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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAJESH KUMAR
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 13.11.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The grounds raised by the Revenue are as under: “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing to allow of interest and financial charges of Rs.24,63,703/- and Depreciation of Rs. 6,49,069/- in respect of capital WIP.
The appellant prays that the order of CIT (A) on the above ground be set aside and that of the assessing officer be restored.
The appellant craves leave to add, amend or alter any of the grounds or add a new ground which may be necessary.”
2 M/s. Satkar Road Linkers India Pvt. Ltd. 3. The Revenue has challenged the deletion of addition by CIT(A) of Rs.24,63,703/- on account of interest and financial charges and Rs.6,49,069/- on account of depreciation in respect of WIP by reversing order of AO on this issue.
The facts in brief are that the AO during the assessment proceedings observed that the assessee has purchased trucks in two phases one of Rs.59 lakhs and 2nd of Rs.43,27,128/-. Out of the said trucks the trucks costing Rs.59 lakhs was treated as WIP whereas with regard to the 2nd lot of trucks no details were filed by the assessee such as invoice, date of putting to use etc. and accordingly the AO disallowed the total interest and financial charges of Rs.24,63,703/- which was charged by the assessee under the head interest and financial charges in the P&L account. AO also disallowed the depreciation claim by the assessee of Rs.6,49,069/- on the ground that no proofs of the purchase and date on which the said trucks were put to use was not filed by the assessee.
The Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: “2.4.18 On weighing the pros and cons, I find that there was finance expenditure in respect of first truck, supporting bank statements were furnished before Ld.AO and as the finance charges were related to the cash credit limit which was taken for funding the working capital of business, it was a business expenditure which could not be disallowed. The business pursued by the appellant was continuing and therefore, it could not be held that finance cost on funding the working capital of business was capital in nature. Interest expenditure on term loan which was used to acquire immovable property for pre-school business of the assessee, was held allowable in the case of ACIT vs Ms. Geeta Bhatia 120151 68 SOT 50 (Mum Trib) (URO).
2.4.19 As far as the second truck is concerned, no where it has been brought on record that the same was not used for business purpose and 3 M/s. Satkar Road Linkers India Pvt. Ltd. these facts have also been mentioned in the appellant's statement of facts, a copy of which has been furnished to Ld. AO. However, no rebuttal of the same has been received and, therefore, it is presumed that these statement of facts are correct and, hence, depreciation on the second truck could not have been disallowed. In view of the above, Ground No. 5 is allowed.”
The Ld. D.R. vehemently submitted before us that the depreciation on 2nd lot of trucks was not allowable as the same were not put to use by referring to the observation made by the AO. The Ld. D.R. submitted that the assessee himself treated the purchase of trucks as WIP and therefore the reasoning as given by Ld. CIT(A) in the appellate order while deleting the addition is wrong. As regards the disallowance of Rs.24,63,703/-, the Ld. D.R. submitted that the same was rightly disallowed by the AO as the assessee has treated the trucks as WIP and therefore interest charges, processing charges and other incidental charges have to be disallowed.
Per contra, the Ld. A.R. submitted by referring to page No.46 of the paper book which is a statement of depreciation for the instant year that the assessee has not charged any depreciation on the trucks which were treated as WIP whereas as regards the 2nd lot of trucks which was put to use, the depreciation was charged @ 30% which was rightly charged by the assessee as the same was put to use during the year.
As regards the 2nd issue of disallowance of interest and 8. incidental charges of Rs.24,63,703/- the Ld. A.R. submitted that out of the total term loan of Rs.2,39,63,354/-, only Rs.80,56,527/- represented the term loan against the hypothecation of trucks and the remaining was cash credit
4 M/s. Satkar Road Linkers India Pvt. Ltd. limit from Bank of Baroda of Rs.1,55,04,827/- and Rs.4 lakh by way of unsecured loans. The Ld. A.R. while taking us through the schedules of secured and unsecured loans in schedule ‘C’ and interest and financial charges submitted that the total of said expenses comprised of “bank interest and financial charges” of Rs.21,49,910/- which represents the interest charge on cash credit limit, bank charges of Rs.1,38,117/- and interest on finance of Rs.1,75,676/-. The Ld. A.R. while referring to page No.55 to 57 of the paper book submitted that the interest charge of Rs.21,49,910/- was incurred as interest charges on the cash credit limit which is coming over from the earlier years. The Ld. A.R. while referring to page No.58 to 60 submitted that the bank charges were incurred in connection with the business of the assessee and not in connection with the purchase of trucks and thus has nothing to do with the trucks purchased by the assessee. The Ld. A.R. also took us through the repayment details of loans taken in connection with the purchase of two trucks and clearly drew distinction between the trucks which was capitalized in the WIP and the one which was put to use during the year. While referring to page No.72, the Ld. A.R. submitted that the EMI was paid on 23.03.2010 which comprised of interest element of Rs.9,875/- and therefore, the interest disallowance is only to the extent of Rs.9,875/- as against the total disallowance of Rs.24,63,703/-. As regards the 2nd lot of trucks the Ld. A.R. referred to page No.66 of the paper book to explain that the interest element in the 4 installments falling during the current financial year which was capitalized and not charged to the P&L Account. In view of 5 M/s. Satkar Road Linkers India Pvt. Ltd. these facts, the Ld. A.R. submitted that the Ld. CIT(A) has taken a correct view of the matter after examining all the evidences as regards the purchase of vehicles, the date of putting them to use, classification between normal business use and into WIP and also examining the comprehensive details as regards the borrowings for the purpose of business of the assessee and also as regards the two trucks. The Ld. A.R. prayed before the bench that in view of the said facts the appeal of the Revenue should be dismissed.
We have heard the rival submissions of both the parties and perused the material on record. After examining the records and rival arguments, we find that the assessee has classified the purchase of trucks into two blocks; one as regards those trucks which were purchased in November 2009 and were put to use before 31.03.2010 on which the assessee has claimed depreciation. As regards the trucks which were treated as WIP the cost whereof aggregated to Rs.59 lakhs, the assessee purchased these trucks on 26.02.2010 and shown as WIP on which no depreciation has been claimed as the same were not capitalized. Similar finding has been recorded by the Ld. CIT(A) in his order at page No.9 & 10. So far as the deletion of disallowance on account of depreciation is concerned, we concur with the finding of the first appellate authority. So far as the disallowance of interest and financial charged to the tune of Rs.24,63,703/- is concerned, we observe from the records before us that the substantial part of the expenditure was incurred by way of interest on cash credit limit of Rs.21,49,910/-, bank charges of Rs.1,38,117/- and 6 M/s. Satkar Road Linkers India Pvt. Ltd. interest on finance of Rs.1,75,676/- all aggregating to Rs.24,63,706/-. We have gone through the copies of ledger accounts as regards the interest charges, bank charges and interest on finance and found that the AO was totally wrong in making the said disallowance. We observe from the loan statements that assessee has rightly charged the interest on truck loans in the P&L Account as is clear from page No.66 to 78 which represented the loan statements filed by the assessee in the paper book. Keeping in view of the facts discussed hereinabove , we are of the view that the order was passed by the Ld. CIT(A) is correct and needs no interference and accordingly affirmed by dismissing the appeal of the Revenue.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open court on 24.07.2018.