Income Tax Appellate Tribunal - Chennai
Paragon Steels Pvt. Ltd., Coimbatore vs Department Of Income Tax on 18 March, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH : CHENNAI
[BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER
AND SHRI V. DURGA RAO, JUDICIAL MEMBER]
I.T.A.No.59/Mds/2013
Assessment year : 2009-10.
The Deputy Commissioner of vs M/s. Paragon Steels P. Ltd,
Income Tax, No.100, Avarampalayam Road,
Company Circle IV(2), Ganapathy,
Coimbatore Coimbatore 641 006.
[PAN AABCP 3039J]
(Appellant) (Respondent)
Appellant by : Shri. G. Bhashayam, JCIT
Respondent by : Shri. S. Ramachandran, C.A
Date of Hearing : 18-03-2013
Date of Pronouncement : 21-03-2013
ORDER
PER N.S. SAINI, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue against the order of the ld. CIT(A)-I, Coimbatore, dated 19.10.2012.
2. The Revenue has raised the following grounds of appeal:
"1. The order of the learned Commissioner of Income-tax (Appeals) is against facts and circumstances of the case.:- 2 -: I.T.A.No.59/13
2. The learned CIT(A) has erred in allowing the expenditure, claimed on interest paid on additional funds diverted on investments for purchase of properties} although no income has been admitted from these properties nor have been they utilized for the purpose of business.
3. The learned CIT(A) failed to observe on perusal of records that the assessee borrowed secured loan during the Financial year 2008-09 relevant to the Assessment year 2009-10 and the interest on borrowed loan is higher as compared to the Financial year 2007-08 thereby proving that the assets were purchased out of the borrowed loans and not from the existing funds as held by the CIT(A).
4. The learned CIT(A) failed in considering to offer an opportunity to the Assessing officer as per Rule 46A(3) to call for and examine the additional evidences and to determine whether the properties invested in by the assessee were used for business purpose or not.
5. For these and other grounds that may be adduced at the time of hearing} the order of the CIT(Appeals) may be cancelled and that of the assessing officer restored."
3. At the outset, it was noticed that the appeal filed by the Revenue was time barred by 6 days. The Revenue has filed a petition explaining the reasons for the delay in filing the appeal. The ld. A.R of the assessee had no objection to condoning the delay and hearing the appeal on merits. Hence, the delay was condoned and the appeal was admitted for hearing and the parties were allowed to make their submissions thereon.
4. The sole issue involved in the present appeal is that the CIT(A) erred in allowing the expenditure claimed on interest paid on :- 3 -: I.T.A.No.59/13 additional funds diverted on investments for purchase of properties, although no income has been admitted from these properties nor have they been utilized for the purpose of business.
5. The brief facts of the case are that the Assessing Officer observed that the assessee had purchased properties during this year through auction from Debt Recovery Tribunal and also made direct purchase through third parties. These properties were not utilized for the purpose of the business but are held as investment only. No income has been admitted from these properties. The interest paid on additional funds diverted on investment for purchase of these properties was computed at Rs.25,80,280/- and the same was disallowed in the assessment of the assessee's income as not relating to the business of the assessee-company.
6. Being aggrieved against the said order, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has vacated the disallowance by observing that one of the property purchased was a vacant land close to the factory in Kerala. He observed that the raw materials are procured in lorry loads and large space was required to store the materials. This property was purchased for storing the raw :- 4 -: I.T.A.No.59/13 materials and finished goods i.e to be used as a stock yard. He further observed that the assessee manufacture goods at Kerala to be sold in Coimbatore. The property purchased on Patel Road at Coimbatore was a commercial property at the hub of iron and steel trade. The property was used as a selling point. The Assessing Officer concluded that the property was purchased as an investment by the assessee but he has not brought any material on record to show that the assessee purchased these properties for investment purpose. The assessee has submitted that no specific loan was taken for purchase of any of the properties. The assessee furnished the ledger extracts of cash book and bank account details from which it is seen that the properties were purchased from the available funds of the assessee company. The Assessing officer has brought no evidence on record to show the borrowed funds were utilized for purchase of these properties.
7. The ld. DR submitted that the ld. CIT(A) failed to observe that the assessee borrowed secured loans during the financial year 2008-09 relevant to the assessment year 2009-10 and the interest on borrowed loan was higher as compared to the financial year 2007-08 which proved that the assets were purchased out of the borrowed loans and not from the existing funds as held by the ld. CIT(A). The :- 5 -: I.T.A.No.59/13 ld. CIT(A) has also failed in considering to offer an opportunity to the Assessing Officer as per Rule 46A(3) of the Income-tax Rules to call for and examine the additional evidence and to determine whether the properties invested in by the assessee were used for business purpose or not. Hence it was his prayer that the matter may be resorted back to the file of the Assessing office for adjudicating the issue afresh.
8. On the other hand, the ld. A.R of the assessee supported the order of the ld. CIT(A) and submitted that the ld. CIT(A), after going through the Notes on Accounts and the Balance Sheet, has given a finding of fact that the properties were purchased from out of the own funds of the assessee and that no borrowed funds were utilized for the same. He further submitted that the properties were used for storing the raw materials and finished goods of the assessee-company and even if it is held that borrowed funds were utilized in their purchase, then also the properties were used for the business purpose of the assessee and interest expenditure is allowable as deduction from the business income of the assessee. He, therefore, submitted that the order of the ld. CIT(A) should be upheld and the appeal of the Revenue should be dismissed. :- 6 -: I.T.A.No.59/13
9. We have considered the rival submissions, perused the orders of the lower authorities and materials available on record. In the instant case, the assessee purchased three properties at a total cost of ` 3.36 crores, which are, a vacant land close to the factory of the assessee in Kerala, a commercial property at the hub of iron and steel trade at Patel Road, Coimbatore, and property at Sungam, Coimbatore. The Assessing Officer observed that these properties were purchased by the assessee as investment and were not utilized in the business of the assessee. No income was also admitted from these properties. He also held that additional funds were borrowed for the purchase of these properties and that interest payment on these additional borrowing was ` 25,80,280/-. He, accordingly disallowed the interest expenditure of ` 25,80,280/- in the assessment made.
10. On appeal, the ld. CIT(A) deleted the disallowance.
11. The ld. A.R of the assessee has argued that no borrowed funds were utilized in the purchase of these properties as can be seen from the Balance Sheet of the assessee-company as on 31.3.2009. When questioned from the Bench that in order to come to a finding whether the borrowed funds were utilized in the purchase of these properties, it has to be seen that on the date of making of the :- 7 -: I.T.A.No.59/13 payment whether the cheques were cleared from the account of the assessee when the assessee was having favourable balance with the bank or when the assessee was having unfavourble balance with the bank. To this, the ld. A.R of the assessee submitted that the payments for these properties were made through the cash credit account of the assessee and that when these cheques were cleared through the bank account of the assessee the balance with the bank was an overdrawn balance. Thus, from this submission of the assessee, it is clear that in the purchase of these properties, the borrowed funds from the bank were utilized, hence, the ld. CIT(A) was not justified in holding that no borrowed funds were utilized in the purchase of these properties. However, the ld. A.R of the assessee has argued that the property at Kerala was a vacant land close to the factory of the assessee and the same was utilized for storing of raw materials. Further, the other property acquired by the assessee on Patel Road, Coimbatore, was a commercial property and that the assessee manufactures goods at Kerala to be sold in Coimbatore and that the property in Coimbatore was used for storage of finished goods before their sale. Thus, it was the submission of the assessee that the properties were utilized for the business of the assessee. We are of the considered view that if the properties purchased are used in the business of the assessee :- 8 -: I.T.A.No.59/13 then interest expenditure incurred in the purchase of those properties is allowable to the assessee as deduction u/s 37(1) of the Act. However, we find that the ld. CIT(A) has vacated the disallowance for this reason also, but the Assessing Officer has given a finding that these properties were not used in the business of the assessee. We find that both the lower authorities have brought no material on record to hold that the properties were not used for the business of the assessee or that they were so used. In order to determine this, further verification is required. Therefore, it would be just and fair and in the interest of justice, to restore this issue back to the file of the Assessing Officer for adjudication afresh after verification and bringing materials on record whether the properties in question were utilized in the business of the assessee or not. If it is found that the properties were utilized in the business of the assessee then interest expenditure on loans utilized in the purchase of these properties should be allowed as business expenditure u/s 37(1) of the Act, otherwise not. We order accordingly. Thus, the grounds of appeal of the Revenue are allowed for statistical purposes.
:- 9 -: I.T.A.No.59/13
12. In the result, the appeal of the Revenue is allowed for statistical purposes.
Order pronounced on Thursday, the 21st of March, 2013, at Chennai.
Sd/- Sd/- (V. DURGA RAO) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21st March, 2013, RD Copy to: Appellant/Respondent/CIT(A)/CIT/DR