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2016 (10) TMI 245 - ITAT AHMEDABAD

2016 (10) TMI 245 - ITAT AHMEDABAD - TM - Disallowance of interest paid u/s. 36(1)(iii) - whether entire expansion has been carried out from own funds and hence no part of interest is disallowable? - Held that:- We find from the perusal of the audited accounts of the company that the assessee has received ₹ 1,25,00,000/- towards share capital during the previous year relevant to the assessment year 2005-06.and the capital WIP increased from ₹ 14,88,029 to ₹ 1,54,94,775 in the s .....

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ng funds. In view of above stated facts and findings the addition sustained by the Ld. CIT(A) is not justified, accordingly we allow this ground of appeal of the assessee. - Addition on under invoicing of sale of scrap - Held that:- Flat rate of ₹ 8000 per MT of scrap adopted by the Assessing Officer to compute the unaccounted income is not correct. He stated that the ratio of cash part of the consideration in sale of scrap has been found to be 15% as mentioned in the statement of the .....

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under consideration. On the other hand, the ld. Departmental representative relied on the order of the lower authorities. We have heard both the sides and perused the material on record. We find The Ld. Commissioner of Income Tax(A) has correctly sustained the addition up to ₹ 3,10,014/- out of the total addition of ₹ 14,96,000/- made by the assessing Officer on the basis of unaccounted cash received @ 15% on scrap sale after taking into account the prevailing practice in the busine .....

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.Y. 2007-08, arises from order of the CIT(A)-III, Baroda dated 05-03-2012 in appeal no. CAB/III-94/09- 10, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The assessee has filed the instant appeal raising following substantive grounds:- 1. The learned Commissioner of Income Tax (Appeals) has erred in law and on the facts of the appellant s case in confirming the action of the Ld. A.O. of disallowing interest paid ₹ 14,00,195/- u/s. Section 36(1)(iii) .....

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f scrape. Both the lower authorities have erred in law and on facts of the appellant's case in not appreciating the fact that there is no under invoicing in sale of scrape as alleged. Ground No. 1 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing and sale of leaf springs. The assessee has shown closing capital work-in-progress as on 31.3.2006 at ₹ 1,80,50,823. The assessing Officer noted that the assessee has acquired the capital assets pl .....

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alised from the period 1.4.2006 till the date of capitalization of these assets. The assessee stated that it has substantial funds of its own in the form of reserves and surplus and share capital. These monies were non-interest bearing and utilised towards the long term investments of the company as appearing in its balance sheet. The assessee further stated that additions to work-in-progress of factory building at ₹ 2,65,706 and plant and machinery at ₹ 2,86,562 were made during the .....

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n the immediate preceding financial year, the assessee had taken term loan to the extent of ₹ 46,69,304 and unsecured loan amounting to ₹ 1,06,00,000 , during the year under consideration the term loan was taken at ₹ 28 lakhs,however, the interest expenses increased during the current year to ₹ 38,74,864 from ₹ 10,82,881 in the immediate preceding year. As per the Explanation 8 to section 43 [definition of actual cost of asset], the expenditure incurred for purchase .....

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om 1.4.2006 to 1.2.2007 at the rate of 12% for 10 months ' Rs.11,85,381 Building worth ₹ 67,49,272 put to use on 31.8.2006 - interest chargeable for the period from 1.4.2006 to 31.8.2006 at the rate of 12% for 5 months ₹ 3,37,463 Total Rs.15,22,844 After providing depreciation of ₹ 1,22,649 a total addition of ₹ 14,00,195 was made by the assessing officer. The assessee appealed before the Commissioner of Income Tax(A) against the addition made by the Assessing Officer .....

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ount of not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction. This proviso clearly cast an obligation on the assessee to keep complete and accurate details of sources of funds which have been utilized for acquisition of an asset for extension of existing business or profession. When AO asks the assessee to explain as to whether any capital has been borr .....

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ing WIP and addition to the WIP during the year till the putting to use of the fixed asset, has to be capitalized. So far as other loans are concerned, the appellant has failed to demonstrate their utilization with the help of entries in its books of accounts. Also, it has not explained that the source of funds utilized for acquisition of fixed assets are not these loans. Hence the appellant has failed to discharge the onus cast upon it by the proviso to section 36(1)(iii). In such circumstance, .....

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nds of its own in the form of reserve & surplus and share capital which were utilized towards long term investments of the company as appearing in its balance sheet. Regarding the opening balance of capital WIP ₹ 1,80,50,823/- it was stated by the Ld. counsel that audit accounts for the year 31-03-2005 revealed that during the previous year 2004- 05 relevant to the assessment year 2005-06, the company has received ₹ 1,25,00,000/- towards share capital and the capital WIP increase .....

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ous pages of the paper book and also referred to the following table of information :- A.Y. 2004-05 A.Y. 2005-06 A.Y. 2006-07 A.Y.2007-08 Shareholders' fund Share Capital 49,00,300 1,74,00,300 1,74,00,300 1,74,00,300 Reserves & Surplus 2,02,59,182 2,61,05,701 3,06,24,865 3,30,36,748 Loan Fund Secured Loans 2,15,14,354 1,73,71,363 2,47,20,732 2,95,12,392 Unsecured Loans 0 1,00,000 1,07,94,319 1,19,44,301 Capital WIP 14,88,029 1,54,94,775 1,80,50,823 0 On the other hand, Ld. departmental r .....

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8/- in the WIP in the A. Y. 2006-07 and no increase in the capital WIP in the A. Y. 2007-08. It is evident from the above stated facts and circumstances that the assessee company has its own substantial funds in the form of share capital, reserves and surplus which were used for purchase of fixed assets. The lower authorities has not established that assessee company purchased the fixed assets out of the non-interest bearing funds. In view of above stated facts and findings the addition sustaine .....

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ar under assessment. The Assessing Officer has not accepted the contention of the assesse on the reasoning that in the statement recorded in the course of survey, the director of the company admitted the modus operandi adopted in sale of scrap and categorically stated that the assessee company use to accept ₹ 8000 per MT in cash out of the books of account. The assessing officer applied the same reasoning to this year which is the immediate preceding year in which survey was conducted. He .....

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