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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH
Before: SMT. DIVA SINGH, JM & Dr. B.R.R. KUMAR , AM
आदेश/Order PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Assessee against the order of the Ld. CIT(A), Ludhiana dt. 26/05/2016.
In the present appeal Assessee has raised the following grounds:
That the order passed by the Ld. CIT(A) is bad in law as well as on facts.
That the Ld. CIT(A) has erred in law as well as on facts in upholding the addition of Rs. 3,70,212/- made under section 36(1)(iii) of the Income Tax Act, 1961 by the Assessing Officer.
That the ld. CIT(A) has failed to appreciate the facts of the case.
Briefs facts in this case are that the assessee filed his return of income on
13.07.2012 by declaring income of Rs. 50,01,837/-. The assessee was engaged in
the business of manufacturing sewing machines parts during the period under
consideration. During the course of assessment proceedings, the AO observed
from the balance sheet that the assessee has purchased two plots of land one is
situated at Industrial Area, Kohara of Rs. 26,90,000/- and second is at Aayali,
Kalan, Ludhiana of Rs. 33,10,500/- during the year. The assessee was issued a
show-cause as to why interest should not be capitalized on this land till the date
of put to use given that interest bearing loan funds of Rs. 50,00,357/- are
outstanding against capital of Rs. 48,19,393/-. The AO was not satisfied with the
assessee’s submission. The AO was of view that the assessee had paid interest on
loans throughout the year and the assessee had also acquired new assets and
there had been major addition in capital assets. The interest for the period till the
time of put to use of the assets has to be capitalized as per section 36(1)(iii).
Accordingly, the AO made an addition of Rs. 3,70,212/- u/s 36(1)(iii) of the
Income Tax Act, 1961.
The Ld. CIT(A) confirmed the order of the Assessing Officer at that time
relying on the judgment of CIT Vs. Abhishek Industries Ltd.
Before us, the Ld. AR submitted the balance sheet of the Assessee wherein
the capital account is to the tune of Rs. 31,93,282/- and unsecured loans from
friends and relatives of Rs. 51,57,274/- as at 2011 to prove that the assessee
brought sufficient own funds for the investments. As per the P&L Account the
assessee has disclosed a net profit of Rs. 47,16,899/-.
Ld. DR relied on the orders of the authorities below.
The issue stands adjudicated by various precedents by this Tribunal based
on the various pronouncements of the jurisdictional High Courts. When the
assessee has got own funds available at their disposal no disallowance is called
for as enunciated in various judgments. In the case of Bright Enterprises Pvt. Ltd.
Vs. CIT(Punjab & Haryana High Court in ITA No. 224/2013 dt. 24/07/2015 it was
held that if there are interest free funds available then it will be presumed that
these have been made out of interest free funds. Similar view was held in the
case of CIT Vs. Kapsons Associates Investment Pvt. Ltd. [2015] 381 ITR 204 (P&H)
wherein, the Hon’ble Court has held that interest on investment in other
properties not for business purpose cannot be disallowed if the assessee is
having sufficient interest free funds at its disposal. Similar matter has been heard
by the Hon’ble Delhi High Court in the case of D.D. Industries Ltd. in ITA 512-Del-
2015 vide order dt. 13/03/2015 wherein it was held that no disallowance is called
for when the assessee has got surplus funds for acquiring assets in question.
Hence, respectfully following the ratio laid down by the various judicial
pronouncements, the disallowance made on account of interest is hereby
deleted.
In the result, appeal of the Assessee is allowed.
Order pronounced in the open Court.
Sd/- Sd/- �दवा �संह डा. बी.आर.आर. कुमार, (DIVA SINGH) (Dr. B.R.R. KUMAR) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 29/10/2018
आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File