TMI Blog2021 (7) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... ] the matter is required to be restored to the file of the Assessing officer to duly consider the aforesaid contention of the assessee, examine the details of the finances available with the assessee vis-a-vis amount capitalized by the assessee and decide the issue afresh in the light of the decision in the case of CIT (LTU) Vs. Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT] - The orders of the lower authorities are set aside and the matter is remanded to the Assessing officer to decide the issue afresh as per the observations made above. In the result, the appeal of the assessee is treated as allowed for statistical purposes. Addition invoking the provisions of Section 41(1) - sundry creditors were outstanding for more than three years, so it was liable to be taxed under section 41(1) of the Act as cessation of liability - HELD THAT:- In the present case it appears that the facts that payments were made in certain cases after passing of the assessment order and few were written back as per the practice of the assessee company were not brought to the knowledge of the A.O. and the Ld. CIT(A) is also silent on those facts. We therefore deem it appropriate to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven funds to M/s G. Drugs and Pharmaceuticals Ltd. (GDPL) its associated concern, the balance on the last date was ₹ 2,06,24,284/- which was shown in other debtors. The A.O. asked the assessee to explain as to whether any interest had been charged on the funds given out and that as to why the interest on funds diverted for non business purpose should not be disallowed. In response the assessee submitted as under: Regarding your query about disallowance of interest on loan to G Drugs and pharmaceutical Limited (GDPL), it is submitted that GDPL has been merged with the assessee company with retrospective effect from 01.04.2010 as per BIFR order dated 15.03.2012. Hence, question of disallowance of interest on loan to GDPL does not arise. Copy of order is enclosed for your kind reference. 4.2 The A.O. after considering the submissions of the assessee observed that only copy of order of BIFR was furnished and no copy of amalgamation order from the Hon'ble Punjab Haryana High Court had been furnished, therefore the submission of the assessee were not acceptable. Accordingly the disallowance of ₹ 26,81,157/- was made under section 36(1)(iii) of the Act which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier assessment years i.e. 2007-08, 2008-09, 2009-10 and 2010-11 by Ld. CIT-A (4), Ludhiuna. Copy of order of' CIT-A(4), Ludhiana for the A. Y.2010-11 is enclosed for your kind reference. The above ground may kindly be adjudicated in the light of the submissions made above. 5.1 The Ld. CIT(A) however did not find merit in the submissions of the assessee and sustained the disallowance by observing in para 3.4 to 3.6 of the impugned order which read as under: 3.4 I have carefully considered the appellant's submission. I have also gone through the assessment order. I have also carefully considered case laws relied upon by the appellant. I have also considered the earlier orders in the case of assessee company by the CIT appeal -4, while considering identical addition made in earlier years , the same have been deleted. However disagreeing respectfully with the decision of my predecesser CIT appeal-4, I find that the assessee has completely failed to explain the commercial expediency for which the amount of loan extended to its sister concern without interest, whereas , at the same time the assessee had been paying hefty interest on loan taken by it. Assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DCIT (2014) 49 taxmann.com 128 (Bom) Hero Cycles (SC) Civil Appeal No. 514 of 2008 CIT Vs. Kapsons Associates (2017) 79 taxmann.com 364 (P H) CIT Vs. Abhishek Industries Ltd. 286 ITR 1 CIT Vs. Orissa Cement Ltd. 258 ITR 365 (Del) CIT Vs. H.P. Sugar Factory Pvt. Ltd. (All) 187 ITR 363 6. Now the Assessee is in appeal. 7. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the debit balance was on account of payment made to the third parties by the assessee on behalf of the M/s G. Drugs and Pharmaceuticals Ltd. It was further submitted that the payment was made through cheques, sale proceeds as well as interest free amount were also received / credited by the assessee in the account of the said company. It was also submitted that the assessee was having sufficient interest free funds available which could be said to have been used in making such advances to cover the interest free advances to M/s GDPL. Reliance was placed on the judgment of the Hon'ble Supreme Court in case of Hero Cycles Limited reported in 379 ITR 347. 8. In her rival submissions the Ld. CIT DR stron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made and the date on which machinery is put to use. There is addition to assets to the extent of ₹ 2,94,41,623/-. Interest worked out from the date of payments to date of asset put to use comes to ₹ 1,80,694/-. Interest relevant to the date of payment to asset put to use is required to be disallowed u/s 36(1 )(iii) of the LT. Act Accordingly applying the interest @ 13% on asset put to use i.e. ₹ 1,80,694/- is disallowed and added to the total income. Penalty proceedings u/s 271 (1)(c) are initiated on this point for submitting in accurate particular income. 11.2 The A.O. also observed that the assessee had shown capital work in progress to the extent of ₹ 61,76,82,251/-. He asked the assessee to explain as to why the interest on working capital should not be capitalized. In response the assessee submitted as under: Detail of capital work in progress is enclosed herewith for your reference. Further, the assessee company has the policy to capitalise the interest tut the date the asset is put to use and the same is also evidenced by the below mentioned notes to the accounts:- (A) Borrowing costs Borrowing costs that are attributa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 4,96,51,140/-. Interest on the same at half of the interest for entire year comes to ₹ 32,27,324/- (₹ 49651140 * 13% /2). Total disallowance on this account comes to ₹ 51,41,705/- (₹ 1914381 +₹ 3227324). The interest to the extent of ₹ 51,41,705/- is therefore disallowed and capitalized under proviso to section 36(l)(iii) of the I.T. Act The same would form part of the assets and depreciation would be allowed accordingly when the asset is put to use. Penalty proceedings u/s 271(l)(c) of the I.T. Act are initiated on this point for furnishing inaccurate particulars of income. 12. Now the assessee is in appeal. 13. The Ld. Counsel for the assessee at the very outset stated that this issue has been adjudicated by the ITAT in assessee s own case, in ITA Nos. 1450 1451/Chd/2018 for the A.Y. 2013-14 2014-15 vide order dt. 22/04/2019, copy of the said order was furnished which is placed on record. 14. The Ld. CIT DR although supported the orders of the authorities below but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee. 15. We have considered the submissions of both the parties and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O. however did not find merit in the submissions of the assessee by observing that the sundry creditors amounting to ₹ 35,60,870/- were outstanding for more than three years, so it was liable to be taxed under section 41(1) of the Act as cessation of liability. Accordingly the addition of ₹ 35,60,870/- was made. 19. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: Addition of ₹ 35,60,870/- n/s 41(1) on account of sundry creditors balances outstanding for the last 3 years and has not been paid till now, therefore, it is being brought to Tax u/s 41(1) of the Income Tax Act, 1961 as cessation of liability. It is submitted that as a matter of practice, the appellant company review such creditors/old outstanding credit balances periodically by the Board of Directors for writing back. A chart showing the present status of credit balance which have been added by the Ld. Assessing officer is enclosed. The perusal of the chart reveals that some payments were made after passing of assessment order and some of them have been written back as per the practice of the appellant company. In two cases, the appellant company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessation of liability in the section 41 (1). Accordingly the disallowance on account of cessation of liability in the section 41(1) is upheld. These grounds of appeal are therefore dismissed. 20. Now the assessee is in appeal. 21. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that since there was no cessation of the liability, therefore the Ld. CIT(A) was not justified in sustaining the addition made by the A.O. It was further submitted that certain payments were made after passing of the assessment order and amounts of few had been written back as per practice of the assessee company, in two cases the assessee had filed legal suit against the parties and the orders for which were still awaited, therefore the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. 22. In her rival submissions the Ld. CIT DR submitted that the fact narrated now by the Ld. Counsel for the Assessee that few of the balances were written back and the payments were made in certain cases were not brought to the knowledge of the A.O. therefore this issue may be set aside to the A.O. for verification. 23. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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