RGS HEALTHCARE PRIVATE LIMITED,MOHALI vs. DCIT, C-6(1), MOHALI
What did the Tribunal hold?
The Tribunal held that since the assessee possessed sufficient own funds and no new loans were taken for capital work in progress, the notional interest could not be disallowed. The disallowance made by the lower authorities was deleted.
What were the facts?
The Assessing Officer capitalized notional interest on capital work in progress, assuming borrowed funds were used. The assessee argued it had sufficient own funds and no new loans were taken for capital work in progress.
What were the issues?
Whether notional interest on capital work in progress can be disallowed when the assessee has sufficient own funds and no borrowed funds were used for such purpose.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(2)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Reliance Industries Ltd.501 citing410 ITR 466 · 2019 · SC
- Hero Cycles Pvt. Ltd. v. CIT361 citing379 ITR 347 · 2015 · SC · Read judgment
Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B’, CHANDIGARH
Before: SHRI N.K. SAINI & SHRI SANJAY GARG
आदेश/ORDER Per Sanjay Garg, Judicial Member :
The present appeal has been preferred by the assessee agitating the action of the Ld. Commissioner of Income Tax (Appeals)(hereinafter referred to as (‘Ld.CIT(A)’ dated 2.8.2017, passed u/s 250(6 of the Income Tax Act, 1961 (in short ‘the Act’), relating to assessment year 2013-14.
The sole issue raised in this appeal is regarding the confirmation of the disallowance made by the A.O. in relation to interest paid on capital work in progress.
Brief facts relevant to the issue under consideration are that the A.O. observed that the assessee had showed an
amount of Rs.3,04,72,017/- under the head ‘Capital Work
in Progress’, but the said asset was not put to use in the
year under consideration. The A.O. further observed that
the assessee had borrowed huge loans for business and
paid interest thereon. The A.O., therefore, capitalized the
notional interest @ 10.25% of capital work in progress and
added the same to the returned income of the assessee.
In appeal before the Ld.CIT(A), the assessee submitted
that it had its own sufficient funds to meet the capital work
in progress. That no borrowed funds were used for capital
work in progress. That no fresh loans were taken by the
assessee during the year under consideration. The assessee
during the year also earned sufficient profits. Relying upon
the decision of the Hon'ble Supreme Court in the case of
Hero Cycles Pvt. Ltd. Vs. CIT, 379 ITR 347 (SC), the Ld.
counsel for assessee submitted that even otherwise, in the
case of mixed funds also, the presumption will be that the
assessee had used it is own funds for making the
investments. The Ld.CIT(A), however, held that since the
assessee had used mixed funds, hence notional interest was
rightly calculated by the A.O. and thus was rightly added to
the income of the assessee.
Being aggrieved by the order of the Ld.CIT(A), the
assessee has come up in appeal before us.
We have heard the rival contentions and have gone
through the orders of the lower authorities. There is no
denial or rebuttal to the plea of the assessee that the
assessee has been possessed of own sufficient funds to meet
the capital work in progress. Further the assessee, from the
record, has demonstrated that no new loans were taken
during the year. It has been further submitted that even the
loans taken by the assessee were term loans for specific
purposes, which could not be used for any other purpose
than the that for which the loan was taken. That no loan
was taken by the assessee during the year for any capital
asset. The unrebutted facts on the file are that the assessee
was possessed of sufficient own funds, which included a
sum of Rs.12.34 crores out of share capital, reserves and
surpluses and further the profits of the assessee for the
year under consideration were at Rs.2 crores which were
sufficient to meet the capital work in progress of Rs.3.04
crores. The proposition of law laid down by the Hon'ble
Supreme Court in the case of Hero Cycles Pvt. Ltd. (supra)
will squarely applicable to the facts of the case in hand.
Moreover, the issue is now covered by the latest decision of
the Hon'ble Supreme Court in the case of CIT (LTU) Vs.
Reliance Industries Ltd. (2019) 410 ITR 466 (SC). This
issue is accordingly decided in favour of the assessee.
The disallowance made by the lower authorities is
accordingly, deleted.
In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Open Court.
Sd/- Sd/- एन. के. सैनी संजय गग� (N.K. SAINI (SANJAY GARG ) उपा�य�/ Vice President �याय�क सद�य/ Judicial Member �दनांक /Dated: 3rd April, 2019 *रती* 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
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar
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