KELVION INDIA PVT. LTD. (FORMERLY KNOWN AS GEA ECOFLEX INDIA PVT. LTD.),THANE vs. ACIT 15(1)(2), MUMBAI

The assessee is engaged in the business of manufacture and sale of plate heat exchanger. During the year under consideration the assessee had claimed interest expenditure of ` 33.23 lakhs. The Assessing Officer noticed that the assessee has shown capital work-in-progress at Rs. 1126.23 lakhs and Rs. 35,00,00/- as at the beginning and as at the end of the year respectively. Accordingly, he took the view that interest relating to capital work-in-progress should have been capitalized by the assessee. Accordingly, he worked out

Before the learned CIT(A), the assessee submitted that it has debited interest expenditure of Rs. 33.23 lakhs only to the profit and loss account out of which sum of Rs. 16.28 lakhs was relating to interest paid under Income Tax Act u/s. 234B & 234C of the Act. It was submitted that the above said interest of Rs. 16.28 lakhs has already been disallowed by the assessee voluntarily while computing total income. Accordingly, it was submitted that net interest debited to profit and loss account was only Rs 16.95 lakhs and hence the Assessing Officer was not justified in disallowing interest expenditure to the tune of Rs. 138.90 lakhs. The assessee also submitted that it was having two divisions, viz., RT division and PHE division. It was submitted that the borrowed funds have been used for the purpose of business under RT division. The Expansion by way of capital work-in-progress has taken place in PHE division and it was further submitted that the entire capital work in progress has been funded fully out of internal accruals, i.e., no borrowed funds have been used. Since the assessee did not furnish fund flow statement to substantiate its claim, the learned CIT(A) confirmed the disallowance to the extent of Rs.16.95 lakhs, being net interest expenditure claimed by the assessee. Still aggrieved, the assessee has filed this appeal before us.

The Learned AR reiterated the contentions made before the learned CIT(A). He further submitted that the assessee has prepared separate Trial balance for both PHE division and RT division and the same would make it clear that capital work-in-progress has been funded fully out of internal accruals. He submitted that the assessee does not have any objection in restoring this issue to the file of the Assessing Officer for examining the factual aspects presented by him.

The Learned AR also submitted that own funds available with the assessee is more than the value of work-in-progress and hence as per the principles laid down by Hon'ble Bombay High Court in the case of Reliance Utilities Power Limited (313 ITR 340), the capital work-in-progress should be considered as met out of own funds only. Accordingly he submitted that there is no requirement of making any disallowance out of interest expenditure.

The Learned DR, on the contrary, submitted that the assessee has not furnished fund-flow statements to substantiate its claim.

We have heard rival contentions and perused the record. The Learned AR submitted that it has prepared separate Trial balance for PHE division and RT division and the same is available at pages 15 to 37 of the paper book. It is the contention of the assessee that work-in-progress has been funded out of own funds and further, the said expansion has taken place in PHE division. It was further submitted that the borrowed funds have been used in RT division and hence interest expenditure is fully allowable as deduction. The assessee also placed reliance on the decision rendered by Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd (supra). Since contentions of the assessee requires factual verification, we restore this issue to the file of the Assessing Officer for examining various contentions of the assessee including reliance placed by the assessee in the case of Reliance Utilities and Power Ltd. Accordingly, order passed by the learned CIT(A) on this issue is set aside.

In the result, appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 30.10.2018.