RGS HEALTHCARE PRIVATE LIMITED,MOHALI vs. DCIT, C-6(1), MOHALI

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ITA 1208/CHANDI/2018Status: DisposedITAT Chandigarh01 April 2019AY 2013-144 pages
AI SummaryAllowed

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?

Section 250(6)

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Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, CHANDIGARH BENCH ‘B’, CHANDIGARH

Before: SHRI N.K. SAINI & SHRI SANJAY GARG

For Appellant: Shri Tej Mohan Singh, Adv
Hearing: 27.03.2019Pronounced: 03.04

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.

2.

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.

3.

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.

4.

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.

5.

Being aggrieved by the order of the Ld.CIT(A), the

assessee has come up in appeal before us.

6.

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.

7.

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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