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आदेश/Order
Per Sanjay Garg, Judicial Member:
The present appeals for different assessment years have been preferred by the assessee against the separate orders dated 14.9.2018 of the Commissioner of Income Tax (Appeals)-3, Ludhiana [hereinafter referred to as CIT(A)].
First we take up assessee’s appeal in ITA No.1450/Chd/2018 for assessment year 2013-14.
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 2
The sole ground taken by the assessee in this appeal is regarding the action of the Ld. CIT(A) in upholding the disallowance of a sum of ₹
29,10,663/- out of interest account made by the Assessing officer u/s
36(1)(iii) of the Income-tax Act, 1961 (in short 'the Act').
The brief facts relating to the issue are that during the course of
assessment proceedings, the Assessing officer found that the assessee had shown capital work in progress to the extent of ₹ 31,50,70,871/-. He
observed that the assessee had made the payment of capital advance and
investment for construction of building out of borrowed funds which was
required to be capitalized up to the end of the financial year. The assessee
submitted that the interest on term loan taken for the purchase of
machinery had been duly capitalized and that the funds used for building
were out of own funds / interest free funds available with the assessee.
However, the Assessing officer observed that the entire amount of building
construction and machinery installation and capital advance was much
more than the term loan utilized. In the absence of any specific details, the
Assessing officer worked out the notional interest expenditure which was
required to be capitalized u/s s 36(1)(iii) of the Act and added the same to
the income of the assessee.
Being aggrieved by the order of the Assessing officer, the assessee
preferred appeal before the Ld. CIT(A) but remained unsuccessful.
Before us, Ld. Counsel for the assessee has submitted that the term
loans were taken for specific purposes and the term loans taken for
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 3
machinery were duly capitalized till the machinery was put to use. That
there was no other borrowed funds with the assessee. That the source of
funds for the building was out of the interest free funds available with the
assessee out of sale proceeds of the year. That the assessee had capitalized
the interest of ₹ 1,08,92,663/- during the year. That all the details of the
capital work-in-progress, the funds used and the source of the funds were
furnished but lower authorities have failed to properly appreciate the
details submitted by the assessee. The Ld. counsel has also submitted that
the lower authorities have also failed to consider the proposition of law
laid down by the Hon'ble Supreme Court in the case of ‘CIT (LTU) Vs.
Reliance Industries Ltd.’ [2010] 410 ITR 466 (SC), wherein, the Hon'ble
Supreme Court has again confirmed the proposition of law that if the own
funds / interest free funds are available with the assessee to meet the
investment, presumption will be that the assessee had used its own /
interest free funds for the said investment.
The Ld. DR, on the other hand, has relied upon the findings of the
lower authorities.
Considering the above submissions of the assessee, in our view, the
matter is required to be restored to the file of the Assessing officer to duly
consider the aforesaid contention of the assessee, examine the details of
the finances available with the assessee vis-a-vis amount capitalized by the
assessee and decide the issue afresh in the light of the decision of the
Hon'ble Supreme Court in the case of ‘CIT (LTU) Vs. Reliance Industries
Ltd.’ (supra). The orders of the lower authorities are set aside and the
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 4
matter is remanded to the Assessing officer to decide the issue afresh as
per the observations made above.
In the result, the appeal of the assessee is treated as allowed for
statistical purposes.
ITA No. 1451/Chd/2018 9. The assessee in this appeal has raised the following grounds of
appeal: 1. That order passed u/s 250(6) of the Income-tax Act, 1961 (in short 'the Act') by the Ld. CIT(A)-3,Ludhiana is against law and facts on the file in as much as she was not justified to arbitrarily uphold the action of the Ld. Assessing officer in disallowing a sum of ₹ 4,86,491/- out of interest account.
That Ld. CIT(A) was further not justified to arbitrarily uphold the disallowance of ₹ 3,39,385/- out of Diwali expenses, gardening expenses, printing & Stationery expenses and website promotion charges.
Ground No.1: Vide ground No.1, the assessee has agitated the action of the Ld. CIT(A) in upholding the disallowance of a sum of ₹ 4,86,491/-
made by the Assessing officer out of the interest account under the
provisions of section 36(i)(ii) of the Act.
During the assessment proceedings, the Assessing officer observed that the assessee had given working capital advance of ₹ 84,60,720/- out of
borrowed funds which were relatable to work in progress. Since the assets
were not put to use, the Assessing officer calculated the disallowance of
interest by invoking the provisions of section 36(1)(iii) of the Act and
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 5
worked out the notional interest expenditure of ₹ 4,86,491/- and added
back the same to the total income of the assessee.
Being aggrieved by the above order of the Assessing officer, the
assessee preferred appeal before the Ld. CIT(A). It was submitted before
the Ld. CIT(A) that the own / interest free funds of the assessee were
sufficient to meet the investment / interest free advances / capital work in
progress, made by the assessee, however, the Ld. CIT(A) held that since
the funds used by the assessee were out of mixed funds, hence, the
provisions of sec 36(1) (iii) of the Act have been rightly invoked by the
Assessing officer.
Before us, the Ld. Counsel for the assessee has submitted that the
assessee was possessed of sufficient own funds to meet the investments /
capital advances. That the assessee company during the year raised funds
by way of share capital to the tune of ₹ 37.79 crores which were credited
to its cash credit account /current account. That the sale proceeds of the
assessee company were also credited to these accounts and that these funds
have been used in making the capital advance in question. Moreover, the
funds utilized were out of current account which was interest free funds.
That even otherwise the issue was squarely covered by the decision of the
Hon'ble Supreme Court in the case of ‘CIT (LTU) Vs. Reliance Industries
Ltd.’ [2010] (supra).
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 6
The Ld. DR could not rebut the aforesaid facts that the assessee was
possessed of own sufficient / interest free funds available with it to meet
the capital advances in question.
We find that the issue is squarely covered by the decision of the
Hon'ble Supreme court in the case of ‘CIT (LTU) Vs. Reliance Industries
Ltd.’ (supra). We therefore, do not find any justification on the part of the
lower authorities in making the impugned disallowance. The same is
ordered to be deleted.
This issue is decided in favour of the assessee.
Ground No.2: Vide this ground, the assessee has agitated the action of the CIT(A) in confirming the disallowance of ₹ 3,39,385/- as against the
disallowance of ₹ 3,77,055/- made by the Assessing officer. The Assessing
officer made the disallowance of ₹ 3,77,055/- out of the Diwali Expenses,
Gardening expenses, Printing & Stationery and website promotion
expenses on the ground that the same were not properly vouched.
Before the Ld. CIT(A), the assessee submitted that most of the
expenses incurred by the assessee were by way of account payee cheques / bills. As in case of Diwali expenses, out of total expenses of ₹ 4,27,541/-,
a single bill amount of ₹ 3,75,000/- was paid through cheque. Likewise, the
expenses on website promotion, most of the debits are out of the last years
prepaid expenditure carried over to the year under consideration and that
no cash expenditure were incurred during the year. That similar was the
position of disallowance made out of other two expenditure i.e. printing &
stationary and gardening expenses. However, the Ld. CIT(A) gave part
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 7
relief to the assessee and confirmed the remaining expenditure for want
of proper vouchers.
We have considered the rival submission on this issue. Considering
the nature of the expenditure i.e. as ‘Diwali expenses, gardening expenses,
printing and stationary and website promotion expenditure’ incurred which
are usually incurred in day to day business activity and also considering
the smallness of the amount and further submissions of the assessee that
most of the expenditure were paid through account payee cheques, we do
not find any justification on the part of the lower authorities in making the
disallowance in respect of the aforesaid expenditure. The disallowances
made by the lower authorities on this issue are therefore, ordered to be
deleted.
In the result, this appeal of the assessee is treated as allowed.
In the result, the appeal of the assessee for the assessment year
2013-14 is treated as allowed for statistical purposes and appeal for the
assessment year 2014-15 is hereby allowed.
Order pronounced in the Open Court on 22.04.2019
Sd/- Sd/- (संजय गग� / SANJAY GARG) (एन. के. सैनी / N.K. SAINI) उपा�य� / Vice President �या�यक सद�य/ Judicial Member Dated : 22. 04.2019 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
ITA Nos.1450 & 1451-c-18- M/s IOL Chemicals and Pharmaceuticals Ltd., Ludhiana 8
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar