Income Tax Appellate Tribunal - Chandigarh
M/S Rico Auto Industries Limited, ... vs Dcit, Ludhiana on 10 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A' CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.692/Chd/2016
Assessment Year:2011-12
DCI T Vs. M/s Rico Auto I ndustries Ltd.
Circle-1, Ludhiana B-26, Focal Point, Ludhiana
PAN No. AAACR8724R
Cross Objection No. 33/CHD/2016
(In ITA No.692/Chd/2016)
Assessment Year:2011-12
M/s Rico Auto I ndustries Ltd. Vs. DCI T
B-26, Focal Point, Ludhiana Circle-1, Ludhiana
(Appellant) (Respondent)
Assessee By : Shri. Subhash Aggarwal
Department By : Shri. Ravi Sarangal
Date of hearing : 17/08/2017
Date of Pronouncement : 10/11/2017
ORDER
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Revenue against the order of the Ld. CIT (A)-I, Ludhiana dt. 31/03/2016.
2. The Revenue has raised the following effective grounds of appeal:
1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in reducing the quantum of disallowance made u/s 14A of the Act, by directing the A.O. to recalculate the disallowance u/s 14A r/w Rule 8D?
2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance made u/s 36(l)(iii) of the Income-tax Act, 196l, on investments?
3. Whether upon facts and circumstances of the case, the Ld. CIT(Aj was justified in deleting the disallowance made u/s 36(l)(iii) of the Income-tax Act, 1961, on land advance?
4. Whether upon facts and circumstances of the case, the Ld. CIT(A} was justified in deleting the disallowance made on foreign travel expenses?
2.1 The assessee has raised the following grounds in its Cross Objection:2
1. Th at t h e L d. C I T( A )- I, L udh i an a , h a s er re d i n s u st ai n i n g a di sal l o wan ce of R s. 4 1, 84, 45 8 /- un d er sect i on 14 A of t h e In c om e T a x Act , 19 61 r. w. r ul e 8 D of t h e In c om e Ta x R ul es wi t h o ut ap p r e ci ati n g t h e f act s of t h e ca se .
2. Th at i n an y c a s e t h e c on f orm at i on of di sal l o wan ce of R s. 4 1, 84, 4 58 /- i s agai n st t h e l a w an d f act s of t h e ca s e an d i gn ori n g t h e s ub m i ssi on s m ad e b y t h e ap p el l an t .
3. Ground No. 1 in the appeal of the Revenue and cross objection of the assessee deals with the disallowance made under section 14A read with Rule 8D.
4. During the assessment proceedings the Assessing Officer has disallowed Rs. 4,10,70,788/- under section 14A of the Income Tax Act. The total investments of the assessee were to the tune of Rs. 98,59,66,290/- and the dividend earned on this investments was Rs. 4,77,94,927/- . The assessee has already added back Rs. 40,48,874/- as expenditure under section 14A.
5. In the appellate proceedings the Ld. CIT(A) has followed the order of the Ld. CIT(A) for the assessment year 2010-11. The order of the CIT(A) reads as under:
"I have perused the assessment order passed by the Assessing Officer and the arguments of the AR made during the assessment as well as appellate proceedings. A plain reading of Rule 8D(2)(ii) clearly shows that the interest which is not directly attributable to particular income should be considered for disallowance. It is therefore imperative on the part of the Assessing Officer to exclude such interest from the calculations for working out disallowance under Rule 8D(2)(ii). The appellant had made this argument before the Assessing Officer during assessment proceedings and out of the said claim only bank charges had been reduced out of the total interest and no speaking order with reference to non exclusion of the rest of the items had been passed by the Assessing Officer. The claim of the appellant with regard to the term loan interest, interest to customers, overdue interest on late payment of material and buyer's credit interest are items which are directly attributable to particular incomes which are not exempt. Therefore, the above mentioned amounts are to be excluded from the interest to be disallowed under Rule 8D(2)(ii).
10. The AR of the appellant has further made an argument that the appellant company had received interest amounting to Rs.5,85,19,831/- and the said interest had been received on specific loans and advances and the said advance had been given out of working capital limit as well. The said receipt of interest therefore represented recovery of interest paid and it is only the net interest that should be considered for the purposes of disallowance. The direct judgment of Hon'ble Jurisdictional ITAT Chandigarh Bench in the case of Sh. Shiv Parshad Aggarwal ITA No.927/2012 dated 27.03.2014 was also relied upon. In the circumstances, the Assessing Officer is directed to take into account the net interest debited to Profit & Loss account in order to work out the disallowance as per Rule 8D(2)(ii).
6. Aggrieved the Revenue filed an appeal before us.3
7. During the proceedings before us the Ld. DR vehemently supported the order of the Assessing Officer.
8. The Ld. AR argued that no disallowance under section 14A is required if the investment is out of own capital and reserves. He further argued that the matter stands covered in his own case for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016. The order of the Tribunal on this issue reads as under:
"9. Having gone through the above cited decisions we find that in its recent decision pronounced on 15.2.2016 in the case of Hero Cycles Ltd. vs. ACIT (supra) the Chandigarh Bench of the Tribunal following its earlier orders in the A.Y. 2008- 09 has held that when own funds and reserves of the assessee are more than sufficient to cover the investment made during the year, it can be very conveniently presumed that all the investment have made out of own funds and hence disallowance of interest is required to be made. In this regard the Tribunal has followed the decision of Hon'ble Jurisdictional High Court of Punjab and Haryana in the case of Bright Enterprises Pvt. Ltd. vs. CIT in ITA No. 624 of 2013 (O&M) dated 24.7.2015. The Hon'ble High Court has also referred the decision of Hon'ble High Court of Bombay in the case of CIT vs. Reliance Utilities and Power Ltd. (2009 313 ITR340(Bombay). In view of the above finding that no disallowance u/s 14A of the Act on account of interest can be made the Tribunal did not consider alternative submission of the assessee on the computation made by the Assessing Officer under Rule 8D of the Income Tax Rules. In the present case before us the claim of the assessee has been reiterated that it was having sufficient funds to cover the investment, we thus respectfully following the above cited decisions in this regard and subject to verification of the sufficiency of its own funds by the AO hold that no disallowance u/s 14A of the Act on account of interest can be made. In view of this finding there is no need to comment upon the computation made by the Assessing Officer under Rule 8D of the IT Rules, at this stage, and the AO is always at liberty to do that if the assessee does not succeed in its claim of having sufficient own funds.
9.1. So far as the direction of the Ld. CIT (A) to the Assessing Officer to work out the book profit by excluding the disallowance to be made u/s 14A is concerned we find that this action of the Ld. CIT (A) is fully supported by the decision of Chandigarh Bench of the Tribunal in the case of ACIT vs. Nahar Capital and Financial Services Ltd., ITA No. 870/CHD/2013 dated 6.6.2014, ITA No. 1353/CHD/2012 dated 16.4.2013 and DCIT vs. Indo-Swift Ltd. in ITA No., 729/CHD/2009 dated 30.11.2009 followed by the Ld. CIT. Thus we find do find any reason to interfere with the first appellate order in this. The same is upheld.
9.2. In view of above discussion and finding we direct the Assessing Officer to delete the disallowance sustained by the Ld. CIT (A) and the remaining disallowance deleted by the Ld. CIT (A) is upheld. In result ground nos. 1(a), 2(b) and 2 of the appeal of the revenue are rejected and cross objection preferred by the assessee subject to the above directed verification is allowed."
9. We find that since the facts and circumstances for this year remains unaltered, in the absence of any other contrary judgment brought forward by the Revenue, following the order of the ITAT for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016 in assessee's own case, the matter is being referred back to the file 4 of Assessing Officer for re-computation based on the principles laid down above. Thus the ground no. 1 of the Revenue's appeal and the Cross Objection of the assessee are treated as allowed.
10. The second ground relates to disallowance of interest on investments under section 36(1)(iii) .
11. During the course of assessment proceedings, the Assessing Officer noticed that the assessee company had made investment to the tune of Rs. 98,59,66,290/- in shares of domestic group companies. The assessee company was asked as to why disallowance under section 36(1)(iii) should not be made on investments made since making of investments was not the business of the assessee. The assessee company filed its reply which was not accepted by the Assessing Officer and he disallowed the interest of Rs. 3,27,39,859/- under section 36(1)(iii) by holding that these funds had been utilized for non business purpose and the investments in the group companies could not be considered as the business of the assessee. Therefore, the proportionate interest on the investments of Rs. 98,59,66,290/- was disallowed. The total disallowance u/s 36(1)(iii) came to Rs. 7,38,10,647/-. But the disallowance of interest under section 14A read with rule 8D amounting to Rs. 4,10,70,788/- had already been made by the assessee. Therefore an amount of Rs. 3,27,39,859/- was disallowed.
12. In the appellate proceedings the Ld. CIT(A) has followed the order of the Ld. CIT(A) for the assessment year 2010-11. The order of the CIT(A) reads as under:
" Th e Assessing Officer has based the impugned disallowance of claim of interest on the logic that it was not assessee's business to make investment into the shares of its subsidiary company. It was highlighted that the business of the assessee company was to make spare parts and thus any other such investment was to be treated as for non business purpose leading to applicability of judgment of Hon'ble Jurisdictional Punjab & Haryana High Court in the case of M/s Abhishek Industries Vs. CIT 268 ITR 1. It is also seen that the Assessing Officer has placed reliance on the direct decision of Hon'ble IT AT, Chandigarh in the case of UmeshTrehan, ITA No.l022/Chd/2012. The facts of the case clearly shows that the amount was due by the assessee from one Sh. Avinash Kapoor and another amount was in respect of investment with sister concern namely M/s Gian Residency Pvt. Ltd. The assessee had argued that the investment in M/s Gian Residency Pvt. Ltd. could be said to be for business purpose as M/s Gian Residency Pvt. Ltd. had used the impugned funds for their business purpose. It was on this crucial distinction that the said investment by the assessee was treated as serving no business purpose leading to disallowance of claim of interest on borrowed money. However, the facts of the case under consideration are on entirely different set of parameters as all the investment as highlighted in the assessee's submissions are on account of various special purpose vechiles or investment in subsidiaries wherein the appellant has controlling interest ranging from 50% to 100%. The said investments had been made for the purpose of 5 furthering business interests in the sphere of making of spare parts and therefore cannot be said to be for non business purpose as highlighted by the Assessing Officer. It is in the business interest of appellant company to explore the possibility of expanding its business by entering into Joint Ventures or special purpose vechiles wherein it has controlling interests. In fact, the facts of the case are clearly on the same lines as decided by the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of M/s Pooja Metal Processors (P) Limited in ITA No.388/2009. The Hon'ble Court in the said case in para 7 of the order held as under:-
" It emerges that the assessee-respondent had invested the amount of Rs.48.50 lacs in the shares of M/s Pooja Decarb, its sister concern and as per the findings recorded, the investment had doubled by 31st March, 2004. The CIT(A) as well as the Tribunal had recorded that the assessee had thought it commercially expedient to invest in the shares of its sister concern M/s Pooja Decarb Limited. The Apex Court in S.A Builders Limited's case (supra), held that the commercial expediency as envisaged under section 37(1) of the Act has also to be kept in view with regard to assessee's decision in advancing borrowed funds to a sister concern or subsidiary while examining deduction under section 36(l)(iii) of the Act. In the absence of any perversity shown in the findings recorded by the CIT(A) and the Tribunal, the assessee was entitled to deduction of interest paid on Rs.48,50,000/-.
Accordingly, the substantial question of law reproduced in para 1 above, is answered against the revenue and in favour of the assessee."
In view of the above detailed analysis of facts and circumstances of the case and analysis of jurisdictional pronouncement on the issue, the disallowance made by the Assessing Officer under section 36(l)(iii) is directed to be deleted."
Following the said order of my Ld. Predecessor in the appellant's own case for A.Y 2010-11 in Appeal no. 145/18/IT/CIT(A)-I/Ldh/2013-14 dated 11/09/2014, the Assessing Officer is hereby directed to delete the said disallowing made u/s 36(1)(iii) of the Act.
13. Before us, in support of the grounds the Ld. CIT, DR placed reliance on the assessment order.
14. The Ld. AR on the other hand tried to justify the first appellate order on this issue. The Ld. AR argued that no disallowance under section 36(1)(iii) is required if the investment is out of own capital and reserves. He further argued that the matter stands covered in his own case for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016. The order of the Tribunal on this issue reads as under:
12. The relevant facts are that the Assessing Officer noted the investment of Rs.63,94,66,380/- by the assessee in the shares of domestic group companies. He thus disallowance u/s 36(1)(iii) on the ground that making of investment in sister concern was not the business of the assessee and hence borrow for the purposes of business could not be said to be used for the purposes of business. The Assessing Officer held that the assessee was not engaged in the business of making investment in shares and mutual funds but was engaged in the business of manufacturing and sale of auto parts. The Assessing Officer was not satisfied with the explanation of the assessee and made the disallowance. He also proceeded to make the disallowance to the tune of Rs. 6,09,15,435/- out of which disallowance made u/s 14A was reduced. The Ld. CIT(A) after discussing in detail the case of the parties has deleted the disallowance.6
13. Having gone through the orders of the authorities below we find that Assessing Officer had made disallowance of the above investment by the assessee in the shares of domestic group companies on the basis that making of investment in sister concern was not the business of the assessee and hence funds borrowed for the purposes of business could not be said to be used for the purposes of the business. The Ld. CIT (A) has discussed the issue in detail and has arrived at the following finding:
"16. The Assessing Officer has based the impugned disallowance of claim of interest on the logic that it was not assessee's business to make investment into the share of its subsidiary company. It was highlighted that the business of the assessee company was to make spare parts and thus any other such investment was to be treated as for non-business purpose leading to applicability of judgment of Hon'ble Jurisdictional Punjab and Haryana High Court in the case of M/s. Abhishek Industries vs. CIT 268 ITR 1. It is also seen that the Assessing Officer has placed reliance on the direct decision of Hon'ble ITAT, Chandigarh in the case of Umesh Trehan, ITAT No. 1022/Chd/2012. The facts of the case clearly shows that the amount was due by the assessee from one Sh. Avinash Kapoor and another amount was in respect of investment with sister concern namely M/s Gian Residency Pvt. Ltd. The assessee had argued that the investment in M/s. Gian Residency Pvt. Ltd. could be said to be for business purpose of M/s. Gian Residency Pvt. Ltd. had used the impugned funds for their business purpose. It was on this crucial distinction that the said investment by the assessee was treated as serving no business purpose leading to disallowance of claim interest on borrowed money. However the fats of the case under consideration are on entirely different set of parameters as all the investment as highlighted in the assessee's submissions are on account of various special purpose vehicles or investment in subsidiary wherein the appellant has controlling interest ranging from 50% to 100%. The said investment had been made for the purpose of furthering business interests in the sphere of making of spare parts and therefore cannot be said to be for non business purpose as highlighted by the Assessing Officer. It is in the business interest of appellant company to explore the possibility of expanding its business by entering into Joint Ventures or special purpose vehicles wherein it has controlling interest. In fact, the facts of the case are clearly on the same lines as decided by the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of M/s Poona Metal Processors (P) Ltd. in ITA No. 388/2009. The Hon'ble Court in the said case in para 7 of the order held as under:-
"It emerges that the assessee -respondent had invested the amount of Rs. 48.50 lacs in the shares of M/s. Pooja Decarb, its sister concern and as pr the findings recorded, the investment had doubted by 31st March, 2004. The CIT (A) as well as the Tribunal had recorded that the assessee had though it commercially expedient to invest in the shares of its sister concern M/s. Pooja Decarb Limited. The Apex Court in S.A. Builders Limited's case (supra), held that the commercial expediency as envisaged under section 37(1) of the Act has also be kept in view with regard to assessee's decision in advancing borrowed funds to a sister concern or subsidiary while examining deduction under section 36(1)(iii) of the Act. In the absence of any perversity shown in the findings recorded by the CIT (A) and the Tribunal, the assessee was entitled to deduction of interest paid on Rs. 48,50,000/-. Accordingly, the substantial question of law reproduced in para 1 above, is answered against the revenue and in favour of the assessee. In view of the above detailed analysis of facts and circumstances of the case and analysis of jurisdictional pronouncement of the issue, the disallowance made by the Assessing Officer under section 36(1)(iii) is directed to be deleted."
13.1. Since the first appellate order on the issue is comprehensive and reasoned one as well as also supported by the decision of Hon'ble Jurisdictional High Court of Punjab and Haryana in the case of Pooja Metal Processors (P) Ltd. in ITA No. 388/2009 followed by the Ld. CIT(A), we do not find reason to interfere therewith. The same is upheld. We also note that the Ld. CIT (A) has also discussed in his finding the decisions relied upon by the Assessing Officer and how those decisions are not relevant.
715. Similar view was held in the case of CIT Vs. Kapsons Associates Investment Pvt. Ltd. [2015] 381 ITR 204 (P&H) wherein, the Hon'ble Court has held that interest on investment in other properties not for business purpose cannot be disallowed if the assessee is having sufficient interest free funds at its disposal. We find that since the facts and circumstances for this year remains unaltered, in the absence of any other contrary judgment brought forward by the Revenue, following the order of the ITAT for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016 in assessee's own case, the matter is being dismissed.
16. Ground no. 3 of the appeal relates to disallowance of Rs. 77,18,583/- under section 36(1)(iii) on account of interest on land advance. During the course of assessment proceedings, the Assessing Officer noticed that the asessee company had made advance for purchase of land to the tune of Rs. 8,66,76,965/-. The assessee was asked as to why disallowance under section 36(1)(iii) should not be made on advance for purchase of land. The assessee company had filed its reply that the payments have been made out of the cash-profit of the company and no borrowed money has been used which was no accepted by the Assessing Officer and disallowed the interest at the rate of 9.69% of Rs. 8,66,76,965/- which worked at Rs. 77,18,583/- and added back to the income of the assessee.
17. In the appellate proceedings the Ld. CIT(A) has followed the order of the Ld. CIT(A) for the assessment year 2010-11. The order of the CIT(A) reads as under:
4.2 I have carefully considered the facts of the case, the basis of the addition and the arguments of the AR. The appellant company had made advance for purchase of land amounting to Rs. 8,66,76,965/-. The appellant's reply was that the said advance has not been made out of borrowed funds. The Assessing Offficer held that the appellant had both borrowed funds as well as its own funds and that interest bearing funds were used in the construction of the building. The Assessing Officer did not establish that any specific funds were borrowed for the said advance and also that the same was for expansion of the existing business. Similar facts came up before my Ld. Predecessor for A.Y 2010-11 in the appellant's own case wherein it was held on the issue of investment in purchase of land as under:
"I h ave con si der ed t h e f act s of t h e ca se , t h e b a si s of di sal l o wa n c e m ade b y t h e A s se ssi n g Of f i cer an d t h e a rg um en t s of t h e A R du ri n g a s se s sm en t p r oc eed i n gs a s we l l a s ap p el l at e p r oce edi n g s . It i s i m p ort an t t o ap p rec i at e t h at t h e As se s si n g of f i cer h a s n ot b r o ugh t on re c ord an y n e x u s b et we en b orr o we d f un ds an d t h e i m pug n ed i n vest m en t i n t h e p u rch a se of l an d f or t h e p u rp o se s of b usi n e ss . Th e A ss e ssi n g Of f i cer h a s on l y t h e o ri zed p os si b i li t y of cert ai n b or ro we d f un d s p r ob ab l y b ei n g u s ed b y t h e a ss es s ee i n m ak i n g t h e i m pug n ed 8 i n vest m en t . Th e a s se ss ee on t h e ot h er h a n d h a s cl e arl y p oi n t ed o ut t h at n o t erm l oan h ad b e en t ak en f or p u rch a se of i m p ugn e d l an d an d at t h e sam e t i m e, t h e a ss es s ee h a d r e ser ve s an d s urp l u se s i n t h e f orm of p rof i t s gen e rat e d d uri n g t h e ye a r t o t he t un e of R s. 50 31. 0 0 Lac wh i ch i s m uch m or e t h a n i n vest m en t i n l an d t o t h e t un e of Rs. 1 26 4. 64 L ac. Th e f act s of t h e ca s e a re on si m i l a r li n es a s deci de d b y t h e H on ' b l e IT A T Ch an di ga r h B en ch i n t he ca se of M/ s Am a rt e xl n d s Lt d 3 7 Ta xm an n .c om 45 5. T h e b ri ef f act s of t h e ca se a re a s un der-
" Th e b ri ef f act s r el a t i n g t o t h e i s s ue a r e t h at t h e AO vi de p a ra 2 n ot ed t h at t h e a s se s se e h ad m ade ad van ce p a ym en t f or p u rch a se of l an d. Th e a s se s se e wa s a sk e d t o exp l ai n a s t o wh et h er t h e i n t erest p ai d up t o t h e d at e wh en t h e s ai d a s set s we r e p ut t o u se h ad b e en cap i t al i zed o r n ot . I n r ep l y, t h e a s se s se e s ub m i t t ed t h at t h e fi xed a s s et s we re p ur ch a se d i n con n ect i on wi t h t h e exi st i n g b u si n es s a n d we r e b y wa y of exp an si on . F urt h e r, i t wa s exp l ai n ed b y t h e a s se s see t h at t h e r es er ve an d s urpl u s of t he a s se s see c om p an y h ad i n c re a s ed f rom R s. 4. 82 c r o re s t o R s. 8.3 9 c r ore s an d al s o t h e a s se s se e h a d s ol d com m erci al si t e f or R s .6 c r ore s an d m on e y wa s ut i l i zed f o r p u rch a se of f i xed a s set s. T h e A O ob se rv ed t h at a s t h e a s s es se e h a d m ade ad van ce p a ym e n t f or p u rch a se of l an d b ut si n ce t h e l an d wa s n ot p ut t o u se d uri n g t h e y ea r un de r c on si der at i on , t h e p rop o rt i on at e i n t erest wa s re q ui re d t o b e c ap i t al i zed. Th e A O a cc or di n gl y di sal l o we d s um of R s. 6, 50, 91 1 un der sect i on 36 ( l )( i i i ) of t h e Act .
Th e C I T( A ) d el et e d t h e ad di ti on m ade b y t h e A O i n t h e ab s en ce of an y n ex u s b ei n g e st ab l i sh e d b et we en t h e p a ym en t m a de f or p u rch a se of l an d h avi n g di rect b e a r i n g wi t h t h e sec u r ed or un se c ure d l o an s ob t ai n ed b y t h e a s se se e .
Th e R ev en u e i s i n ap p eal a gai n st t h e o rde r of t h e CIT( A ) . T h e Ld. Dep a rt m en t al Rep re sen t at i ve f or t h e R e ven u e p l ace d rel i an ce on t h e ord er of t h e A O. Th e L d. A R f or t h e a s se s se e p oi n t ed o ut t h at un de r t h e p ro vi s o t o se ct i on 36( l )( i i i ) of t h e Act wh er e t h e b or r o we d f un d s we r e ut i l i zed f o r t h e i n vest m en t i n t h e a s set s, a n d wh e re t h e a s set s we r e n ot p ut t o u s e, di sal l o wa n c e i s t o b e m ade; b ut i n t h e ab s en c e of an y n ex u s of b or r o we d f un d s b ei n g ut i l i zed, n o di sal l o wan ce i s wa rr an t ed.
We h a ve h ea rd t h e r i val con t en t i on s an d p er u se d t h e rec o rd . Un d er t h e p r ovi si on s of sect i on 36( l )( i i i ) of t h e Act , wh i l e com p ut i n g t h e i n com e f o rm t h e p r of i t s an d gai n s of b usi n e ss de d uc t i on i s al l o we d on ac c o un t of am oun t of i n t erest p ai d i n resp ect of cap i t al b or r o we d f o r t h e p ur p o s es of b usi n e ss or p r of e s si on. Th e p ro vi so un der t h e sai d s u b se ct i on f urt h e r p r ovi de s t h at t h e i nt ere st rel at ab l e t o t h e c ap i t al b orr o we d f or acq ui si t i on of a ss e t s f or exp an si on of exi st i n g b u si n es s or p r of e ssi on , f o r a n y p eri od b egi n n i n g f rom t h e dat e on wh i ch cap i t al s we re b o rr o we d t i l l t h e dat e o n wh i ch t h e s ai d a ss et s we r e p ut t o us e, sh all n ot b e al l o wed a s de d uct i on .
A s p er t h e p r o vi so t o s ect i on 36( l ) ( i i i ) of t h e Act , t h e fi rst st ep t o b e s een i s wh et h e r an y cap i t al b orr o wed f or t h e a cq ui si ti on of an a s set f or exp an si on of t h e exi sti n g b u si n es s an d i nt ere st p ai d on s uch b o rr o we d f un d s i s t o b e di sal l o we d f or t h e p eri od up t o t h e dat e on wh i ch t h e a s set i s f i rst p ut t o u se . In t h e a b s en c e of an y b or r o we d b o rr o wa l s f or t h e p urch a s e of l an d on wh i ch i n t ere st i s b ei n g p ai d, n o di s al l o wan c e i s wa rra n t ed wh er e n o pa rt of t h e b or r o we d f un ds a r e ut i l i zed f or t h e p urp o se s of i n vest m en t i n s uch a s set s . In t h e f act s of t h e p re sen t ca s e b ef or e us t h e a ss es s e e h ad m ade i n ve st m en t i n l an d. Th e cl ai m of t h e a s se s se e wa s t h at t h e p o ss e ssi on of t h e l an d wa s ve r y m uch wi t h t h e a s s es se e c om p an y 9 du ri n g t h e ye a r u n d er c on si de rat i on an d al l t h e doc um en t s r el at i n g t o t h e o wn er sh i p an d p o ss es si on of l an d we r e f urn i sh ed b ef or e t h e A O d u ri n g t h e co u r s e of a ss es sm en t p r oc eedi n g s. Th e sai d l a n d wa s cl ai m ed t o b e b u si n es s a s set of t h e a s se ss ee an d wa s d ecl a red i n t h e s ch e d ul e of f i xed a s set at s eri al N o.1 .
Th e n ext p l a n t of a rgum en t of t h e a ss e se e wa s t h at i t h ad s uf f i ci en t f un d s of i t s o wn f or t h e p u rp o se s of i n vest m en t i n t h e sai d a ss et s . Th e a s se s see cl ai m s t o h ave s ol d on e c om m erci al si t e i n Sect or 4 3B , Ch an di ga rh f or R s. 6 c r ore s d uri n g t h e y e a r un d er c on si de rat i on a n d t h e sai d m o n e y wa s sai d t o b e ut i l i zed f or p u rch a s e of t h e f i xed a s set s, p t al i n vest m e n t i n t h e l an d ref l e ct ed b y t he a s s es se e wa s at R s. 2.1 2 c r o re s. In ad di ti on , duri n g t h e ye a r un de r co n si de rat i on t h e re ser ve s an d s urp l u s of a sse s se e company h ad i n c rea s ed f r om R s. 4. 81 c r ore s t o R s. 8. 39 c r or es i m p l yi n g t h ere b y gen erat i on of f un ds b y t h e a s se s see c om p an y i t sel f o ut of i t s b u si n es s a ct i vi ti es. Th e A O h a s f ai l ed t o b ri n g on re co rd an y evi den ce t o j ust i f y t h e di sal l o wan ce un der t h e p r ovi s o t o sect i on 3 6( l )( i i i ) of t he Act . Th e A O h a s f a i l ed t o ref er t o a n y b o rr o wed f un ds ut i l i zed f or t h e p urp o se s of i n vest m en t i n t h e sai d f i xed a s se t an d i n t h e a b s en c e of t h e sam e an d i n v i e w of t h e f act s of t h e p rese n t ca se wh e re t h e a ss e ss ee h a d s uf f i ci ent sel f - gen erat e d f un d s, we f i n d n o m eri t i n gr o un d N o.l rai s ed b y t h e Re ve n ue an d t h e sa m e i s di sm i ssed ."
In vi e w of t h e a b o ve det ai l ed an al y si s of f act s an d ci rcum st an c e s of t h e ca se and an al ysi s of j uri sdi ct i on al p ro n o un cem e n t on t h e i ssue, t h e di sal l o wan c e m ade b y t h e A ss e ssi n g Of f i cer i s d i rect ed t o b e d el et e d."
Following the above observations relating to investment in purchase of land, the addition relating to advance given for purchase of land was also deleted in the said order of the Ld. CIT (Appeals) by holding as under:-
" Th e gr o un d of ap p e al at Sr . No .8 p ert ai n s t o di sal l o wan ce of R s. 69, 35, 9 95 /- o n t h e ad van ce gi ven f or p urc h a se of l an d . Th i s di sal l o wan ce h a s b e en m ad e b y t h e A s s es si n g Of f i cer on t h e sam e b a si s a s i n res p ect of i n vest m en t i n p ur ch a s e of l an d di scu s se d i n re sp e ct of gr o un d of ap p eal at Sr . N o. 7. T h e di sal l o wan ce i s t h e ref o re di rect ed t o b e del et ed i n vi e w of t h e det ai l ed ob se rvat i on at p a ra 19 of t h e o rd er ."
18. Before us, in support of the grounds the Ld. CIT, DR placed reliance on the assessment order.
19. The Ld. AR on the other hand tried to justify the first appellate order on this issue. The Ld. AR argued that no disallowance under section 36(1)(iii) is required if the investment is out of own capital and reserves. He further argued that the matter stands covered in his own case for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016. The order of the Tribunal on this issue reads as under:
18. Having gone through the orders of the authorities below we find that the Assessing Officer made disallowance of Rs. 69,35,995/- on the advance given for purchase of land u/s 36(1) (iii) on the same basis as discussed herein above on the issue in ground nos. 4(a), 4(b) and 4(c). The Assessing Officer held that the making of such advance was not the business of the assessee. The Ld. CIT (A) has deleted the disallowance with this finding that the Assessing Officer has made it on the same basis as in respect of investment in purchase of land discussed in 10 respect of ground no.7 of the first appeal, which is the subject matter of ground nos. 4(a), 4(b) and 4(c) before the Tribunal. We thus following our finding on the issue raised in ground nos. 4(a), 4(b) and 4(c) hold that the Ld. CIT(A) was justified in deleting the disallowance.
20. Crisply to say that the disallowance of interest under section 36(1)(iii) on the land advance given partakes the nature of disallowances made by the Assessing Officer on the principle that assessee has got interest bearing funds. The Assessing Officers' reliance on Abhishek Industries 286 ITR 1 cannot be accepted in view of the further development of the judicial pronouncements on the issue. When the assessee has got own funds available at their disposal no disallowance is called for as enunciated while dealing with the ground no. 2 & 3. In the case of Bright Enterprises Pvt. Ltd. Vs. CIT (Punjab & Haryana High Court in ITA No. 224/2013 dt. 24/07/2015 wherein it was held that if there are interest free funds available then it will be presumed that these have been made out of interest free funds.
21. Hence keeping in view the facts circumstances for this year remains unaltered, in the absence of any other contrary judgment brought forward by the Revenue, following the order of the ITAT for the AY 2010-11 by the order of the Coordinate Bench of ITAT Chandigarh in ITA No. 1093/CHD/2014 dt. 22/11/2016 in assessee's own case, the matter is being dismissed.
22. Ground No. 4 relates to disallowance of Rs. 5,86,695/- on account of foreign travel expenses. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had debited an amount of Rs. 58,66,952/- under the head Directors Foreign Travelling. The assessee was asked to provide details of foreign travel along with vouchers. The assessee submitted the details. The Assessing Officer disallowed 10% of the amount of expenses amounting to Rs. 5,86,695/- by stating that the whole expenditure was not made on account of business expenditure alone.
23. The Ld. CIT(A) has deleted the addition holding as under:
" I h a ve c on si de re d t h e f act s of t h e ca s e , t h e b a si s of di sal l o wa n c e m ade b y t h e A ss es si n g Of f i cer an d t h e a rg um en t s of t h e A R du ri n g a s se s sm en t p r oc ee d i n gs a s wel l a s ap p el l at e p r oc ee di n gs . It i s ap p a r en t t h at t h e A ss e ssi n g Of f i cer h a s n ot b e en abl e t o p i n p oi n t an y e vi den c e of p er so n al exp en se s d eb i t ed b y t h e Di rec t or s on t h ei r Fo rei gn t rav el a n d i t i s p urel y on t h e s u sp i ci on t h at i m pug n ed di sal l o wan ce h ad b een m ade . Th e a s s es se e, a s ob se rv ed b y t h e A ss e ssi n g Of f i cer h a s f i l ed al l e vi den c e s i n t h e f orm of v o uch er s p ert ai n i n g t o sai d exp en se s. In vi e w of t h ese f act s t h e i m p ug n ed di sal l o wan ce p ur el y on adh oc b a si s i s di rect ed t o b e d el et e d. "11
24. Before us, in support of the grounds the Ld. CIT, DR placed reliance on the assessment order.
25. The Ld. AR on the other hand tried to justify the first appellate order on this issue. The Ld. AR argued that no disallowance was called for as assessee has produced all the details and Assessing Officer did not bring anything on record the factum of personal use on foreign travel.
26. We have heard Ld. Representatives of both the sides and perused the material available on record. The similar matter was before this Tribunal in the case of the assessee for the A.Y. 2010-11 wherein the addition was deleted as the assessee has filed all evidences in the form of vouchers pertaining to said expenses. Since the Revenue has not brought anything on record contra we are not inclined to interfere in the order of the Ld. CIT (A) and following the decision of ITAT Chandigarh Bench in case of EBI Cremica Food Cottings Pvt. Ltd., ITA No. 886/CHD/2012 dated 23.8.2013 holding that ad hoc addition cannot be made unless it is established there was personal element and non business expenditure. The order of the Ld. CIT(A) is hereby upheld.
27. In the result, appeal of the Revenue is treated as partly allowed whereas Cross Objection of the Assessee is treated as allowed for statistical purposes.
Sd/- Sd/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 10/11/2017 AG
Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR