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Facts
The assessee is appealing against the orders of the CIT(A) confirming additions made by the AO related to the disallowance of proportionate interest expenditure on work-in-progress (WIP). The AO had allocated interest expenditure towards WIP, which was capitalized.
Held
The Tribunal held that the assessee had sufficient interest-free funds available, which were more than the total value of WIP. Therefore, no interest expenditure needed to be allocated to WIP, and the disallowance was not sustainable.
Key Issues
Whether proportionate interest expenditure is to be disallowed and capitalized on work-in-progress when the assessee has sufficient interest-free funds.
Sections Cited
147, 148, 143(3)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
O R D E R PER RAJPAL YADAV, VP The assessee is in appeal against the orders of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] & 342/CHD/2019 A.Y.2007-08 & 2012-13 2 dated 07.01.2019 and 11.01.2019 passed for assessment year 2007-08 and 2012-13 respectively.
The solitary substantial grievance of the assessee in both the years is that ld. CIT(A) has erred in confirming the addition of Rs.13,09,146/- and Rs.1,06,76,847/- in assessment year 2007-08 and 2012-13 respectively.
With the assistance of ld. Representative, we have gone through the record carefully. It emerges out from the record that assessee has filed return of income in both the years. It has declared loss in assessment year 2012-13 whereas positive income in assessment year 2007-08. The assessee has work-in-progress which was construed as a capital WIP and the AO has allocated interest expenditure towards WIP.
Accordingly, he has disallowed proportionate interest expenditure. He made an addition of Rs. 13,09,146/- and Rs.2,34,39,318/-. This much interest expenditure was capitalized in the WIP. The ld. CIT(A) has confirmed the addition in assessment year 2007-08 and partially deleted in assessment year 2012-13. Addition has been confirmed at Rs.1,06,76,847/-. & 342/CHD/2019 A.Y.2007-08 & 2012-13 3
On due consideration of the record, we find that assessee has more interest free funds than total value of WIP. The ld. Counsel for the assessee drew our attention towards page No. 33 and 56 of the Paper Book filed in assessment year 2007-08 and 2012-13 respectively. On these pages, Balance Sheet as on 31.03.2012 and 31.03.2007 has been placed. The assessee has Rs.698 Cr interest free funds in assessment year 2007-08. Similarly, it has more than Rs.742 Cr in assessment year 2012-13. Thus, assessee has surplus funds upon him and it was not required to pay interest. The value of CWIP in assessment year 2007-08 is only Rs.13,09,14,640/-, as against this, the interest free fund was Rs.698 Cr. Thus, we are of the view that alleged interest free funds can take care of this capital work-in-progress and no interest expenditure is required to be allocated. For buttressing our above view, we rely upon the following judgements : a) ACIT Vs Janak Global Resources Pvt. Ltd. 175 ITD 365 (Chd) b) Bright Enterprises (P) Ltd Vs CIT 381 ITR 107 (P&H.) c) CIT Vs Kapson Associates 381 ITR 204 (P&H.) d) CIT Vs Max India Ltd. 398 ITR 209 (Pb.) e) CIT Vs Max India Ltd (2016) 388 ITR 81 (P&H) & 342/CHD/2019 A.Y.2007-08 & 2012-13 4 f) Gordrej & Boyce Manufacturing Co. Ltd Vs DCIT (2017) 394 ITR 449 (SC) g) CIT Vs Reliance Ind Ltd. 410 ITR 466 (SC) h) CIT v/s Reliance Utilities & Power Ltd 313 ITR 340-344 (Bom) i) CIT V/s Shapoorji Palongi & Co 423 ITR 220 (Bom) j) Decision of ITAT Chandigarh in ITA No. 184/Chd/2015
In view of the above, no disallowance is sustainable.
We allow both the appeals and delete the disallowance.
In the result, both appeals are allowed.