Madhya Pradesh High Court
Pr. Commissioner Of Income Tax I vs M/S Bajrang Agro Industries P. Ltd. on 29 November, 2017
1
(Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.)
Indore, dated : 29.11.2017
Ms. Veena Mandlik, learned counsel for the appellant.
Shri S. C. Bagadiya, learned Senior Counsel with Shri Rohit
Saboo, learned counsel for the respondent.
Heard on the question of admission.
2. This appeal under Section 260-A of the Income Tax Act, 1961 (in short "the Act of 1961") has been filed against the order dated 21.09.2015 passed by the Income Tax Appellate Tribunal, Bench Indore, Indore in ITA No.623/Ind/2013 (Assessee) and ITA No.668/Ind/2013 (Revenue) for the Assessment Year 2009-10, whereby learned Tribunal came to the conclusion that the Commissioner of Income Tax (Appeals) has recorded the factual finding, which has not been controverted by the revenue by any cogent evidence and, therefore, no case is made out to interfere with the order passed by the Commissioner, IT(A) and dismissed both the appeals.
3. Both the appeals before the Tribunal was in regard to confirming the addition to the extent of Rs.11,78,013/- out of interest amounting to Rs.21,78,289/- disallowed by the Assessing Officer by invoking proviso to Section 36(1)(iii) of the Act of 1961.
4. In respect of disallowance of interest amounting to Rs.8,43,476/- paid by the appellant on borrowed funds for the purpose of installation of Back Pressure Turbine, it is not in dispute that Back Pressure Turbine was not put to use by the company throughout the year. According to accepted accounting principle, any expenditure pertaining to acquisition and installation of fixed assets are necessarily to be kept alive.
2(Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.)
5. As per proviso to clause (iii) of sub-section (1) of Section 36 of the Act of 1961, any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of business for the period beginning of the date on which the capital was borrowed for acquisition of the asset till such asset was put to use, shall not be allowed as deduction. In the present case, the capital asset was for extension of existing business as such the interest on the borrowed fund for acquiring such asset cannot be allowed as deduction. The learned Tribunal affirmed the finding in disallowing interest of Rs.8,43,476/-.
6. In respect of interest on the term loan borrowed by the appellant from SBBJ cannot be allowed as revenue expenditure for the period till the date such asset was put to use in terms of proviso to Section 36(1)(iii) of the Act of 1961. The issue regarding the actual date of putting the capital assets, the Appellate Authority has held that the Back Pressure Turbine, the capital asset under consideration has become operational before 30.09.2008. Therefore, the amount of said allowance of interest on term loan has to be restricted for the period from 01.04.2008 to 30.09.2008. As per ledger account of interest on term loan account, the appellant had incurred a sum of Rs.11,78,013/- on account of interest on term loan during the aforesaid period. Therefore, the disallowance has to be restricted to this amount as against the disallowance of Rs.21,71,289/-. Thus, the appellant gets relief of Rs.10,00,276/- on this issue. In respect of issue relating to deletion of addition of Rs.1,05,17,341/- on account of disallowance of excess depreciation claimed, learned CIT(A) has granted the relief to the assessee by holding as under :-
I have perused the relevant part of assessment 3 (Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.) order, submissions of the appellant as reproduced above, the contents of remand report and the counter comments of appellant on the remand findings as reproduced above. I have also considered the relevant provisions, judicial pronouncements and veracity of the fresh evidences filed by the appellant. It is observed that the main reasons considered by the AO for presuming the date of first use of the Back Pressure Turbine by the end of FY was that the appellant could not furnish any documentary evidences regarding the date of installation and commissioning of the turbine. The AO further observed that despite installation of the plant, the cost of electricity had not come down drastically. The AO further observed that the investment amounting to Rs.34.74 lacs was made by the appellant in acquisition of turbine even after September 2008. However, after going through the facts and circumstances and the various documentary evidences furnished by the appellant, it is observed that the relevant plant was put to use by the appellant company before 30.09.2008. From perusal of ledger account of Back Pressure Turbine as placed at page no 90 to 112 of paper book, it is seen that a substantial part of investment amounting to more than Rs.7 crores was made by the appellant before 30th September 2008. The appellant had acquired the main parts, such as the turbine, boiler, coal handling plant, pressure reducing station, conveyor, feeder, etc. much before 30th September 2008 and from the parts so acquired, the Back Pressure Turbine could be said to have been capable of being commercially functional. I find merit in the contention of the appellant that although the Back Pressure Turbine as an independent functional unit was installed in the appellant's factory premises before 30th September 2008, but after the installation thereof the appellant company acquired some additional piping materials for effective and smooth operation and some other equipments were also purchased for meeting the requirement of the Pollution Control Department. It is also found that one ancillary machine, i.e., Silica Analyser, was purchased by the appellant on 05.01.2009 which was independent of the main Back Pressure Turbine. It is also brought to my 4 (Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.) notice that the supplier of the turbine i.e. M/s Siemens has given a certificate on 24.09.2008 regarding successful installation and commissioning of Back Pressure Turbine. It is also observed that the certificate issued by the supplier of the boiler i.e. M/s Albaj Engineering Corporation, have categorically certified that after a long trial on load, the boiler got successful running on full load on 24.09.2008 and steam test of the boiler was conducted on 25.09.2008. I found that the AO, in his remand report has not doubted the genuineness or the veracity of the certificates of installation and commissioning. I have also seen the certificates issued by the Boiler Inspector of the Government of Madhya Pradesh. Regarding consumption of electricity, the contention of the AR of the appellant has been found tenable that during the relevant previous year, its own turnover was on a lower side in comparison to that of the earlier year but since in the year under consideration it had undertaken job work for production on behalf of other units, its job work receipts had got increased by more than 97% and due to increase in the job work production vis-a-vis unit consumption, it is observed that the electricity consumption of the appellant company in the current financial year for the month of April 2008 to September 2008 was ranging between 93 units per metric ton. The consumption of electricity units got reduced in the range of 55-65 units per metric ton. From the unit of consumption also, it can be inferred that after installation of the back pressure turbine in the month September, 2008 the consumption of per ton electricity units got reduced in the subsequent months. Even otherwise, I am of the view that once a machine is installed and ready for commercial usage, it is eligible for allowance of depreciation from the date on which it becomes so ready for commercial usage. In view of the above facts, I am of the firm view that the back pressure turbine got installed and put to use before 30th September, 2008 by the appellant and thus the appellant was eligible for claim of depreciation at the full rate. In such circumstances, I do not find justification in the AO's action in disallowing the 50% of the claim of the appellant as regard depreciation 5 (Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.) on the back pressure turbine. Accordingly, the addition of Rs.1,05,17,341/- is hereby deleted.
7. Learned Tribunal has held that the finding recorded by the CIT(A) is a finding of fact and the same has not been controverted by the respondent by any cogent findings and, therefore, the same has been upheld. In respect of deletion of disallowance of expenses of Rs.2,96,739/- under Section 36(1)(va) of the Act of 1961, CIT(A) has dealt with this issue as under :-
12. Ground no.5 relates to deletion of disallowance of expenses of Rs.2,96,739/- u/s 36(1)(va) of the Act. The learned CIT(A) has dealt with this issue as under :-
I have gone through the relevant part of assessment order and submissions filed by the appellant as reproduced above and after considering the facts and circumstances of the case, I find merit in the submissions of the appellant. It is observed that in the respect of contribution for the months of June, July and September 2008, the payments have been made by the appellant in the same FY as brought out by the AO in the assessment order. As far as the contribution for the Month of March 2009 is concerned it is seen that the payment was made through cheque before due date and the same got realized within the grace period of 15 days. The payment was found to be cleared on 23.04.2009. Respectfully following the decision of Hon'ble ITAT in the case of MPPN, I find no justification in making disallowance of Rs.2,96,739/- on this account. This ground of appeal is hereby allowed.
8. Learned CIT(A) has recorded that the employees contribution to the provident fund for the month of June and September, 2008 has been made by the assessee in the financial year itself. As far as the contribution for the month of March, 2009 is concerned, the same was paid through cheque before the due date and the same was got 6 (Pr. Commissioner of Income Tax-1 vs. M/s Bajrang Agro Industrial P. Ltd.) realized within the grace period of 15 days.
9. As per verification report, the Assessing Officer has established that the plant was put to use in the last month of the year i.e., March, 2009.
10. On due consideration of the findings recorded by the Appellate Tribunal, we are of the view that the learned Tribunal has not committed any legal error in holding that the machine was installed and was ready for commercial usage.
11. Similar issue was raised by the appellant in Appeal No.315/2010-11 for the Assessment Year 2008-09 and while adjudicating the same, it has been held that the interest on term loan borrowed for the purpose of acquisition and installation of Back Pressure Turbine, till the date it was first put to use, has to be capitalised and not to be allowed as revenue expenditure. The finding recorded by the Appellate Tribunal still holds the field. None of the findings which has been recorded by the learned Tribunal has been controverted by the appellant nor she pointed out any perversity in the aforesaid finding.
12. For these reasons, no substantial question is arising out in this appeal. The appeal has no merit and is accordingly, dismissed.
(P. K. Jaiswal) (Virender Singh)
Judge Judge
Digitally signed by Geeta Pramod
Date: 2017.12.05 13:18:39 +05'30'