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Income Tax Appellate Tribunal, DIVISION BENCH’B’, CHANDIGARH
Before: SMT. DIVA SINGH & DR. B.R.R. KUMAR
PER DR. B.R.R. KUMAR, A.M.:
The present appeal has been filed by the Revenue against the order of the Ld. CIT(A)-I, Ludhiana dt. 07/11/2017.
The only effective ground of appeal is as under:
“Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition of Rs. 37,53,625/- on account of capitalization of interest on capital work in progress ?” 3. Brief facts of the case are that during the assessment proceedings, the Assessing Officer, on an examination of the Ledger account of the machines, noticed that machines were entered in the books as capital work in progress as on 31/03/2013. However, there were further debit entries and finally the said machines were seen to have been put to use later on.
The assessee’s accounts also displayed interest expenses of around Rs. 3.08 crores on account of borrowings. Presuming that the machines were
acquired out of borrowed funds, and invoking the proviso to section 36(1)(iii) as well as Explanation-8 to section 43(1) of the Act, the Assessing Officer calculated interest @ 12% for the number of days till the machines were put to use 15/02/2014] for capitalization. The aggregate of such computation worked out to Rs. 55,48,196/-. However, since the appellant company had already capitalized an amount of Rs. 17,94,571/-, the differential of Rs. 37,53,625/- was added back to the returned income.
The Ld. CIT(A) deleted the addition based on the judgment in the case of Hero Cycles Ltd in ITA No. 314/CHD/2013 dt. 16/02/2016.
The Ld. DR argued based on the facts quoted by the Assessing Officer.
Before us, the Ld. AR argued that the interest on money borrowed for investment in capital work in progress was capitalized to the tune of Rs. 17,94,571/-. He further argued that the balance investments was made out of own funds and internal approvals including the income during the year. It has explained that the assessee had own funds to the tune of Rs.11.13 Crores and interest free funds of Rs. 6.87 Crores whereas investments in fixed assets are to the tune of Rs. 2.24 Crores only.
He further submitted that similar addition was made during the A.Y. 2012-13 too which was decided by the Ld. CIT(A) in favour of the assessee for which the department has not appealed further.
We have gone through the facts of the case and also the order of the Ld. CIT(A) for the A.Y. 2012-13 wherein it was held as under:
I have carefully considered the facts of the case, the basis of disallowance made and the arguments of the AR. Under the proviso to sec 36(1)(iii), where a loan is raised to purchase an asset and the asset is purchased for extension of the existing business; the interest for the period during which the asset is not put to use is to be capitalized. However, a perusal of the assessment order shows that the Assessing Officer has nowhere given a categorical finding regarding the fulfillment of these two conditions and has gone ahead and made the addition in a mechanical manner. Moreover, the position of the appellant's own funds has not been verified by the Assessing Officer in any case. The appellant’s own funds are more than the said advance. in The AR has placed reliance on DCIT vs. Samrat Forgings Ltd. ITA No. 975/Chd/2011 wherein it has been held that where income of the
assessee is more than the investment, no disallowance of interest can be made on account of investment in work in progress, which was further followed in the case of Hero Cycles Ltd. vs. Addl. DCIT A.Y 2009-10 dated 16.02.2016 in ITA No.314/Chd/2013. The AR has further relied on the case of ACIT vs. Upper India Steel Mfg. & Engg. Co. Ltd. in ITA no. 920/Chd/2009 of the Hon'ble ITAT, Chandigarh bench, wherein it has been held that where the appellant has not raised any loan from any bank or financial institution against installation of machinery during the year, it cannot be presumed that any interest bearing funds have been invested in the capital work in progress. Further, that where the Assessing Officer has failed to give any finding on the aspect of any loan raised for installation of machinery, no such disallowance can be made. In the instant case also the Assessing Officer has failed to record any finding as to whether any loan was raised for the purchase of the said machinery. In view of the said facts and circumstances, the case of the appellant being covered by the said case- laws, the said disallowance is not justified and is ordered to be deleted. This ground of appeal is allowed." Following the above order on similar facts, this ground of appeal is allowed.
Hence, in view the facts of the case, the rationale given by the ld.CIT(A) which is totally based on the judgments of the higher judicial forums, placing reliance on the decision of the Hon’ble jurisdictional High Court in the case of Bright Enterprises Private Ltd. ITA number 224 of 2013 dated 24/07/2015, and judgment in the case of a CIT Vs. Omax bikes limited ITA number 1085/2013 A.Y. 2008-09 dt. 24/07/2015 , Hero Cycles Vs. CIT ITA NO. 314 & 493/2013 A.Y. 2009-10 dt. 16/02/2016 wherein it has been held that if sufficient interest free funds are available the presumption is that the advances have been made out of such funds and no disallowance of interest under section 36(1)(iii) is called for, we hereby decline to interfere in the order of the Ld. CIT(A).
As a result, the appeal of the revenue is hereby dismissed.
Order pronounced in the open Court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 25/05/2018 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR