AMANPREET SINGH,LUDHIANA vs. ACIT, LUDHIANA

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ITA 912/CHANDI/2016Status: DisposedITAT Chandigarh29 October 2018AY 2012-133 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that if interest-free funds are available, it is presumed that investments are made from these funds. Following judicial precedents, the disallowance of interest was deleted.

What were the facts?

The assessee purchased two plots of land during the year. The Assessing Officer capitalized interest on interest-bearing loans used for these purchases until they were put to use, making an addition of Rs. 3,70,212/-. The assessee argued that sufficient own funds were available.

What were the issues?

Whether interest on loans for acquiring capital assets should be capitalized when the assessee has sufficient interest-free funds available.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, CHANDIGARH BENCH “A”, CHANDIGARH

Before: SMT. DIVA SINGH, JM & Dr. B.R.R. KUMAR , AM

For Appellant: Shri. B.N. Monga, Shri. Rohit Kaura
For Respondent: Smt. Chandrakanta
Hearing: 30/08/2018Pronounced: 29/10/2018

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.

2.

In the present appeal Assessee has raised the following grounds:

1.

That the order passed by the Ld. CIT(A) is bad in law as well as on facts.

2.

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.

3.

That the ld. CIT(A) has failed to appreciate the facts of the case.

3.

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.

4.

The Ld. CIT(A) confirmed the order of the Assessing Officer at that time

relying on the judgment of CIT Vs. Abhishek Industries Ltd.

5.

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/-.

6.

Ld. DR relied on the orders of the authorities below.

7.

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.

8.

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

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