TMI Blog2022 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. Counsel for the assessee thereon in support of the assessee s case is clearly misplaced. Similarly, the other judicial pronouncements cited by assessee are distinguishable on facts and even the assessment years involved therein were prior to the insertion of the first proviso to section 36(1)(iii) in the Statute with effect from 01/04/2004. We therefore find no justifiable reason to take a different view on this issue from the one taken by the Co-ordinate Bench of this Tribunal in assessee s own case for AY 2012-13 and hold that the proviso to section 36(1)(iii) of the Act is clearly applicable in the facts of the present case as rightly held by the Ld. CIT(A) while confirming the action of the AO in capitalizing the interest expenditure. As regards the alternative argument raised by the assessee that the assessee-company, at the relevant time, had own funds in the form of share capital, reserves and surplus to the extent of ₹ 33.83 crores and since the same were sufficient to acquire the assets in the form of CWIP of ₹ 3.08 crores, there was no utilization of borrowed funds for acquisition of the said assets, it is observed that a similar stand was tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EBR Enterprises [ 2019 (6) TMI 484 - BOMBAY HIGH COURT] as held that the provisions contained in sub-section (5) of Section 80A of the Act restrict the power of the Assessing Officer as well as the higher authorities and this decision in the case of Rachna Infrastructure Pvt Ltd [ 2022 (3) TMI 256 - GUJARAT HIGH COURT] wherein the decision of the Tribunal holding that the assessee having failed to make a claim for deduction under Section 80IA(4) in the original return, the same cannot be allowed to be raised for the first time in revision under Section 264 of the Act in view of sub-section (5) of Section 80A of the Act is upheld by their Lordships. Keeping in view the same, we dismiss the additional ground raised by the assessee at threshold. - ITA No. 2866/Ahd/2017 - - - Dated:- 30-3-2022 - Shri Pramod M. Jagtap, Vice President And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri Dhinal Shah, CA For the Revenue : Shri V.K. Singh, Sr.DR ORDER PER PRAMOD M. JAGTAP, VICE-PRESIDENT This appeal filed by the Assessee is directed against the order of Ld. Commissioner of Income-tax (Appeals)-2, Ahmedabad [CIT(A)] dated 12.10.2017 and the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o why no interest attributable to cost of Capital Work-in-Progress (CWIP) reported at ₹ 3.08 crores was capitalized. In this regard, the following explanation was offered by the assessee: It is submitted that the loans were utilized for the purpose for which they were obtained. The interest on term loans was not capitalized as the assets purchased were already put to use for the business purpose. Further in respect of expenditure incurred on CWIP we submit that the said amount has been incurred for acquisition and construction of various assets which does not involve extension of existing business of the assessee. Detail of such CWIP is given vide Exhibit-2. Therefore considering the proviso to section 36(1)(iii) of the Act, no interest if any, is to be capitalized in respect of such CWIP. Without prejudice to the above we submit that the assessee has acquired such CWIP from its own earning and not by utilizing any borrowed funds. The said fact is also reflected from the sufficient reserve and surplus available with the assessee and profit earned during the year. In view of the same the assessee has not capitalized any interest. We also submit that term loan was uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 15,52,172/- vide paragraph Nos.3.3 to 3.7 of his impugned order which read as under: 3.3. I have carefully considered the facts of the case, the assessment order and the written submissions of the appellant. The AO has made the disallowance of interest amounting to ₹ 15,52,172/- being 12% of CWIP u/s. 36(1)(iii) of the Act. The AO has held that capital work in progress is required to be capitalized as per proviso of section 36(1)(iii). 3.4. Appellant on the other hand has submitted that it has commenced construction of first floor and cold storage facility and has incurred ₹ 3,08,66,535/- appearing as CWIP. Appellant contended that the expenditure does not amount to any extension of business or expansion of business and accordingly, no disallowances u/s.36(1)(iii) is warranted. Appellant further argued that payment has been made from the cash credit account in which collection from customer of ₹ 36,81,88,828/- has been deposited against the cost incurred in CWIP of ₹ 2,73,46,951/- and as the appellant has its own fund, disallowances u/s. 36(1)(iii) is uncalled for. 3.5. The proviso of section 36(1)(iii) states that any amount of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been made from the sale receipts of the Ice Cream, and therefore, the appellant has not utilised the borrowings to make payment for the CWIP. Hence, no interest disallowance is warranted. On going through the bank statement copy submitted, it has been found that at the time of making the payment the appellant had the overdraft balance in its cash credit account in Corporation Bank. This is more evident from the details of such overdraft balance on the immediate date of the payment towards CWIP depicted as under:- Date of CWIP payment Amount paid towards CWIP (Rs.) Overdraft balance in bank account immediately prior to the CWIP payment (Rs.) 26/10/2011 5,91,992/- 1,32,23,054/- 22/12/2011 4,50,000/- 30,28,460/- 23/12/2011 27,000/- 1,79,13,226/- 27/12/2011 10,715/- 7,67,680/- 31/12/2011 8,542/- 1,49,60,391/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment have been made out of its own funds in the form of share capital, reserves and surplus is found not correct. In fact, the share capital and reserves and surplus funds have already been exhausted by the appellant by investment in various assets and towards working capital requirements. The case laws relied upon by the appellant are not relevant and not identical to the facts of the case. 4.4. The appellant has further contended that the provisions of section 36(1)(iii) are not applicable in view of the various judgments for the reason that it was not the extension of business but it was mere continuation of the existing business of the appellant and do not represent capital assets utilised for setting up of another line of business. This argument itself contradicts with the appellant's own stand taken before the AO that the interest for the two months in respect of the new plant in A.Y. 2011-12 has already been capitalised by the appellant obviously treating the same as extension of the existing business. Moreover, as per the proviso to section 36(1)(iii), it is amply clear that any interest paid in respect of capital borrowed for acquisition of an asset, even for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited (299 ITR 9)(SC) 4. Commissioner of Income Tax Vs Nirma Limited (367 ITR 12)(Gujarat HC) 5. Deputy Commissioner of Income Tax Vs Gujarat Narmada Valley Fertilizers Co. Ltd. (215 taxman 616) 6. Deputy Commissioner of Income Tax Vs Vodafone West Limited (ITA No. 909/Ahd/2014 944/Ahd/2014) (Ahmedabad ITAT) 7.Assistant Commissioner of Income Tax Vs Raajratna Metal Industries Limited (ITA No. 540/Ahd/2012 and 542/Ahd/2012) (Ahmedabad ITAT) We observe after perusal of above judicial pronouncements and from the proviso to section 36(1)(iii) that any interest paid in respect of capital borrowed for acquisition of an asset, even for the extension of the existing business has to be capitalized till the date on which such asset was first put to use and the same cannot be allowed as deduction. However, for want of information and supporting evidences, the assessing officer capitalized the interest @12% on the various items forming part of CWIP. After considering the above facts and judicial findings, we consider it will be appropriate to restore this issue to the file of the assessing officer for deciding afresh after taking into consideration the exact date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s own case for the immediately preceding year has upheld the decision of lower authorities in capitalizing the interest attributable to the acquisition of interest as reflected in CWIP by relying on the proviso to section 36(1)(iii) of the Act after having found that it was a case of extension of existing business of the assessee-company. He has contended that the facts involved in the case of CIT vs. Nirma Limited (supra) relied upon by the Ld. Counsel for the assessee are different and since the issue relating to capitalization of interest in the said case was decided in an altogether different context, the ratio of the same cannot be applied in the present case. He has also invited our attention towards the impugned order of the Ld.CIT(A) to point out that the assessee-company having incurred the cost of CWIP from the cash credit account, the nexus between the borrowed funds for acquisition of an asset was clearly established and there is no merit in the arguments of the Ld. Counsel for the assessee that its own funds were utilized by the assessee-company for acquisition of the said asset. 7. After considering the rival submissions and perusing the relevant materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of interest was rightly deleted by the Tribunal by relying on the decision of Hon ble Supreme Court in the case of Dy.CIT vs. Core Health Care Ltd. reported in 298 ITR 194 (2008)[SC]. It is thus clear that the context in which the issue relating to disallowance of interest expenditure came to be decided by the Hon ble Jurisdictional High Court in the case of Nirma Limited (supra) was entirely different and eventhough it was found as a fact in that case that it was a case of extension of existing business, the interest expenditure was allowed as deduction since the proviso to section 36(1)(iii) of the Act inserted by Finance Act, 2003, w.e.f. 01-04-2004 was not apparently applicable in that case. As rightly contended by the Ld. DR, the ratio of the decision of Hon ble Jurisdictional High Court in the case of Nirma Limited (supra), thus is not applicable in the present case and the reliance of the Ld. Counsel for the assessee thereon in support of the assessee s case is clearly misplaced. Similarly, the other judicial pronouncements cited by the Ld. Counsel for the assessee are distinguishable on facts and even the assessment years involved therein were prior to the insertion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue to the file of the Assessing Officer for such examination. The Assessing Officer is directed to verify the claim of the assessee of having been made the investment in the asset (CWIP) from its own funds from the overall financial position of the assessee-company as reflected in the relevant balance-sheet and cash-flow statement and decide the issue afresh on such verification in accordance with law after giving the assessee a proper and sufficient opportunity of being heard. Grounds as originally raised in this appeal are thus treated as partly allowed for statistical purposes. 9. During the course of appellate proceedings before the Tribunal, the assessee has raised the following additional ground and also filed an application to admit the same. On the facts and circumstances of the case and in law, the Appellant may please be granted deduction under section 80-IB(11A) of the Act, amounting to ₹ 6,57,71,906, being profits and gains derived by the eligible undertaking engaged in the manufacturing of ice cream. 10. As submitted in the application filed by the assessee and further reiterated by the Ld. Counsel for the assessee at the time of hearing before u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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