Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

Deputy Commissioner of Income-Tax Versus Incite Homecare Products (P.) Ltd.

2018 (1) TMI 579 - ITAT CHANDIGARH

Addition u/s 36(1)(iii) for non-capitalisation of interest on advance given for land purchased and for non-capitalisation of interest on opening capital work-in-progress - sufficient interest-free funds for advancing for purchase for land and also for construction - Held that:- As far as the legal and factual position as considered by the Commissioner of Income-tax (Appeals), we find there is no infirmity pointed out by the Revenue on record. The fact that to the extent relief has been granted, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and has constantly been argued even before the Assessing Officer - Decided against revenue - I. T. A. No. 1444 /Chd/ 2016 - Dated:- 24-10-2017 - Ms. Diva Singh (Judicial Member) And Dr. B. R. R. Kumar (Accountant Member) For the Appellant : Smt. Chandra Kanta For the Respondent : Sudhir Sehgal ORDER Ms. Diva Singh (Judicial Member).- 1. The present appeal has been filed by the Revenue assailing the correctness of the order dated September 28, 2016 of the Commissioner of Income-tax (Appeals)-4, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ess respectively ? 2. Whether on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) was justified in accepting that the assessee was having sufficient interest-free funds for advancing for purchase for land and also for construction when the funds used from the same accounts where profits of the business and loan money received is credited ?" 2. The learned senior Departmental representative relying upon the assessment order submitted that on ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the same and since the explanation was contrary to the facts and provisions of law the disallowance under section 36(1)(iii) of the Act was maintainable. Carrying us through the assessment order, the relief granted by the Commissioner of Income-tax (Appeals) was assailed. 3. The learned authorised representative inviting attention to the specific facts submitted that in the facts of the present case, there is a factual finding that the advance given was from its own funds for purchase of land to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

een challenged on account of low tax effect involved, still the fact remains unassailed on record that the assessee had not advanced the loan in the immediately preceding assessment year from borrowed funds and had utilised its own funds. The loan it was submitted, as per record, is as an old loan advanced much prior to the year under consideration and in all the years till date, it has been held that the advances were given from its own funds. Accordingly, relying upon Bright Enterprises Pvt. L .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

elief granted on facts may not be varied. Accordingly, in these circumstances, he would rely, upon the impugned order. 3.1 Inviting attention to the specific reasoning taken on facts by the Commissioner of Income-tax (Appeals), in paragraph 6.2 to 6.4 of the impugned order, which finding of fact, it was submitted, has not been assailed by the Revenue by any, fact or evidence, it was submitted, was heavily relied upon by the assessee. The same is extracted hereunder for ready reference : "6. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as been noticed that the Assessing Officer has made the impugned addition as in her opinion the assessee-company has purchased land and made construction of godown thereon by utilising borrowed funds and as the asset has not been put to use, the interest cost pertaining to the borrowed funds utilised for the purchase of land and construction of godown thereon which has not been put to use should have been capitalised in view of the proviso to section 36(1)(iii) of the Act. On the other hand, the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

en incurred by the assessee-company on the amount which has been utilised out of its own interest-free funds and as such capitalisation of interest cost does not arise. It has again been submitted that the advance for the purchase of land has also been given in the earlier years out of own interest-free funds and as such no disallowance on account of capitalisation of interest can be made during the year under consideration. On careful consideration of the rival contentions, I am of the opinion .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

8377; 40,00,000 Amount spent on construction of godown Rs. Nil Amount stated to be spent on construction out of borrowed and own funds Rs. Nil Interest-free funds available with the assessee-company Share capital ₹ 1,00,000 Reserve and surplus ₹ 4,56,250 Loan from directors ₹ 41,319 ₹ 5,97,579 Interest bearing funds available with the assessee-company ₹ 34,02,000 As the net current assets with the assessee-company were to the extent of ₹ 39,36,721 and net inve .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l Amount spent on construction of godown ₹ 1,22,98,678 Amount stated to be spent on construction out of borrowed funds ₹ 48,66,625 Amount stated to be spent on construction out of own funds till end of the year ₹ 74,32,053 Interest-free funds available with the assessee-company Share capital ₹ 3,01,00,000 Reserve and surplus ₹ 65,46,949 Share application money ₹ 1,00,00,000 Loan from directors ₹ 41,319 ₹ 4,66,88,268 In view of these facts, it can b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of own funds till end of the year ₹ 69,04,945 Interest-free funds available with the assessee-company Share capital ₹ 3,01,00,000 Reserve and surplus ₹ 1,26,29,398 Share application money ₹ 14,87,50,000 Loan from directors ₹ 41,319 ₹ 19,15,20,717 In view of these facts, it can be said that the assessee was having sufficient interest-free funds to make advance of ₹ 2,40,00,000 for the purchase of land and spend ₹ 69,04,945 to make investment in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oney Rs. nil ₹ 9,49,85,429 In view of these facts, it can be said thai the assessee-company was having sufficient interest-free funds to make investment in earlier years on construction and further investment of ₹ 29,69,000 in the construction of godown during the assessment year under consideration. 6.3 From the above stated facts, I am of the opinion that the advance for the purchase of land in the assessment years 2010-11 and 2011-12 to the extent of ₹ 2,74,00,000 and part o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

graphs. It means, the interest to the extent payable on ₹ 40,00,000 which was paid in the assessment year 2009-10 out of interest bearing funds was certainly required to be capitalised which has not been done by the assessee-company. The interest amount which was required to be capitalised comes to ₹ 4,80,000 (12 per cent. of ₹ 40,00,000) and not ₹ 63,16,618 as arrived at by the Assessing Officer. Under such circumstances, the addition made by the Assessing Officer on acc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

result, grounds No. 2 of appeal taken by the assessee-company is partly allowed." 3.2 Accordingly, it was his submission that the Departmental appeal may be dismissed. 4. The learned senior Departmental representative in reply submitted that the Commissioner of Income-tax (Appeals) in the facts of the present case- has misdirected himself. It was her submission that when the facts as available in the balance-sheet of the assessee for the respective years as per paper book page Nos. 59, 107 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

een established by the assessee that own funds have been utilised, the impugned order, it was her prayer, may be set aside and the respective additions made by the Assessing Officer be restored. Attention was invited to the fact that in 2012-13 assessment year, in fact the assessee is having a negative income. 5. We have heard the submissions and perused the material available on record. We find that the arguments of the learned senior Departmental representative that in the 2012-13 assessment y .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of mixed funds as the assessee had also obtained loans, we find in the facts as they stand, nothing turns thereon. For the said purposes, we deem it appropriate to refer to the decision of the apex court in the case of Bright Enterprises Pvt. Ltd. v. CIT [2016] 381 ITR 107 (P&H) wherein considering the principle of law as laid down by the Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) the view taken by the hon'ble Bombay High Court wa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

4 ITR 377 (Delhi) their Lordships held that once it was established that there was a nexus between expenditure and purpose of business, the Revenue could not justifiably claim to put itself in the armchair of businessman or in position of the board of directors and assume the role to decide how much was reasonable expenditure having regard to circumstances of the case. Affirming the well-settled legal principle, it was held by the court that no businessman could be compelled to maximise his prof .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s from bank was disallowed under section 36(1)(iii) of the Act to the extent of ₹ 16,39,010 out of the total claim of ₹ 20,53,120. Apart from that, the assessee had also advanced loans of ₹ 34 lakhs to its directors at the rate of 10 per cent. interest whereas on the bank loans, the assessee was paying interest at 18 per cent. The addition, by way of disallowance was sustained in appeal by the jurisdictional High Court following its own judgment in the case of CIT v. Abhishek I .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

commercial expediency stood demonstrated on facts for the interest-free loans advanced to the subsidiary. Their Lordships further considering the loans advanced to the directors, at a lesser rate of interest, relying upon the conclusion of the Commissioner of Income-tax (Appeals) that the company had reserves/surplus to the tune of almost ₹ 15 crores affirmed the finding that the assessee-company in any case, could utilise those funds for giving advance to its directors. The said conclusi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ose of business. The court held that the expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. Similarly considering the principle of law as laid down in another decision of the apex court itself namely in the case of Madhav Prasad Jatia v. CIT [1979] 118 ITR 200 (SC) their Lordships took into consideration the fact that the position would be different if the borrowed amount was .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version