Income Tax Appellate Tribunal - Ahmedabad
Dy.Cit. Circle-8,, Ahmedabad vs York Prints Pvt. Ltd., , Ahmedabad on 31 March, 2017
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
सव ी द प कुमार के डया, लेखा सद य एवं महावीर साद, या यक सद य के सम ।
BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
And SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.84/Ahd/2014 - AY 2010-11
&
CO. No.173/Ahd/2014 - AY 2010-11
(in ITA No.84/Ahd/2014 - AY 2010-11)
The Dy.CIT बनाम/
York Prints Pvt.Ltd.
Circle-8 Vs. Nr.Cozy Hotel, Ranipur Patia
Ahmedabad Narol, Sarkhej Highway Road
Ahmedabad
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACY 0544 J
(अपीलाथ& /Appellant) .. ( 'यथ& / Respondent & Cross
Objector)
अपीलाथ& ओर से / Appellant by : Shri G.C. Daxini, Sr.DR
'यथ& क) ओर से/Respondent by : Shri S.N. Divatia, AR
ु वाई क) तार ख /
सन Date of Hearing 29/03/2017
घोषणा क) तार ख /Date of Pronounce ment 31 / 03 /2017
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
The Revenue has filed the appeal against the order of the Commissioner of Income Tax(Appeals)-I, Ahmedabad [CIT(A) in short] ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -2- dated 25/10/2013 passed for the Assessment Year (AY) 2010-11 and assessee is in Cross Objection thereon.
2. The Revenue has raised the following grounds of appeal:-
1) The Ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad has erred in law and on facts in directing to recomputed book profit after taking into account unabsorbed business losses of earlier year or unabsorbed depreciation as per Departmental records.
2a) The Ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad has erred in law and on facts in reducing the disallowance to Rs.2,24,334/- as against Rs.8,83,758/- on account of utilization of funds for purchase of capital goods, & therefore the AO has disallowed the interest for the full year.
2b) The Ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad has erred in law and on facts in admitting additional evidence in violation of Rule 46A of the I.T.Rules.
3) On the facts and in the circumstances of the case, the Ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad ought to have upheld the order of the Assessing Officer.
4) It is therefore, prayed that the order of the Ld.Commissioner of Income-Tax (Appeals)-I, Ahmedabad may be set-a-side and that of the order of the Assessing Officer be restored.
3. Against ground No.1 of the Revenue's appeal, the Ld.AR for the assessee submitted that originally the assessee reduced profits of ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -3- Rs,10,90,422/- in terms of provisions of clause-(vii) of Explaantion-1 of sub-section (2) of section 115JB of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for computation of book profit under erroneous impression that the assessee-company is a sick-industrial company. However, on realizing mistake, the computation of book profit was revised in the course of assessment. The assessee also submitted with reference to revised working of book profit whereby it claimed deduction of brought forward business losses and unabsorbed depreciation as per book and reduced the same from the profits of the company to calculate book profit. The Assessing Officer (AO) denied this fresh claim towards reduction of book profit on account of unabsorbed brought forward business loss etc. on the ground that claim was not made in the return of income. For doing so, the AO relied upon the decision in the case of Goetze (India) Ltd. vs. CIT (2006) 157 Taxman 1 (SC).
3.1. The Ld.AR submitted that the CIT(A) in first appeal has agreed with the action of the assessee in filing the revised work of book profit after claiming deduction towards unabsorbed brought forward business losses etc. The relevant operative para of the order of the CIT(A) read as under:
"5. I have gone through the assessment order and submissions of the A.R. of the appellant carefully. It is seen that the appellant had ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -4- made a wrong claim in the return of income filed that it was a "sick company" as per clause (vii) of the explanation to section 115JB(2) of the Act. The AO noticed this error and asked the appellant to explain how it was a "sick company" as per clause
(vii) of the explanation to section 115JB(2) of the Act. At the time of assessment the appellant accepted the fact that it was not a "sick company" as per clause (vii) of the explanation to section 115JB(2) of the Act and furnished a revised computation of book profit wherein the appellant made adjustment for unabsorbed losses and brought forward unabsorbed depreciation. The AO held that the revised computation amounted to making fresh claims which was not admissible as per the decision of the Supreme Court in the case of Goetze (India) Ltd. vs. CIT reported in 157 Taxman 1 (SC). The above decision of the AO is not right because after rejecting the claim of the appellant regarding the company being a "sick company" as per clause (vii) of the explanation to section 115JB(2) of the Act, the AO was duty bound to compute the correct book profit u/s.115JB of the Act. While making the correct computation of income u/s.115JB of the Act the lesser amount of the two viz. unabsorbed business losses of earlier years or unabsorbed depreciation has to be reduced. Thus furnishing these details does not amount to making fresh claims. The AO is directed to recompute the Book Profit of the appellant after taking into account unabsorbed business losses of earlier years or unabsorbed depreciation as per the departmental records.
3.2. The Ld.AR relied upon the order of the CIT(A).
4. The Ld.DR for the Revenue, on the other hand, relied upon the order of the AO.
ITA No.84/Ahd/2014 & CO No.173/Ahd/2014Asst.Year -2010-11 -5-
5. The short question is whether the appellate authority can entertain the fresh claims on the basis of facts available on record without revision of the return of income under s.139(5) of the Act. The issue is no longer res integra. It is well settled that the assessee is entitled to do so. Reference may be made to the decision of CIT vs. Pruthvi Brokers & Shareholders (P) Ltd. 349 ITR 336 (Bom.) in this regard. Accordingly, we find no infirmity in the order of the CIT(A) in accepting the claim of Assessee after appreciation of facts. Accordingly, Revenue's ground No.1 is dismissed.
6. Ground No.(2a) relates to disallowance of interest expenditure of Rs.8,83,785/- by the AO under s.36(1)(iii) of the Act on the ground that interest paid in respect of capital borrowed for acquisition of a capital asset is required to be capitalized and cannot be allowed as revenue expenditure. The CIT(A) after appreciation of facts restricted the disallowance to Rs.2,24,334/-. The relevant para of the order of the CIT(A) reads as under:-
"8. Ground Nos.11 to 18 relate to the interest of Rs.8,83,758/- disallowed by the AO on account of utilization of borrowed funds in purchase of assets not installed before the end of the previous year.
9. It is seen that the Assessing Officer has levied penalty observing as under:ITA No.84/Ahd/2014 & CO No.173/Ahd/2014
DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -6- "Disallowance of inte4rest u/s.36(1)(iii) of the Act.
On perusal of fixed assets schedule of annual report of the assessee. It is seen that certain assets are under installation. As pr the provisions of section 36(10(iii) of the Act, any interest paid in respect of capital borrowed for acquisition of an asset for extension of the existing business is not allowable for any period beginning from the date on which the capital was borrowed for acquisition of the assets - till the date on which such asset was put to use. Therefore, vide order sheet entry dated 22/12/2012, the assessee was asked to furnish bank statement of the account from which payments were made for addition of assets under installation. The assessee was also asked to show cause as to why should interest expenditure attributable to acquisition of assets under installation not be disallowed as per the provisions of section 36(1)(iii) read with Explanation 8 of sub section (1) of section 43 of the Act.
Vide submission dated 12/12/2012, the assessee furnished explanation in this regard. Relevant para is reproduced as under:
"5. Capitalization of Interest on Machinery under Installation During the year assessee has made addition of Rs.6908631 to the Plant & Machi8nery which is shown as Machinery under Installation on which depreciation is not claimed. Out of total addition of Rs.6908631 payment of Rs.2675854/- is not made are outstanding as at 31/03/2010 statement of amount purchase made from each party amount outstanding as at 31/03/2010 along with the Ledger account such parties are submitted herewith Machinery under Installation is also enclosed herewith.
Statement of month wise addition to Fixed Asset is enclosed herewith ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -7- See Page No.337 Assessee has not taken any term loan for the purchase of Machinery. Assessee has made payment out of Current working capital hinds available with it copy of Bank Book reflecting Payments are enclosed herewith.
Bank Book of Bank of Baroda ODTD A/c.No.4/076 and 4/359 See Page No.354 to 364 Bank Book of The Vijay Co.Op. Bank a/c.No.241 See Page No.365 to 395 There is no increase in deposit from Directors. There is no increase in Deposit from share holders up to February 2010. There is increased in deposit from Share Holder During the month of-March 2010 which were utilized for making payment to creditors for Goods as detailed hereunder:-
Date Receipt Name Amount Date Payment Amount of Name 02/03/2010 R.N.Enterprise 1200000 05/03/2010 Shriji 1657030 Dhrumil Enterprise 08/03/2010 R.N.Enterprise 2000000 09/03/2010 Alsakem 37153409 10/03/2010 RN Enterprise 1800000 10/03/2010 Ashivini 564531 Dyechem 557750 11/03/2010 Dhrumil 1800000 15/03/2010 RN Enterprise 550000 15/03/2010 Thermax 607583 Dhrumil 550000 Limited (For 30/03/2010 RN Enterprise 300000 Total 1070000 Total 10533152 Monthwise position of Unsecured Loan From Directors & Share holders enclosed herewith.ITA No.84/Ahd/2014 & CO No.173/Ahd/2014
DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -8- See Page No.396 to 397 Assessee has received job security deposit of Rs.5600000/- in the month of November 2009 and Rs.6900000/- in the month of December 2009 which were utilized for making payment to creditors which is reflected in copy of Bank Book please note that assessee has not paid any interest on Job Security Deposit amount. Assessee has credited amount of Rs.10800000/- on restructuring of creditors. Electron Colour Chem Pvt.Ltd. i.e. reducing amount from creditors list increasing Unsecured Loans From Others.
Assessee has availed working capital term loan from The Vijay Co.Op.Bank on 26/12/2009 and utilized it for making payment to the creditors which is reflected in Bank Book."
The submission of the assessee is duly considered. However, the same is not found; acceptable. The assessee has failed to produce relevant bank statement as requested. As submitted by the assessee itself, the payments for purchase of assets have been made from the O.D. account held with the bank. Therefore, the expenditure incurred on account of O.D. account interest is attributable to the purchase of assets to the extent of payments made for the same. Further, on perusal of Balance Sheet of the assessee, it is seen that borrowed funds constitute majority of the source of the funds of the company. Against the secured and unsecured loans totalling to Rs.9,35,39,944/-, the assessee has its own funds in the form of share capital of Rs.30,09,500/- as on 31st march, 2010. Therefore, the assessee's contention regarding their being no changes in the deposits is totally irrelevant. On perusal of Schedule F of the Balance Sheet, it is seen that total assets under installation are reflected at Rs.73,64,654/-. Therefore, interest attributable to payments made for acquisition of assets which were not put to use, is computed @ 12%. Accordingly, an interest of Rs.8,83,758/- is hereby disallowed.
10. During the appellate proceedings, the A.R. of the appellant submitted as under:ITA No.84/Ahd/2014 & CO No.173/Ahd/2014
DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11 -9- "5. Disallowance of interest u/s.36(1)(iii) of the Act.
The third effective ground of appeal relates to disallowance of Rs.883758 as the interest on capital borrowed for acquisition of fixed assets.
5.1 Appellant has made addition of Rs.6908631 to plant and machinery which is treated as under installation. Assessee has not made payment of Rs.2675854 to the supplier of machinery as on 31/03/2010.
Statement of month-wise edition to fixed assets was submitted, appellant has not taken any term loan for the purpose and same way, there was no increase in borrowing fund except in the month of Feb 2010 which were utilized for making payment to creditors. Appellant submission was reproduced at para 5 of assessment order.
5.2. A.O. was wrongly observed that assessee has failed to produce relevant bank statement. Assessee has submitted copy of bank book reflecting payment vide page no.354-364 and page no.365-395 in its submission dt. 12/12/2012 noting for which is made at para 6.2 of assessment order. Assessee has made payment out of collection it made of current year business. There is increase in creditor which were used for making addition to fixed assets i.e. non interest bearing fund were utilized.
Further without prejudice to above appellant submits that if interest is to be calculated it should be calculated on use basis i.e. from date to use to end of year and on amt. of fund used i.e. amt used for making payment for purchase of capital goods. Assessee submits here with date wise calculation sheet of amt. of interest and also interest on unpaid amt. (see page no 1-10 attached here). Total interest ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11
- 10 -
comes to Rs.361722 on addition to plant and machinery out of which interest on unpaid amt.of plant and machinery comes to Rs.137388 so interest cost of Rs.224334 (361722- 137388) comes on machinery installation as against Rs.883758 determined by A.O."
11. I have gone through the assessment order and submission of the A.R. of the appellant carefully. It is seen that the AO has assumed that the appellant has paid an interest @ 8% per annum on all the money borrowed. The AO has also assumed that the entire money for the purchase of the capital goods was spent on 1.4.2009. This is why the AO has disallowed the interest paid on borrowed funds used in the purchase capital goods for the full year @ 8%. The AR of the appellant had no objection to the interest on the funds borrowed and used for purchase of capital goods being disallowed. The AR also contended that some of the suppliers for the machines had not been paid and no interest on such unpaid amount could no disallowed. However the contention of the AR of the appellant is that the entire money was not used in the purchase of the capital goods on 1.4.2009. Thus the AO should have only disallowed the interest from the time when the capital goods were purchased till the time the capital goods were put to use. The above contention of the AR of the appellant appears justified. The AO has disallowed the interest because as per the AO since the appellant had not produced the bank account to show the utilization of funds for purchase of capital goods hence he disallowed the interest for the full year.
The AR stated that all the details including the date of purchase of the capital goods were available with the AO hence he was not justified in disallowing the interest for the full year.
11.1. The AR of the appellant was asked to furnish the complete working of the interest which was to be disallowed based on the ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11
- 11 -
date on which the funds were used for the purchase of the asset till the date when it was actually put to use. Vide submissions filed on 23.10.2013 the AR of the appellant has filed these details. The details filed show that the entire amount of interest which could be disallowed is Rs.2,24,334/-.
In view of the above, the disallowance is reduced from Rs.8,83,758/- to Rs.2,24,334/-."
7. Both the assessee as well as Revenue are aggrieved by the order of the CIT(A). The assessee has agitated the confirmation of disallowance to the extent of Rs.2,24,334/- by the CIT(A), whereas the Revenue has challenged the partial relief made available to the assessee on the issue.
8. The Ld.AR for the assessee submitted that there was no extension of existing business on purchase of Plant & Machinery per se. Secondly, he contended that borrowed fund have not been utilized for the acquisition of the Plant & Machinery. TheLd.AR relied upon the order of the CIT(A) for the relief granted by him and added however that the restriction of relief was not proper.
9. We have carefully perused the orders of the CIT(A) and AO. We find that the CIT(A) has correctly appreciated the facts in perspective. The order of the CIT(A) is on objective consideration of facts and self- explanatory. We do not find any infirmity in the conclusion arrived by ITA No.84/Ahd/2014 & CO No.173/Ahd/2014 DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11
- 12 -
the CIT(A). Consequently, ground No.(2a) of the Revenue's appeal as well as Cross Objection filed by the assessee are dismissed.
10. Ground No.2(b) of Revenue's appeal concerns admission of additional evidence in violation of Rule 46A of the I.T.Rules, 1962. However, in the course of hearing, the Revenue has not addressed us as to how the CIT(A) has admitted error in applicability of Rule 46A of the I.T.Rules. Notwithstanding Rule 46A of the IT Rules, the CIT(A) has inherent power under s.250(4) to call for and admit such evidence as necessary for the disposal of the appeal. Therefore, Rule 46A does not act as a fetter for exercising the power available to the CIT(A). Thus ground No.2(b) raised by the Revenue has no force in law and is accordingly dismissed.
11. In the combined result, Revenue's appeal as well as Cross Objection filed by the assessee both are dismissed.
This Order pronounced in Open Court on 31/ 03 /2017
Sd/- Sd/-
(महावीर साद) ( द प कुमार के डया)
या यक सद य ले खा सद य
( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 31/ 03 /2017
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
ITA No.84/Ahd/2014 & CO
No.173/Ahd/2014
DCIT vs. York Prints P.Ltd.
Asst.Year -2010-11
- 13 -
आदे श क त ल!प अ"े!षत/Copy of the Order forwarded to :
1. अपीलाथ& / The Appellant
2. 'यथ& / The Respondent.
3. संबं6धत आयकर आयु8त / Concerned CIT
4. आयकर आयु8त(अपील) / The CIT(A)-I, Ahmedabad
5. 9वभागीय त न6ध, आयकर अपील य अ6धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स'या9पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 29.3.17 (dictation-pad 13-pages attached at the end of this appeal-file)
2. Date on which the typed draft is placed before the Dictating Member ...20.3.17
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......31.3.17
7. Date on which the file goes to the Bench Clerk.....................31.3.17
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................