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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND Dr. DIPAK P. RIPOTE
आदेश /O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-1, Trichy in dated 15.04.2019. The assessment was framed by the ACIT, Circle 3(1), Trichy, for the assessment year 2013-14 u/s.143(3) r.w.s. 263 of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.12.2018.
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of interest expenses by the AO for the reason that the same were used for non-business purposes. For this, Revenue has raised the following grounds of appeal:-
2. The Ld.CIT has failed to consider that the assessee has utilized mixed funds were used for both the business purpose and for the purpose of work in progress.
3. The Ld.CIT has failed to consider that it is onus of the assessee to establish that only the interest free funds were utilized for the work in progress.
Brief facts are that the assessee company is engaged in the business of medical services i.e., hospitals. The original assessment was completed by the AO u/s.143(3) of the Act vide order dated 30.03.2016 and subsequently the assessment was reopened by issuing notice u/s.148 of the Act dated 30.03.2018 to ascertain whether interest bearing funds were used for creating asset which are not put to use during the year and was required to be capitalized. For this, the AO recorded reason and reassessment was completed u/s.143(3) r.w.s. 147 of the Act dated 30.12.2018 by disallowing interest at Rs. 60,85,981/-. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A) after going through the availability of interest free funds and the asset acquired during the year, noted that the Rs.4,11,838/- is to be disallowed as against disallowance made by AO of Rs.60,85,981/-. For this, the CIT(A) observed in para 7 to 9 as under:- “7. I have carefully gone through the order of the AO and the arguments advanced by the appellant. The audited statement of accounts for the year ended 31.03.2013 establish that the new loans raised during the year comprise of the following only:- Bank of Maharashtra term loan Rs.60,58,710/- TATA Capital Rs. 32,03,369/- Bajaj Finance 38284 Rs.28,24,188/- IIFL Rs. 34,47,777/-
8 . All the other loans were raised in years very much earlier to 31.03.2012 and none of the loans has any bearing with the assets raised in the current year i.e. Year Ended 31.03.2013. Hence I find that there is a factual make in considering the entire loan of Rs.23,38,83,710/- The AO ought to have considered the loans raised in the current year only. Even in the said case, the loan from Bank of Maharashtra of Rs 4,60,57,710/- is for the specific purpose of Madurai Project under construction and the books of accounts establish that the interest paid on such loan amounting to Rs.36,44,156/- has been duly capitalized as part of the project cost of Madurai. Further the loan from IFL is interest free as established by the sanction letter (as this loan was financed by supplier of machinery as credit)
These facts have been totally omitted to be considered by the AO. If one takes into consideration all the relevant facts as above, what remains for consideration of disallowance, if any, is the interest paid of Rs.4,11,838/-. Although the appellant advanced the argument that these are for the purpose of acquisition of Vehicles and not for the purpose of Capital Work in Progress at Trichy. I do not find force in the said argument and hence the addition to the said extent as to be confirmed. The Disallowance is accordingly restricted to Rs.4,11,838/- and the remaining addition of Rs.56,84,143/- (of which Rs.36.44 lakhs has been already capitalized) stands deleted.”
Aggrieved against deletion of this interest amounting to Rs.56,84,143/-, Revenue came in appeal before the Tribunal.
Despite service of notice and fixation of appeal, none was present from the assessee’s side. However seeing the case records, we proceeded to decide the issue ex-parte.
We have heard ld. Senior DR and gone through facts and circumstances of the case. We noted from the assessment order that the AO has considered interest bearing funds and advances from banks and others at Rs.23,38,83,710/- and computed the interest as claimed in the income tax return for the assessment year 2013-14 at Rs.2,44,17,951/-. The AO noted that the work-in- progress pertaining to the Trichy unit is Rs.5,83,89,451/- and therefore proportionate interest relating to work-in-progress in respect of Trichy unit amounting to Rs.60,95,981/- is to be disallowed. The assessee before AO pleaded that it has interest free funds available to the extent of Rs.7,72,72,554/- and the details were given as under:- “4) The Interest Free funds of Rs.77272554 mentioned by you consists of the following: Net Profit as per P & L Account (Before Depreciation) 33476479 Increase in Share Capital 23500000 Loans from Directors 7892553 Increase in Supplier Balances 12403522 Balance as on 31.03.2013 32530739 Balance as on 31.03.2012 20127217 Net Increase during the year 12403522
The AO despite this fact has not considered the availability of interest free funds despite the fact that complete books of accounts are produced before the AO. Even the AO has not rejected the books of accounts and made disallowance of proportionate interest. The CIT(A) noted that the loan taken from bank of Maharashtra of Rs.4,60,58,710/- was for the specific purpose of Madurai project under construction and the assessee established before the AO as well as the CIT(A) that the same was capitalized in the books of accounts of the assessee. To that effect, the CIT(A) has recorded categorical finding. Further, the loan from IIFL is interest free and was examined by the CIT(A) from the sanction letter produced before him as this loan was for financing of machinery on credit basis. The remaining two loans considered by the AO for disallowance was Tata Capital of Rs.32,03,369/- and Bajaj Finance of Rs.28,24,188/- remains consideration for disallowance which was considered by CIT(A) despite the fact that the assessee’s arguments was that these are for the purpose of acquisition of vehicles and not for the purpose of capital work in progress at Trichy. The assessee demonstrated before the CIT(A) by filing the evidences that these two loans are for the purpose of acquiring vehicles. But the CIT(A) stated that even though the disallowance on these two loans can be estimated at Rs.4,11,838/-, which he sustained the addition and Rs.56,84,143/- for the above given reasons.
We noted that the assessee has its own funds to the extent of Rs.7,72,72,554/- and moreover the new loans in total is not even to that extent. Hence, we find no infirmity in the order of CIT(A) deleting the disallowance partly and hence, we confirm the order of CIT(A) and dismiss this appeal filed by the Revenue.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 24th August, 2022 at Chennai.