and not put to use for business purpose and therefore, no depreciation has been charged. In such situation the interest paid on borrowing for constructing the building should be added to the capital work in progress and when the building gets complete and put to use for business purpose, the assessee can claim depreciation on the total cost incurred for constructing the building as per the provisions of law. In the instant case the assessee has not disputed the fact that total cost incurred up to the end of F.Y. 2011-12 has been shown in the capital work in progress only. It is however contended that the construction of the building started during F.Y. 2010-11 and up to 31.03.2012, the basement, Ground

The Ld. Counsel challenged the categorical finding of the Ld. AO that the assessee was dealing in Pharmaceutical Products only and the building under construction cannot be used as storage place for the Pharmaceutical Products by contending that the assessee is not only dealing in Pharmaceutical Products but is also dealing with automobile spare parts which constitutes around 40% of the total turnover. We find force in the contention of Ld. counsel for the assessee that a prudent businessman will not keep the completed portion of the business “idle”. It is also submitted that the loan was released on the basis of amount invested in the building by the assessee as well as the work completed. The assessee submitted the architect certificate to the lender company showing the work completed so as to get the disbursement of loan installment. A chart of loan disbursements was also submitted before the Ld. CIT(A) which shows that during F.Ys. 2010-11 and 2011-12 total of seven installments of loan cumulating to Rs.3,20,57,432/- was given to the assessee. It is also a known fact that there is a schedule of disbursement of loan and it is only at the completion of particular stage of work that the loan amount is released as per the schedule. All these facts were part of the written submissions given to the Ld. CIT(A) and if proper opportunity had been given to the assessee it could have furnished the architect certificate and the

Summarizing the total facts, we find that the company was dealing in multi products which included Pharmaceutical products, automobile spare parts and FMCG goods. A building comprising of basement, Ground Floor and Third Floor was under construction up to 31.03.2012. Basement, Ground, First and second Floor were completed. The Completed portion was used for business purpose as go-down of automobile spare part and for other business purpose. Necessary entries in the books of account reflecting the partially completed business asset put to use for business is missing but the circumstantial evidence shows that the assessee commenced the use of the completed portion of the building for business purpose. As held by Hon'ble Apex court in the case of Kedar Jute Manufacturing Co. vs. CIT(supra) “that the assessee is entitle a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can existence or absence of entries in the books of accounts be decisive or conclusive in the matter”. 18. We therefore, respectfully following the judgment of Hon'ble Apex Court as well as in the given facts and circumstances of the case are of the considered view that the assessee is eligible for one more chance of hearing before the Ld. CIT(A) to put his case along with supportive documents i.e. architect certificate, bank loan disbursement letters and other evidence as required which could