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The Commissioner of Income Tax-III, Ludhiana Versus M/s Oswal Knit India, Ludhiana

2016 (5) TMI 1152 - PUNJAB AND HARYANA HIGH COURT

Disallowance of interest relatable to investment in capital-work-in-progress - ITAT deleted the addition - Held that:- Under the proviso to Section 36(1)(iii) of the Act inserted by Finance Act, 2003 w.e.f. 2004-05, it is provided that such amount of interest paid in respect of capital borrowed for acquisition of assets for the period beginning from the date on which the said capital was borrowed for the acquisition of assets till the date the same are first put to use, such interest is required .....

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interest on account of investment in the capital work in progress had come before the Tribunal in assessee's own case relating to assessment year 2004-05 and the Tribunal upholding the order of CIT (A) held that no interest bearing capital was invested in the aforesaid capital work in progress, which is opening balance for the year under consideration. In view thereof, the Tribunal upheld the order of CIT(A) by recording that there is no merit in disallowing the interest attributable to the open .....

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Dated:- 5-5-2016 - MR. AJAY KUMAR MITTAL AND HON'BLE MR. JUSTICE SHEKHER DHAWAN, JJ. For The Appellant : Mr. Rajesh Katoch, Advocate For The Respondent : None AJAY KUMAR MITTAL, J. 1. This order shall dispose of two appeals bearing ITA Nos. 268 and 269 of 2011 as according to learned counsel for the revenue, identical issue is involved therein. For brevity, the facts are being extracted from ITA No. 268 of 2011. 2. ITA No. 268 of 2011 has been preferred by the revenue under Section 260A of .....

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8377; 56,48,840/- made by the Assessing Officer on account of disallowance of interest relatable to investment in capital-work-in-progress? 3. A few facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee derives income from manufacturing of Hosiery garments and filed its return of income on 31.10.2005 for the assessment year 2005-06 declaring 'nil' income. However, the tax was paid by the assessee under the MAT on book profits of ₹ 2 .....

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nses = ₹ 50,000/-. c) disallowance of interest on capital work in progress = ₹ 56,48,840/-. d) disallowance of prior period expenditure = ₹ 72,302/-. After adjusting the brought forward business loss for the assessment year 1999-2000 and brought forward depreciation for assessment years 1997-98, 1998-99 and 1999-2000, the income was assessed at 'nil'. 4. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity the CIT( .....

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exure-3) upheld the order of the CIT(A) and dismissed the appeals. Hence, the present appeals by the revenue. 5. We have heard learned counsel for the revenue. 6. The primary issue that arises for consideration in this appeal is whether the Tribunal was right in upholding the order of the CIT(A) thereby deleting the addition of ₹ 56,48,840/- made by the Assessing Officer on account of disallowance of interest relatable to investment in capital work in progress. 7. Under the proviso to Sect .....

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mprised of ₹ 331.68 lacs as the opening balance in the account and ₹ 32.76 lacs was added during the year. There was no loan which was outstanding as on 31.3.2004 and 31.3.2005 and none of the interest bearing funds were utilized for the investment in the said opening work in progress. The similar issue of disallowance of interest on account of investment in the capital work in progress had come before the Tribunal in assessee's own case relating to assessment year 2004-05 and th .....

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lacs to the said capital work in progress and claimed not to have borrowed any fresh loan during the relevant period. Nothing was produced by the revenue to show to the contrary. Thus, the deletion of addition of ₹ 56,48,840/- by the CIT(A) was upheld by the Tribunal. The relevant findings recorded by the Tribunal read thus:- We have heard the rival contentions and perused the records. Under the provisions of proviso to Section 36(1)(iii) of the Income Tax Act inserted by Finance Act, 200 .....

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on of such assets. In the facts of the present case, the total work in progress as on 31.3.2005 was ₹ 364.44 lacs. A sum of ₹ 331.68 lacs was the opening balance in the account and ₹ 32.76 lacs was added during the year. The claim of the assessee before us was that the loan, if any, was repaid in the earlier year and no loan was outstanding as on 31.3.2004 and 31.3.2005. It was further pointed out that none of the interest bearing funds were utilized for the investment in the s .....

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