UNITY ORGANICS PVT. LTD.,AHMEDABAD vs. THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(2), AHMEDABAD

The assessee has raised following grounds of appeal:- “1. Not deleting the addition of Rs.7,92,826/- originally made by the AO by disallowing the interest paid in relation to loan to purchase land in industrial estate at the Dahej, GIDC u/s 36(1)(iii); 2. Not relying upon the Para 16 of AS-16 (Borrowing Costs) prescribed by the Institute of Chartered Accountants of India which is mandatory in nature; 3. Not considering the board resolutions of the company placed before the Hon'ble CIT(A), which were passed in the F.Y. 2007-08 to justify the intention of purchase of land,

In this case, the brief fact of the case is that return of income declaring income of Rs. 55,51,380/- was filed on 26th Sep, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 23rd Sep, 2013. The assessee was engaged in the business of manufacturing of dyes and intermediates. On scrutiny, the assessing officer noticed that assessee has debited interest of Rs. 7,92,826 on borrowed capital for the purpose of purchase of GIDC Plot Dahej. On verification of the details furnished by the assessee, it was discerned to the assessing officer that assessee has been allotted plot at Dahej industrial estate by GIDC but there was no supporting detail to substantiate that assessee had used this plot for the purpose of business. The total price of the land was Rs. 1,10,45,639/- and out of that 70% was to be paid in equal installment with 15.5% rate of interest. The assessee failed to substantiate with supporting evidence that plot was used for the business purpose. Therefore, asessee has stated that as per section 36(1)(iii), the interest is only allowable if the capital is borrowed for the purpose of business. Consequently, the assessing officer has disallowed the interest of Rs. 7,92,826/- stating that assessee has not used the plot allotted by GIDC for the purpose of business during the year under consideration.

Aggrieved assessee filed appeal before the ld. CIT(A) The ld. CIT(A) has dismissed the appeal of the assessee by stating that deduction u/s. 36(1)(iii) cannot be allowed because the assessee has not put to use the allotted plot of land for the purpose of business during the year under consideration.

During the course of appellate proceedings before us, the ld. counsel has submitted written submission stating that the alternative land was required to be

We have heard the rival contentions and perused the material on record carefully. During the course of assessment proceedings, the assessing officer has disallowed interest expenses of Rs. 7,92,826/- claiming as incurred towards capital borrowed for the purpose of purchase of GIDC plot. We find that during the course of assessment proceedings and appellate proceedings the assessee had failed to substantiate as per provision of section 36(1)(iii) that the purchased asset/plot was used for the purpose of business. In spite of giving a number of opportunities, the assessee failed to demonstrate the use of the plot for the purpose of business and failed to controvert the findings of the ld. CIT(A). After considering the above facts and findings we observe that the judicial pronouncement in the case of Sarnath Infra. Pvt. Ltd. Vs. ACIT of ITAT Lucknow Bench as mentioned supra in this order is not applicable to the case as the facts of the case of the assessee are distinguishable from the above cited judgment of Lucknow ITAT. Therefore, we do not find any error in the decision of ld. CIT(A). Accordingly, the appeal of the assessee is dismissed.

In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 21-06-2018 Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER