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Income Tax Appellate Tribunal, BANGALORE BENCH “ B ”
Before: SHRI ABRAHAM P GEORGE & SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the Revenue is directed against the order dt.19.9.2014 of Commissioner of Income Tax (Appeals) for the Assessment Year 2009-10.
The Revenue has raised the following grounds :-
“1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in allowing the interest towards term loans by placing reliance on the order of Hon'ble High Court of Karnataka in the case of M/s. Sridev Enterprises without appreciating the fact that the case of the assessee was not subjected to scrutiny and the claim was never scrutinized by the Department in the earlier years and the case law cannot be applied in the case of the assessee.
3. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in holding that disallowance of Rs.52,14,679 is to be allowed as expenditure without appreciating the fact that the claim is for non-existent liability as held by the Assessing Officer and the claim before CIT (Appeals), is only an afterthought by the assessee. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored. 5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above.”
Ground No.1 is general in nature and does not require any specific adjudication.
Ground No.2 is regarding disallowance of interest expenditure. During the assessment proceedings, the Assessing Officer has observed that the assessee has declared sales of Rs.2,67,26,330. The assessee has utilized the fund for the purpose of acquiring business assets and construction of property. The Assessing Officer accordingly made a disallowance of interest on term loan of Rs.33,84,272 on the ground that the interest in respect of purchase of business assets is to be capitalized and therefore if the building
is non-commercial to be disallowed straight-away. The Assessing Officer has computed the interest @ 18% on Rs.3,61,21,150 for the purpose of making disallowance. Since the land was taken in Sept., 2008 therefore, the Assessing Officer restricted the disallowance to Rs.33,84,272 out of the total interest of Rs.41,87,467. Before the CIT (Appeals), the assessee submitted that it started construction of manufacturing unit in the year 2007-08 and opening balance of building under construction for the assessment year under consideration of Rs.77,29,565. During the year the assessee debited a sum of Rs.1,01,04,095 towards construction of building thereby closing balance as on 31.3.2009 stood at Rs.1,78,33,630. Thus the assessee explained the source of the movement of funds and submitted that the total funds utilized in construction of building is Rs.1,89,55,925 as reflected in the balance sheet on the assets site under the Schedule Caption “Advance paid for building construction”. The assessee further submitted that the loans availed from the UCO Bank are available at balance sheet and during the year under consideration the assessee has availed a fresh term loan from UCO Bank. From the said term loan, the assessee had transferred a sum of Rs.8 lakhs to current A/c. No.236 maintained with UCO Bank and further a sum of Rs.1,47,66,200 to current account No.229. Out of this fund transfer to the current account, the assessee has utilized a sum of Rs.21,99,798 from the current account No.236 and a sum of Rs.12,77,958 from the current A/c.
No.229 towards construction of property. Thus the assessee submitted that the entire interest paid on term loan is not called for disallowance and the interest attributable towards construction of building was to be disallowed to the extent of Rs.1,08,556 and Rs.97,258 in respect of the funds utilized from these two current accounts. Thus the assessee submitted that the property under construction was undisputedly a manufacturing unit and a sum of Rs.2,05,814 should have been capitalized with the cost of construction of the property. The CIT (Appeals) accepted the explanation furnished by the assessee that out of the two loan accounts, opening balance of Rs.1,43,25,428 as on 1.4.2008 exist in A/c. No.1585 while a fresh loan obtained during the year under consideration in the loan A/c. No.2599.
Therefore to the extent of the opening balance, no disallowance eof interest can be made in terms of the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Sridev Enterprises 192 ITR 165. The CIT (Appeals) has granted part relief to the assessee in this respect.
Before us, the learned Departmental Representative has submitted that the CIT (Appeals) has granted relief in respect of the opening balance in the loan account whereas the assessee has failed to furnish the cash flow statement to show the correct particulars of the opening balance as well as the closing balance at the end of the earlier year. Thus the learned Departmental Representative has submitted that in the absence of the proper examination of the issue at the level of Assessing Officer, the CIT (Appeals) has committed an error in granting part relief.
On the other hand, the learned Authorised Representative has submitted that all the details were furnished before the Assessing Officer and the details considered by the CIT (Appeals) are all part of the balance sheet and Schedule to the Balance Sheet. Therefore, all the details were available with the Assessing Officer. As regards the disallowance of interest in respect of the opening balance, the learned Authorised Representative has submitted that no disallowance was made in the earlier assessment year on account of the interest expenditure then in view of the judgment of the Hon'ble jurisdictional High Court in the case of Sridev Enterprises (supra), the Assessing Officer cannot make any disallowance of interest for the year under consideration in respect of the opening balance of the loan account.
We have heard the rival submissions as well as considered the relevant material on record. We find that the assessee has brought on record the relevant details to show that only a part of the loan amount was utilized by the assessee in respect of the construction of the building in question which is a manufacturing unit and business asset of the assessee. The CIT (Appeals) has given the details of the loan taken by the assessee during the year under consideration as well as opening balance of the loan account in respect of building under consideration as on 31.3.2009 at Rs.1,78,33,630. Therefore after considering the relevant details of the closing balance of the building under construction at the end of the year and utilization of the fund during the year under construction, the CIT (Appeals) has granted the relief to the extent of Rs.1,43,25,428 as on 1.4.2008 in the loan A/c. No.1585. We find that the Hon'ble jurisdictional High Court in the case of Sridev Enterprises (supra) has held in para 3 as under :
3. The Appellate Tribunal affirmed this order. The Tribunal found that, during the past years, there was no such disallowance when moneys have been advanced to Nalanda Enterprises. Therefore, the Tribunal held: "Since no additions have been made in the earlier years, we hold that the opening balances cannot be considered in this year and the enquiry has to be limited only to the increase in this year. As arguments have been advanced on both the sides by referring to abstract accounts, we find that it will not be a satisfactory way of deciding the issue.” It is no doubt true that the firm may have interest-free loans on partners' accounts, but the question would still remain to be answered as to whether those were the funds which were utilised for making this advance. We cannot deem that these amounts have been utilised on any general proposition. We, therefore, find it necessary to remit the case back to the CIT (A) for deciding the issue, viz., whether the advances made in the year of account have come out of borrowed funds or not. If it is shown to be out of funds not borrowed, then no disallowance can be made. If on the other hand, the whole or any part of the advance is out of borrowed funds, then adjustments have to be made only for the advance so made in this year of account as we have already held that the opening balance cannot be the subject-matter of any enquiry in this year." There is no dispute that the Assessing Officer has not made any disallowance in the past year and therefore no addition can be made on the opening balance of the loan account for the year under consideration as held by the Hon'ble jurisdictional High Court. Accordingly, in view of the above facts and circumstances of the case we do not find any error or illegality in the impugned order of the CIT (Appeals) on this issue.
Ground No.3 is regarding disallowance on account of non-existing liability towards advance for plants. The Assessing Officer noted that the assessee has shown the liability of advance received Rs.52,14,679, the Assessing Officer disallowed the said amount on the ground that it is not the business of the assessee to sell plants and therefore the Assessing Officer doubted the genuineness of the liability and disallowed the same.
On appeal, the CIT (Appeals) has allowed the claim of the assessee by considering the relevant material and evidence including the copy of confirmation from the plant creditors as well as invoices raised by these creditors.
Before us, the learned Departmental Representative has submitted tha the CIT (Appeals) has considered the fresh evidence while granting the relief to the assessee. It is only an after thought, claim of the assessee and producing the fresh evidence before the CIT (Appeals) which was not produced before the Assessing Officer despite sufficient opportunity given by the Assessing Officer.
On the other hand, the learned Authorised Representative has submitted that the assessee produced this additional evidence along with an application for admitting the same. The CIT (Appeals) issued a remand order and only after remand report dt.4.8.2014, the CIT (Appeals) has allowed the claim of the assessee. Therefore additional evidence filed by the assessee was duly considered by the Assessing Officer in the remand report.
We have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee produced additional evidence before the CIT (Appeals) upon which the CIT (Appeals) issued a remand order for examination of the additional evidence by the Assessing Officer. The Assessing Officer has filed his remand report dt.4.8.2014 objecting to the admission of the additional evidence. It is pertinent to note that the Assessing Officer has disallowed this amount of Rs.52,14,679 shown as liability of advance on the ground of non-genuine claim. Before the CIT (Appeals) the assessee filed the confirmation from the creditors along with copy of invoices. These additional evidences were sent to the Assessing Officer for examination. In the remand report, the Assessing Officer has not given finding that the evidences furnished by the assessee are not genuine but the Assessing Officer has objected to the admission of the additional evidences. Thus when the Assessing Officer was given an opportunity to examine the additional evidence and no adverse finding was given by the Assessing Officer regarding the veracity of the evidence, then we do not find any error or illegality in the order of CIT (Appeals) in accepting the claim of the assessee supported by the evidences filed by the assessee. Accordingly, the order of the CIT (Appeals) on this issue is upheld.
In the result, the appeal of Revenue is dismissed. Order pronounced in the open court on 19th day of Feb., 2016.