KLT AUTOMOTIVE AND TUBULAR PRODUCTS LTD,MUMBAI vs. DCIT 10(1)(2), MUMBAI

raised by the assessee is that the ld. Dy.CIT has erred in disallowing the interest expenses of Rs. 1,42,78,820/- as Capital in nature u/s. 36(1)(iii) during the year.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Department Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that Assessing Officer disallowed the interest expenditure of Rs. 2 Mum 2018-M/s KLT Automotive and Tubular Products Ltd. 1.42 Crore u/s 36(1)(iii) without any evidence to contrary. The addition is based purely on assumption and surmises. The assessee has capital of Rs. 198.11 Crore, whereas investment in associate/subsidiary was made only Rs. 23.84 Crore. The assessee has made suo-moto disallowance of Rs. 14.44 Crore and therefore, further disallowance under section 36(1)(iii) was unjustified. The ld. AR of the assessee further submits that the assessee has utilized his own funds from the capital and reserve for making the said investment. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Supreme Court in CIT vs. Reliance Industries Ltd. (410 ITR 466). The ld. AR of the assessee further invited our attention on the Profit & Loss Account as on 31.03.2013 wherein the assessee has shown to have own Reserve & Surplus of Rs. 189.25 Crore and share capital of Rs.8.85 Crore (page -19 of PB).

On the other hand, the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that assessee himself capitalized the interest expenditure which is about 11%. The assessee has paid interest average rate on 12%. The differential of Rs. 1.42 Crore was disallowed on account of proportionate differential by Assessing Officer.

We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer made the 3 Mum 2018-M/s KLT Automotive and Tubular Products Ltd. disallowance of Rs. 1.42 Crore u/s 36(1)(iii) on taking view that the assessee has capitalized interest @ 10.92%. However, the interest expenditure which the assessee claimed in Profit & Loss Account from financial institution is @ 12%. The Assessing Officer made the disallowance of differential rate of interest. The ld. CIT(A) concluded that the main issue is the differential rate of interest which has neither been explained by the assessee during the assessment nor at appellate proceeding. Therefore, the ld CIT(A) did not find any reason to deviate from the disallowance.

We have noted that assessee has given detailed written submission which before ld CIT(A), which has been recorded in para-2.2 of his order, wherein it is recorded that assessee claimed that they have the capital of Rs. 198.11 Crore and whereas the investment in associate/subsidiary is only Rs. 23.83 Crore and that the fixed asset of Rs. 119.69 Crore has already been put to use during the year. The assessee also asserted that it has already disallowed interest expenses of Rs. 14.44 Crore and that the investments are made out of their own fund.

In the result, appeal of the assessee is allowed.