M/S CADCHEM LABORATORIES LTD.,CHANDIGARH vs. DCIT, C-1(1), CHANDIGARH

आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 05.04.2017 of the Commissioner of Income Tax (Appeals)-I, Chandigarh [hereinafter referred to as CIT(A)].

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 2 assessee company as he misplaced the copy of the impugned order of the

CIT(A). The averments made in the application have been supported /

corroborated with the affidavit of the Shri Naveen Gupta, director of the

assessee company as well as Shri Jagdip Singh, Accountant of the

company. Considering the averments made in the application as well as

the affidavits of the director and accountant of the company, there seems

a reasonable cause for delay in filing the present appeal. The delay in

filing the present appeal is, therefore, condoned.

has taken the following grounds of appeal:- 1. That the Worthy CIT(A) has erred in confirming the addition of Rs.1,22,920/- on account of capitalization of interest on capital work in progress. 2. That the Worthy CIT(A) has erred in making the addition of Rs. 22 lacs on account of alleged unexplained cash credits in the name of M/s Reliable Realtech Pvt. Ltd, for which, the necessary confirmation and other documents to prove the genuineness have been filed before the authorities below.

addition of Rs. 1,22,920/- made by the Assessing Officer on account of

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 3 disallowance of the interest u/s 36(1)(iii) of the Income Tax Act, 1961

(in short 'the Act') in respect to the investment made on Capital Work

in Progress (CWIP).

Rs. 11,38,147/- at the end of the year. The Assessing Officer further

observed that there were huge borrowed funds in the balance sheet on

which the assessee had paid substantial interest. He, accordingly,

calculated the proportionate interest @ 12% on the CWIP and

disallowed the same and accordingly made the addition of Rs.

1,22,920/- into the income of the assessee. Being aggrieved by the

order of the Assessing Officer on this issue, the assessee preferred

appeal before the Ld. CIT(A) and pleaded that the assessee had three

types of secured loans. Firstly, was the car loan which was used for

specific purpose for purchase of car; the second loan was short term

which was out of cash credit limit and was used for working capital

requirement of the assessee. The amount from the cash credit limit was

not used for acquiring any fixed assets. The third loan amounting to Rs.

2,92,42,704/- was term loan from the PNB. In respect of the said term

loan, it was pleaded before the CIT(A) that though the term loan was

exclusively related to acquire fixed assets, however, the assessee

submitted that the total assets of the assessee were at Rs. 9,98,86,088/-

out of which the capital work in progress at the opening of the year was

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 4 just Rs. 11,38,147/- which was just 1.14% of the total assets. The Ld.

Counsel, therefore, pleaded that the entire term loan should be

proportionately appropriated towards the entire assets, and in this way

since the opening CWIP was just 1.14% of the total assets, hence, the

proportionate disallowance of interest would come as per calculation

submitted by the assessee to the CIT(A), at Rs. 20,479/-. The Ld.

CIT(A), however, did not agree with the above contention of the

assessee and noted that the Assessing Officer has rightly calculated the

disallowance u/s 36(1)(iii) on proportionate basis on the amount used

for CWIP.

assessee has submitted that the car loan as well as the Cash Credit limit

was used of specific purposes and that the assessee did not use the loan

taken for specific propose for the CWIP. Regarding the term loan, the

Ld. Counsel for the assessee has reiterated the submissions as were

made before the CIT(A).

We do not agree with the above contention of the Ld. Counsel for the

assessee. A perusal of the balance sheet of the assessee reveals that the

assessee during the year had taken unsecured loans / interest bearing

loan of Rs. 84170175.58 from the banks. The loan and advances made

by the assessee at the end of the year were of Rs. 85591716.58. The

own capital of the assessee is not sufficient either to meet the loan and

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 5 advances or to meet the capital work in progress. It is admitted case of

the assessee that the term loan was used for acquisition of the capital

assets.

In view of this, the Assessing Officer rightly calculated the

proportional disallowance of the amount of CWIP. There is no

justification to distribute the entire term loan amount over the total

assets.

In view of this, we do not find any merit in this ground of the appeal

and the same is accordingly dismissed.

addition of Rs. 22 lacs made by the Assessing Officer and confirmed by

the Ld. CIT(A) on account of share application money received by the

assessee during the year which has been treated by the lower authorities

as unexplained cash credits.

noted that the assessee had received share application money of Rs. 22

lacs from M/s Reliable Realtech Pvt Ltd. The Assessing Officer

required the assessee to furnish the necessary details to prove the

genuineness of the transactions and identity and financial capacity of

the investor to make the aforesaid investment. The assessee furnished

the income- tax returns of the investor, PAN numbers and statement of

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 6 financials of the investor to prove the identity and financial capacity of

the investor. The assessee also furnished confirmation from the

investor to prove the genuineness of the transactions, however, the

Assessing Officer observed that the assessee had failed to produce the

bank account statement of the investor company from which the funds

were transferred. He further observed that even the investor company

had shown loss in the return of income. He, therefore, observed that

since the investor was a loss making company and even the assessee

had failed to furnish the bank account statement of the said company to

establish the source of investment, therefore, the genuineness of the

transactions was not proved. He, accordingly, added the aforesaid

amount of Rs. 22 lacs as unexplained credits in the bank account of the

assessee u/s 68 of the Act.

In appeal before the Ld. CIT(A), the assessee submitted the

following additional documents :- a. Bank statement of M/s Reliable Realtech P Ltd depicting the funds paid by the lender out of available business limit.

b. Financials of M/s Reliable Realtech P Ltd regarding availability of funds to the tune of Rs. 2,75,96,619/-.

c. Confirmations from M/s Reliable Realtech regarding repayment of such amount.

d. Bank statement of assessee out of which the payment was repaid in next years.

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 7 10. However, the Ld. CIT(A) held that since the investor company

was a loss making company, hence, it did not seem probable that such a

company would have invested amount in question in the assessee

company. He, accordingly, confirmed the addition made by the

Assessing Officer.

the parties. In this case, the assessee apart from filing the confirmation

from the investor company has also produced on file the Income-tax

returns and PAN numbers of the investor and statement of the financials

of the Investor to prove the identity and financial capacity of the

Investor. However, to prove the genuineness of the transactions, the

assessee also filed conformation from the Investor regarding the

investment made by it in the assessee company. During the appellate

proceedings before the CIT(A), the assessee also furnished bank

statement of ‘M/s Reliable Realtech P Ltd.’ depicting that the funds

were paid by the said company out of its available business limit. The

assessee also proved from the financials of the investor that it was

possessed of sufficient funds to make investment in the assessee

company. Apart from that the assessee also placed on file the bank

statement of the assessee to show that the payments were repaid to the

Investor in the next year. In our view, the aforesaid documents were

sufficient to prove the identity, financial capacity as well as the

genuineness of the transactions. The Ld. CIT(A) has confirmed the

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 8 addition on just assumption and presumption basis without pointing out

any suspicious circumstance or rebuttal to the evidence furnished by

the assessee. We, therefore, do not find any justification on the part of

the CIT(A) in confirming the addition made by the Assessing Officer

on this issue.

The addition made by the lower authorities of Rs. 22 lacs u/s 68 of

the Act is, therefore, ordered to be deleted.

not require and specific adjudication.

In view of our findings given above, the appeal of the assessee is

treated as partly allowed.

Order pronounced in the Open Court on 11.07.2019.

Sd/- Sd/- (संजय गग� / SANJAY GARG) (एन. के. सैनी / N.K. SAINI) उपा�य� /Vice President �या�यकसद�य/ Judicial Member Dated : 11.07.2019 “आर.के.”

आदेशक���त�ल�पअ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु�त/ CIT 4. आयकरआयु�त (अपील)/ The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यआ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File

आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar

ITA No. 1420-Chd/2017 M/s Cadchem Laboratories Limited, Chandigarh 9