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TMI Blog2012 (5) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... ble properties, being office premises and godown, shown as 'capital work in progress', the assessee furnished reply which has been reproduced on page 6 of assessment order. Considering all these details, the AO worked out interest amount of Rs. 6,57,820/- relatable to the amount invested in the acquisition of assets being 'capital work in progress'. Invoking the proviso to sec. 36(1)(iii), the AO opined that this amount of interest was liable to be capitalized. Resultantly, addition was made on this score. 4. The ld. CIT(A), apart from considering the provisions of sec. 36(1)(iii), also took note of Explanation 8 to sec. 43(1) for coming to the conclusion that the interest was rightly capitalized by the AO. He also supported his view with a Full Bench judgment of the Hon'ble Punjab & Haryana High Court in CIT v. Vardhaman Polytech Ltd. [2008] 214 CTR (P&H) (FB) 561. The assessee is against the confirmation of such disallowance of interest as revenue expenditure. 5. We have heard the rival submissions and perused the relevant material on record. The ld. counsel for the assessee contended that the ld. CIT(A) was not justified in sustaining the disallowance of interest for the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included and shall be deemed never to have been included, in the actual cost of such asset". From the command of this Explanation 8 to sec. 43(1), it becomes abundantly clear that the interest paid in connection with the acquisition of an asset after the date from which it is put to use shall not be capitalized. Per contra, the interest paid for the period anterior to its first putting to use, is required to be capitalized. When we consider the proviso to sec. 36(1)(iii) read with Explanation 8 to sec. 43(1), it becomes manifest that the interest paid by the assessee, in the present circumstances, admittedly for the period prior to putting such assets into use, has been rightly held to be not deductible. Our view is fortified by the aforenoted Full Bench judgment of the Hon'ble Punjab & Haryana High Court in Vardhaman Polytech Ltd. in which interest, in such circumstances, has been rightly held to be not deductible. We, therefore, uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained unexplained as per the AO's version. By applying average rate of Rs.57.14 per metre, the AO held that the assessee had sold such 51,139 meters outside the books of account, in respect of which an addition of Rs. 29.22 lakhs was made. 12. During the course of first appellate proceedings, the assessee furnished details of such shortage claimed by it. The ld. CIT(A) forwarded the same to the AO with a direction to give remand report after due consideration. A copy of such remand report is available on page no. 165 of the paper book and further the assessee's reply to such remand report is available on page 110 of the paper book. Considering all the relevant facts, the ld. CIT(A) echoed the assessment order on this point. The assessee is aggrieved against the sustenance of such addition. 13. We have heard the rival submissions and perused the relevant material on record. The details of quantity on macro level are available on page 131 of the paper book, from where it can be seen that there are three stages of manufacturing, being, Grey, Semi finished and Finished. In the first stage, the assessee claimed shrinkage at 12.61%, which has not been disputed by the AO. There is no sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.80%, which gives shortage of 3.20%. Page 77 of the paper book is month-wise percentage of output. The ld. AR submitted that pages 78 to 88 have been appended in the paper book, being details only for the month of June, 2006, on sample basis, whereas complete details for whole of the year are available with the assessee, which were duly produced before the ld. first appellate authority, who remanded the matter back to AO for sending remand report. The ld. AR stated that in remand proceedings, the AO considered all such details. 14. Now, we advert to remand report dated 15-10-2010, which adds nothing more than that which has been discussed in the assessment order. When we peruse the assessee's reply dated 01-12-2010 given to the ld. CIT(A) on the remand report, it can be seen that the AO had not contradicted any of the submissions/ material which were made/filed before the ld. first appellate authority. Para 5 of this communication to the ld. CIT(A) reads : "In summary we submit that the Assessing Officer has not contradicted any of the submissions/evidences produced vide letter dated 7/9/2010. The appellant relies upon the submission made vide letter dated 7/9/2010". The referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistent in both the years at around 5%. Due to increase in the number of meters sent for embossing or re-finishing in the current year, the overall percentage of shortage has slightly increased. Page 166A of the paper book is quantity-wise and percentage wise details of shortage before and after re-processing and embossing. On a perusal of this chart, it can be seen that the shortage for the current year out of total quantity of goods manufactured stands at 3.35%, and if such shortage is considered without re-processing and embossing, such percentage comes to 2.17%. In the immediately preceding year, the percentage of shortage before re-processing and embossing is 2.10% and after re-processing and embossing is 1.69%. Thus, there is difference of only 0.48% (2.17% - 1.69%) in shortage for the current year vis-a-vis the preceding year on net basis. From the same table, it can be seen that for the assessment year 2004-05, the percentage of net shortage was at 2.93% in comparison with 2.17% for the current year. The return for the said assessment year 2004-05 was scrutinized by the AO and assessment order was passed u/s. 143(3). Page no. 161 to 164 of the paper book is a copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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