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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH
Before: SHRI A.D. JAIN & DR KRINWANT SAHAY
आयकर अपील�य अ�धकरण,च�डीगढ़ �यायपीठ, च�डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, ‘A’, CHANDIGARH BEFORE SHRI A.D. JAIN, VICE PRESIDENT & DR KRINWANT SAHAY, ACCOUNTANT MEMBER आयकर अपील सं./ �नधा�रण वष� / Assessment Year : 2014-15 The DCIT, Vs. M/s Cosmos Research Lab बनाम CC-III, Ltd., 56-C, Ludhiana Udham Singh Nagar, Ludhiana �थायी लेखा सं./PAN No: AADCC4782B ��यथ� / Respondent अपीलाथ� ./ Appellant ( VIRTUAL HEARING ) �नधा�रती क� ओर से/Assessee by : Sh. Gaurav Sharma, C.A. राज�व क� ओर से/ Revenue by : Shri Chandrajit Singh, CIT DR सुनवाई क� तार�ख/Date of Hearing : 20.05.2024 उदघोषणा क� तार�ख/Date of Pronouncement : 28.05.2024 आदेश/Order Per Dr. Krinwant Sahay, A.M.:
The appeal in this case has been filed by the Department against the order dated 22.07.2022 of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana [herein referred to as ‘CIT(A)’], on the following Grounds: - i) Whether in the facts and circumstances of the case, the Ld. CIT(A) has erred in law by deleting the addition of Rs. 1,00,00,000/- u/s 68 of the Income Tax Act, 1961 made on account of unsecured loans?
636-Chd-2022 – M/s Cosmos Research Lab Ltd, Ludhiana 2
Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in law by deleting the disallowance of interest of Rs.7,38,02,263/- at the rate of 14 percent per annum on capital work in progress including capital advances amounting to Rs.52,71,57,595/- under the provisions of section 36 (1)(iii) of the Income Tax Act, 1961.
3. The appellant craves leave to add, amend, modify, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal
2. Appeal on Ground No.1 is against the deletion of addition of Rs. 1,00,00,000/- u/s 68 of the Income Tax Act, 1961 (in short 'the Act').
Brief facts of the case are that the Assessee company is engaged in the business of manufacturing of drugs such as tablets, capsules, dry syrups and injections etc. During the assessment proceedings, the Assessing Officer found that there was unsecured loans taken by the Company from three parties Mr. Punit Jain, Smt. Manju Jain and Garg Capital Services Ltd. The Assessing Officer gave his findings that although the identity of Garg Capital Services Ltd. was given by the Assessee but the creditworthiness and genuineness of the transactions were not proved beyond doubt, therefore, the Assessing Officer made an addition on this account.
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Aggrieved with the order of the Assessing Officer, the Assessee filed an appeal before the ld. CIT(A)-5, Ludhiana. Before the ld. CIT(A), the ld. AR of the Assessee argued that no unsecured loans of Rs. 1,00,00,000/- was taken by the Assessee during the year and therefore, the findings of the Assessing Officer was not correct. The ld. CIT(A) in his order gave a finding on this issue as under:-
“The facts of the case, basis of addition made by the AO and the arguments of the AR during the course of appellate proceedings have been considered. The AR with respect to unsecured loan of Rs. 1,00,00,000/- from M/s. Garg Capital Services Ltd. submitted that no such unsecured loan was received by the appellant company from M/s. Garg Capital Services Ltd. during the year under consideration and further submitted that the claim of the AO is not correct. The AR explained that M/s. Garg Capital Services Ltd. initially lent unsecured loan to the assessee in the Financial Year 2009-10 amounting to Rs. 60 lacs which increased to Rs. 80 lacs in Financial Year 2010-11 and to Rs. 1,36,20,325/- in Financial Year 2011-12 and Rs. 1,00,81,861 /- in the Financial Year 2012-13 and the opening balance in the Financial Year 2013-14 relevant to Assessment Year under consideration as on 01.04.2013 was Rs. 1,00,81,861/- and the closing balance as on 31.03.2014 was Rs. 73,10,362/-. The AR also furnished the Audit Report of the appellant company for the year under consideration and the preceding years in support of his claim. As per the AR, the appellant company made repayments to M/s Garg Capital Services Ltd. which is also 636-Chd-2022 – M/s Cosmos Research Lab Ltd, Ludhiana 4 mentioned at point no. 31(b) of the Audit Report and the above figures also matched with the confirmed copy of account of M/s. Garg Capital Services Ltd. in the books of the appellant company in paper book. As per the AR, the final Tax Audit Report uploaded at the e-filing portal of the Income Tax Department should be considered and submitted that the above report has been filed with the Income Tax department on 29.11.2014 (much before the assessment proceedings). Further, the AR stated that the AO had asked to furnish the bank statement of M/s. Garg Capital Services Ltd. for the year under consideration in the remand proceedings and the same were provided to him and also placed on record. The AR reiterated that no amount of Rs. 1 crore had been lent by M/s. Garg Capital Services Ltd. during the year under consideration and the above amount of Rs. 1 crore is neither appearing in the Audit Report of the appellant company nor in the confirmed copy of account of M/s. Garg Capital Services Ltd. nor in the bank statement of M/s. Garg Capital Services Ltd. and hence, the above addition is not called for. The above submissions of the AR are found acceptable and it is seen from the Audit reports/Balance Sheet of the assessee company that the loan from M/s. Garg Capital Services Ltd. was an old loan with outstanding balance at the beginning of the year under consideration at Rs. 1,00,81,861/- and the assessee made repayment and closing balance as on 31.03.2014 was Rs. 73,10,362/-. Since, no fresh loan was raised by the assessee from M/s. Garg Capital Services Ltd. during the year under consideration, hence the addition made by the AO on incorrect appreciation of facts, is not found sustainable and deserves to be deleted.”
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During the proceeding, the ld. DR relied heavily on the findings given by the Assessing Officer and he also argued that as the genuineness and creditworthiness of the unsecured loans from Garg Capital Services Ltd. was not proved beyond doubt, therefore, the findings of the ld. CIT(A) is not correct.
We have considered the findings of the ld. CIT(A) on this issue as a well as arguments of the ld. DR. It is clear from the facts brought on record by the ld. Counsel for the Assessee that unsecured loans from Garg Capital Services Ltd. is an old loan and during the year no fresh loan of Rs. 1,00,00,000/-, as alleged by the Assessing Officer has been taken by the Assessee company rather, there has been repayment of a portion of such unsecured loan, therefore, there is no reason to make the addition on this issue during the year under consideration. Accordingly, Departmental appeal on this issue is dismissed.
Appeal on Ground No.2 is against the deletion of disallowance of Rs. 73,80,02,263/- at the rate of 14% per annum on capital work in progress and capital advances amounting to Rs. 52,71,57,595/- under the provisions of section 36(1)(iii) of the Income Tax Act.
The Assessing Officer in his assessment order has given his findings on this issue as under:-
636-Chd-2022 – M/s Cosmos Research Lab Ltd, Ludhiana 6
Capitalisation of Interest to capital work in progress u/s 36(1)(iii) proviso :- During the course of assessment proceedings, it was observed that the assessee company has shown capital work in progress including capital advances amounting to Rs. 52,71,57,595/- in A.Y. 2014-15 but no interest was capitalised thereon. Vide notice u/s 144 dated 09.12.2016, the assessee was show caused as to why interest @ bank rate (12% to 15% per annum) on capital work in progress be not capitalised as per proviso to section 36(l)(iii) as the assessee has incurred huge expenditure on interest payments. The assessee has not submitted any reply to the same. Hence, interest @ 14% per annum on capital work in progress of Rs. 52,71,57.595/- which comes to Rs. 7,38,02,063/- is disallowed and added to the total income of the assessee. Penalty proceedings u/s 271(l)(c) for concealment and furnishing inaccurate particulars of income are being initiated separately.
The ld. CIT(A) in his order has given his findings on this issue as under:-
“Regarding the interest payment to State Bank of India, the AR submitted that in the year 2011, new term loan of Rs. 25 crore was raised by the appellant company from State Bank of India for the installation of new unit (oncology segment) and placed a copy of the sanction letter of the SBI relating to this loan in the paper book. As per the AR, the above segment was not fully installed till 31.03.2014 and was standing under the head 'capital work-in-process' and ‘advances on capital account' in the balance sheet of the appellant company as on 31.03.2014. The above term loan is standing at an amount of Rs.
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22,79,50,067/- in the balance sheet as on 31.03.2014 and mentioned that the above term loan became NPA on 28.01.2013 due to the non-operation of the oncology segment till the expected date and filed copy of notice dated 26.03.2014 u/s 13(2) of the SARFAESI Act, 2002 in the paper book. As per the AR, the above term loan was NPA during the year under consideration and as per the regulation, no interest is charged by a lender bank on an NPA account and as no interest was charged by SBI during the year under consideration (as proved from the bank statement of the SBI, term loan given in the paper book), so no interest on such loan has been claimed by the appellant company in its profit & loss account and this fact is also mentioned in the rejoinder filed by the AR during the course of appellate proceedings. However, during the assessment, year 2012-13 and 2013-14, the interests on above SBI term loan were capitalized due to the reasons that the oncology segment had not started any operation during those years. A perusal of the documents shows that the assessee has not claimed any interest expense in respect of SBI Term Loan during the year under consideration and hence there is no question of capitalization of interest in respect of this loan. Under the facts & circumstances of the case, the arguments of the AR are found acceptable and the disallowance of Rs. 7,38,02,263/- made by the AO u/s 36(l)(iii) deserves to be deleted”
During the course of hearing before us, the ld. DR relied on the order of the Assessing Officer and the ld. Counsel of the Assessee highlighted the findings of the ld. CIT(A) in his order.
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We have considered the findings of the ld. CIT(A) on this issue in his order and we have also considered the arguments put forth by the ld. DR on this issue. It is clear from the record that no interest has been paid to the State Bank of India on the loan of Rs. 25 crores by the appellant company for the installation of new unit of oncology segment as the above segment was not fully installed till 31.3.2014 and was standing under the head ‘capital work-in-progress’. This amount was shown as advance on capital account in the balance sheet of the appellant company as on 31.3.2014 and it is still standing under the same head in the balance sheet. This term loan was treated as NPA as on 28.1.2013 due to non-operation of oncology segment till the expected date and a notice was filed for the same u/s 13(2) of the SARFAESI Act, 2002. As this loan was treated as NPA during the year, the ld. Counsel of the Assessee summitted that no interest was charged by the lender bank on an NPA account and as no interest was charged by the SBI during the year under consideration, s ono interest on such loan had been claimed by the appellant company in its profit and loss account. In earlier years, interest on SBI term loan were capitalized but during the year under consideration since the oncology segment did not become operational, therefore, the Assessee has not claimed any interest expense in 636-Chd-2022 – M/s Cosmos Research Lab Ltd, Ludhiana 9 respect of SBI Term loan during the year and accordingly there is no question of capitalization of interest in respect of this loan. We find that as there was no amount of interest claimed by the Assessee company on its loan from SBI during the year under consideration, so there is no question of capitalization of such interest. Accordingly, the order of the ld. CIT(A) is upheld on this issue and the appeal of the Department on this issue stands dismissed.
Ground No.3 is general in nature.
In the result, the appeal of the Department is dismissed.
Order pronounced on 28.05.2024.