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Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
ORDER
Per N. K. Saini, AM:
This is an appeal by the assessee against the order dated 18.03.2016 of ld. CIT(A)-I, Gurgaon.
During the course of hearing nobody was present on behalf of the assessee neither any adjournment was sought. We, therefore, proceeded ex-parte and the appeal is decided on merit after hearing the ld. DR. 3. The only grievance of the assessee in this appeal relates to the confirmation of disallowance of Rs.7,72,219/- made by the AO u/s 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4. Facts of the case in brief are that the assessee filed e-filed Return of Income on 30.09.2011 declaring loss of Rs.3,40,37,051/-. Later on, 2 JSL Lifestyle Ltd. the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had incurred interest expenses amounting to Rs.3,47,04,635/- on loans. He also noticed that the assessee had opening capital work in progress of Rs.77,22,190/- as on 01.04.2010, out of which assets worth Rs.39,18,168/- had not been put to use till 30.03.2011, therefore, the interest expenses claimed by the assessee deserve to be disallowed to the extent of equivalent notional interest on expenditure on capital work in progress. He disallowed Rs.7,72,219/- by observing as under: “The assessee has taken loans at an average rate of interest of 10% p.a. In order to arrive at the notional interest proportionate to which disallowance is to be made, this rate of interest is taken. Taking this rate, notional interest attributable to CWIP is Rs.772219. Thus, interest expenses to the tune of Rs.772219 are disallowed.” 5. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission dated 10.02.2015 which has been incorporated in para 4.2 of the impugned order, for the cost of repetition, the same is not reproduce herein. The ld. CIT(A) sustained the disallowance made by the AO by observing in para 4.3 of the impugned order as under: “4.3 In consideration of the above submission the appellant was given an opportunity during the course of hearing on 16.02.2016 to connect the payment made for acquiring CWIP with non- interest bearing funds. In response a written submission was submitted on 17.03.2016 as under:- Disallowance of Proportionate Interest on Capital Expenditure.
3 JSL Lifestyle Ltd. "With reference to your Honour query regarding source of payment of Capital Work in progress outstanding as at the beginning of the year as at 1st April, 2010 and outstanding at the end of the year as at 31st March, 2011, we would like to submit as under:- Detail of capital work in progress as at 31st March, 2010, of Rs.77,22,190/- with vendor name and date of payment and bank account from which the said payment is made. (Annexure 'A') We would further like to Inform that payment of Rs.77,22,190/- is made to creditors out of Working Capital account, hut working capital loan on the date of payment to such capital creditor has not increased due to deposit of money from customer collection etc. on working capital account Therefore, we request you please consider the our point in this matter" 4.3 I have given careful consideration to the facts of the case and arguments of the appellant. It has been replied in letter submitted on 13.03.2016 that the payment has been made out of State Bank of Patiala but no further details has been given regarding payment of interest in this bank account and nature of this bank of account. The other contention of large availability is not acceptable merely because a large free capital is available to the appellant it does not mean that each and every interest would become allowable. The appellant was specifically asked to provide details which could link the source of acquiring CWIP to non interest, hearing funds. This opportunity was not availed and thus necessary inference is that CWIP has been acquired utilizing funds on which interest has been paid which have been charged to P&L Account, tinder these circumstances, there is no infirmity in the orders of the Assessing Officer on this point. The ground of appeal is dismissed.”
6. Now the assessee is in appeal. The ld. DR strongly supported the orders of the authorities below and reiterated the observations made in their respective orders.
4 JSL Lifestyle Ltd.
We have considered the submissions of both the parties and perused the material available on the record. In the present case, form the observation of the ld. CIT(A), it is noticed that he has mentioned that the assessee had furnished written submission dated 17.03.2016. However, he considered the reply of the assessee submitted on 13.03.2016 but no contents of the said letter/reply of the assessee has been discussed in the impugned order. The ld. CIT(A) has also not given any finding with regard to the submission dated 10.12.2015 of the assessee. We, therefore, considering the totality of the facts, deem it appropriate to set aside the impugned order to the file of the ld. CIT(A) to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Court on 08/11/2017)