BANNER PHARMACAPS P.LTD, MUMBAI v. B.S. SINGH, MUMBAI

CO 199/MUM/2009 | 2004-2005
Pronouncement Date: 15-07-2011 | Result: Dismissed

Appeal Details

RSA Number 19919923 RSA 2009
Assessee PAN AAACH1173N
Bench Mumbai
Appeal Number CO 199/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 3 day(s)
Appellant BANNER PHARMACAPS P.LTD, MUMBAI
Respondent B.S. SINGH, MUMBAI
Appeal Type Cross Objection
Pronouncement Date 15-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 15-07-2011
Date Of Final Hearing 11-07-2011
Next Hearing Date 11-07-2011
Assessment Year 2004-2005
Appeal Filed On 12-10-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI V.DURGA RAO JM ITA NO.5481/MUM/2008 : ASST.YEAR 2004-2005 THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 10(2) MUMBAI. VS. M/S.BANNER PHARMA CAPS PRIVATE LIMITED CAPSULATION PREMISES DEONAR SION TROMBAY ROAD MUMBAI 400 088. PAN : AAACH1173N. (APPELLANT) (RESPONDENT) CO NO.199/MUM/2009 : ASST.YEAR 2004-2005 M/S.BANNER PHARMA CAPS PRIVATE LIMITED CAPSULATION PREMISES DEONAR SION TROMBAY ROAD MUMBAI 400 088. VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 10(2) MUMBAI. (CROSS OBJECTOR) (RESPONDENT) REVENUE BY : SHRI P.C.MAURYA ASSESSEE BY : SHRI M.D.INAMDAR O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE REVENUE AND CROSS OB JECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 19.06.2008 IN RELATION TO THE ASSESSME NT YEAR 2004-2005. 2. FIRST GROUND OF THE REVENUES APP EAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.1 53 424 PAID TO DIRECTORS. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSES SEE BORROWED CERTAIN FUNDS FROM THE DIRECTORS AND UTILIZED PART OF THE FUNDS FO R CAPITAL WORK IN PROGRESS. SIMILARLY THE ASSESSEE ALSO BORROWED ADDITIONAL FUNDS FROM SOBEL N.V. AMOUNTING TO RS.2.26 CRORES AT THE RATE OF 3%. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ALSO CLAIMED DEDUCTION IN RESPECT OF INTEREST PAYM ENT. IT WAS NOTICED THAT IN STEAD OF REPAYING THE HEAVY INTEREST LOAN AT THE RATE OF 10% FROM DIRECTORS AND 3% FROM SOBEL N.V. DESPITE HAVING SURPLUS FUNDS THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION ON THE ITA NO.5481/M/08 & CO NO.199/M/09 M/S.BANNER PHARMA CAPS PRIVATE LIMITED. 2 PROPORTIONATE INTEREST. DISALLOWANCE OF RS .1 53 424 WAS MADE. IN THE FIRST APPEAL THE LEARNED CIT(A) DELETED THE ADDITION. 3. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE FUNDS BORRO WED FROM THE DIRECTORS WERE UTILIZED BY THE ASSESSEE FOR CAPITAL WORK-IN-PROGRESS. WE ARE DEALING WITH ASSESSMENT YEAR 2003- 2004 AND THERE IS NO APPLICAB ILITY OF THE PROVISO OF SE CTION 36(1)(III) WHICH HAS BEEN INSERTED WITH EFFECT FROM 2004-2005. WHEN LOANS ARE TAKEN THE INTEREST HAS TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF THE FACT WHETHER SUCH LO AN IS UTILIZED FOR ACQUIRING CAPITAL ASSET OR CIRCULATING CAP ITAL. THE HONBLE SUPREME COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD.[(2008) 298 ITR 194 (SC)] HAS HELD THAT DEDUCTION OF INTEREST HAS TO BE ALLOWED UNDER SUCH CIRC UMSTANCES. INSOFAR AS THE BORROWING FROM SOBEL N.V. IS CONCERNE D THE ONLY POINT OF VIEW OF THE ASSESSING OFFICER FOR MAKING DISALLOWANC E WAS THAT INSTEAD OF CON TINUING WITH THE BORROWING THE ASSESSEE OUGHT TO HAVE REPAID THE LOAN BE CAUSE OF IT HAVING SU RPLUS FUNDS. IT IS SETTLED LEGAL POSITION THAT THE ASSESSEE HAS TO TAKE A DECI SION WHETHER IT WANTS TO UTILIZE SURPLUS FUNDS OR BORROW FUNDS FOR IT S BUSINESS PURPOSES. ONCE A LOAN IS TAKEN FOR THE PURPOSE OF BUSINESS AND SO USED TH E INTEREST HAS TO BE ALLOWED AS DEDUCTION U/S.36(1)(III) IRRESPECTIVE OF THE FACT WHETHER THE ASSESSEE HAVING SURPLUS FUND OR NOT. WE THEREFORE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE AND DISMISS THIS GROUND OF APPEAL. 4. SECOND GROUND IS AGAINST THE DELETION OF ADDITION OF RS.1 30 59 979 (WRONGLY TYPED AS RS.1 69 79 428 IN TH E MEMORANDUM OF APPEAL). THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTI ON TOWARDS PURCHASES STORES AND VARIOUS EXPENSES AMOUNTING TO RS.1.69 CRORES. THE SPECIAL AUDITOR VIDE HIS REPORT U/S.142(2A) COMMENTED THAT IN THE ABSENCE OF ANY SUPP ORTING VOUCHERS IN RESPECT OF EXPENSES CLAIMED AT RS .1 30 59 979 THE COMPUTATION OF INCOME WAS INCORRECT. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY DEDUCTION BE NOT DENIED. THE ASSESSEE S UBMITTED BEFORE THE A.O. THAT IT WAS READY TO PRODUCE ITA NO.5481/M/08 & CO NO.199/M/09 M/S.BANNER PHARMA CAPS PRIVATE LIMITED. 3 BILLS FOR THESE EXPENSES. TH E ASSESSING OFFICER REFUSED TO ACCEPT THE ASSESSEES CONTENTION ON THE GROUND THAT AT THAT JUNCTU RE IT WAS NOT POSSIBLE TO VERIFY THE BILLS IN SUCH A SHORT TERM. HE THEREFORE MADE ADDITION OF RS.1.30 CRORES. DURING THE COURSE OF APPELLATE PROCEEDINGS THE LE ARNED CIT(A) CALLED FOR THE REMAND REPORT FROM THE A.O. ON THIS ISSUE. IT CAME OUT FROM THE REMAND REPORT THAT THE ASSESSEE WAS NOT HAVING ANY SUPPORTING EVIDENCE IN R ESPECT OF EXPENSES CLAIMED TO THE TUNE OF RS.8 98 824. THE ASSESSEE SUBMITTED THE DETAILS OF REMAINING EXPENSES AMOUNTING TO RS.1 21 61 157. THE ASSESSI NG OFFICER TEST CHECKED ENTRIES FOR EXPENSES MORE THAN RS.5 000. IN THE RE MAND REPORT IT HAS BEEN MENTIONED BY THE A.O. THAT THE ADDITION TO THE EXTENT OF RS.1.35 LAKHS OUT OF SUCH EXPENSES WAS SUSTAINABLE. FURTHER THE ASSESSEE HAD MA DE PROVISION OF RS.2 26 403 FOR CHIMNEY WHICH AMOUNT WAS INCLUDED IN THESE EXPENSES . THE A.O. HELD SU CH EXPENDITURE AS CAPITAL IN NATURE AND COULD NOT BE ALLO WED. REGARDING THE DETAILS OF WORK-IN- PROGRESS FURNISHED BY THE A.O. AMOUN TING TO RS.51 93 611 THE ASSESSING OFFICER HELD THAT 20% OF SUCH EXPENSES MAY BE DISALLOWED ON THE GROUND THAT THE ASSESSEE HAD UNDERTAKEN A PROJECT DURING THE YEAR FOR THE EXTENSION TO THE MAIN PLANT AND BUILDING AND SUBSTANTIAL AMOUNT WAS SPENT ON DEMOLITION EXCAVATION AND FABRICATION ETC. THE LEARNED CIT(A) ON PE RUSAL OF THE REMAND REPORT HELD THAT THE EXPENSES ON CHIMNEY BE CAPITALIZED AND DEPRECIATION BE ALLOWED THEREON. AS REGARDS OTHER EXPENSES HE ORDERE D FOR THE DELETION OF ADDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSING THE RELE VANT MATERIAL ON RECORD IT IS NOTICED THAT THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS GAVE AN OPPORTUNITY TO THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF EXPENSES CLAIMED. SUCH DETAILS REVEALED THAT A SUM OF RS.8 98 824 WAS NOT SUBSTANTIATED BY ANY EVIDENCE. IN OUR CONSIDERED OPINION THIS AMOUNT WAS REQUIRED TO BE DISALLOWED. WE ORDER ACCORDINGLY. SECOND AMOUNT IS SUM OF RS.1 35 000 AGAINST WHICH AGAIN THE ASSESSEE COULD NOT GIVE SUPPORTING EVIDENCE. WE HOLD THAT THIS AMOUNT OF EXPENDITURE IS ALSO REQUIRED TO BE DISAL LOWED. AS REGARDS CHIMNEY THE LEARNED ITA NO.5481/M/08 & CO NO.199/M/09 M/S.BANNER PHARMA CAPS PRIVATE LIMITED. 4 CIT(A) HAS RIGHTLY HELD THAT SUM OF RS .2 26 403 BE CAPITALIZED AND DEPRECIATION BE ALLOWED. ON THE REMAINING AM OUNT OF WORK-IN-PROGRESS AT RS.51.93 LAKHS THE A.O. SUGGESTED 20% DISALLOWANCE AND AT THE SAM E TIME ADMITTED IN THE REMAND REPORT THAT : THOUGH NO NEW AS SET HAS COME TO THE EXIS TENCE IN REVAMPING AND OVERHAULING FABRICATING ETC. THE AMOUNT SPENT OF SUCH A MAGNITUDE CANNOT BE SUBSCRIBED AS EXPENDITURE REQUIRED FOR CARRYING OUT DAY TO DAY BUSINESS. THESE OBSERVATIONS OF THE ASSESSING OFFICER AMPL Y DEMONSTRATE THAT THE SAID AMOUNT OF RS.51.93 LAKHS RELATED TO REPAIRING OF THE EXISTING ASSET A ND NO NEW ASSET WAS BROUGHT INTO EXISTENCE. WE THEREFORE HOL D THAT NO DISALLOWANCE COULD BE MADE OUT OF THIS AMOUNT. TO SUM UP WE HOLD THAT THE ADDITION IS REQUIRED TO BE CONFIRMED AT RS.10 33 824 (RS.8 98 824 + 1 35 000). FURTHER THE EXPENDITURE ON ACCOUNT OF CHIMNEY HAS BEEN RIGHTLY DIRECTED BY THE LEARNED CIT(A) TO BE CAPITALIZED AND DEPRECIATION GRANTED THEREON. TH IS GROUND IS PARTLY ALLOWED. 6. CROSS OBJECTION FILED BY THE ASSESSEE IS DELAYED BY 240 DAYS . AN AFFIDAVIT HAS BEEN FILED PRAYING FOR THE CONDONATION OF DE LAY. ON PERUSAL OF THE AFFIDAVIT VIS-- VIS THE FACTS OF THE INSTANT CASE WE ARE NOT SATISFIED W ITH THE REASONABLENESS OF THE CAUSE IN PRESENTING THE CROSS OBJECTION BELATE DLY. WE THEREFORE REFUSE TO CONDONE THE DELAY. AS A RESULT OF THIS THE C.O. CANNOT BE ADMITTED FOR HEARING. 7. IN THE RESULT THE APPEAL OF THE RE VENUE IS PARTLY ALLOWED AND THE CROSS OBJECTION BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY 2011. SD/- SD/- ( V.DURGA RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 15 TH JULY 2011. DEVDAS*` ITA NO.5481/M/08 & CO NO.199/M/09 M/S.BANNER PHARMA CAPS PRIVATE LIMITED. 5 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - VI MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.