DCIT, Panchkula v. M/s Haryana State Roads & Bridges Dev. Corp. Ltd., Panchkula

ITA 1309/CHANDI/2010 | 2007-2008
Pronouncement Date: 24-02-2012 | Result: Dismissed

Appeal Details

RSA Number 130921514 RSA 2010
Bench Chandigarh
Appeal Number ITA 1309/CHANDI/2010
Duration Of Justice 1 year(s) 3 month(s) 7 day(s)
Appellant DCIT, Panchkula
Respondent M/s Haryana State Roads & Bridges Dev. Corp. Ltd., Panchkula
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 24-02-2012
Date Of Final Hearing 22-02-2012
Next Hearing Date 22-02-2012
Assessment Year 2007-2008
Appeal Filed On 16-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA VICE PRESIDENT AND SHRI MEHAR SINGH ACCOUNTANT MEMBER ITA NO.1309/CHD/2010 ASSESSMENT YEAR: 2007-08 DCIT V M/S HARYANA STATE ROADS PANCHKULA CIRCLE & BRIDGES DEV.CORP.LTD. PANCHKULA. BAY NO. 13-14 SECTOR 2 PANCHKULA. PAN: AAACH-9435M & ITA NO.1318/CHD/2010 ASSESSMENT YEAR: 2007-08 HARYANA STATE ROADS & BRIDGES V ACIT DEV.CORP. LTD. PANCHKULA RANGE BAY NO. 13-14 SECTOR 2 PANCHKULA. PANCHKULA. PAN: AAACH-9435M (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI MANJIT SINGH ASSESSEE BY : SHRI ATUL MANDHAR DATE OF HEARING : 22.02.2012 DATE OF PRONOUNCEMENT : 24.02.2012 ORDER PER MEHAR SINGH AM THESE ARE CROSS-APPEALS FILED BY THE REVENUE AND TH E ASSESSEE RESPECTIVELY DIRECTED AGAINST THE ORDER OF CIT(A) PASSED U/S 250(6) OF THE INCOME-TAX ACT 1961 (IN SH ORT 'THE ACT') DATED 09.09.2010 RELATING TO ASSESSMENT YEAR 2007-08. 2 2. IN REVENUES APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (1) ON THE BASIS OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN REDUCING T HE DISALLOWANCE OF RS.3 52 90 852/- ON ACCOUNT OF 1/8 TH OF THE FINANCIAL EXPENSES TO 1/32 OF THE FINANCIAL EXPENSES RESULTING INTO A RELIEF OF RS.2 63 95 400/- IGNORING THE FACT THAT THE ASSESSEE IN ITS LETTER F.NO. 1797/HSRDC DATED 8.12.2009 HAD ITSELF ADMITTED THAT 28 TOLL POINTS OUT OF 32 WERE IN OPERATION. (2) ON THE BASIS OF THE FACTS IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN ADMITTING THE ADDITION EVIDENCE SUBMITTED BY THE ASSESSEE DURING APPELLATE PROCEEDINGS IN VIOLATION OF THE RULE 46A OF THE IT RULES 1962 WHILE ALLOWING RELIEF ON ACCOUNT OF FINANCIAL EXPENSES. (3) IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SE T- ASIDE AND THAT OF THE AO BE RESTORED. (4) THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 3. IN GROUND NO.1 THE REVENUE CHALLENGED THAT THE CIT(A) ERRED IN REDUCING THE DISALLOWANCE OF RS.3 52 90 852/- ON ACCOUNT OF 1/8 TH OF FINANCIAL EXPENSES TO 1/32 OF FINANCIAL EXPENSES RESULTING INTO A REL IEF OF RS.2 63 95 400/-. 4. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS AND RELEVANT RECORDS AND FOUND THAT THE FINDINGS OF THE LD. CIT(A) ARE IN CONSONANCE WITH THE FACT-SITUATION AN D THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT AND PRO VISO 3 THEREUNDER. THE REVENUE HAS FAILED TO DISLODGE THE FACTUAL POSITION ON THE ISSUE IN QUESTION. THE PROVISIONS OF SECTION 36(1)(III) AND PROVISO THEREUNDER ARE CLEAR IN LEGISLATIVE INTENT. THEREFORE THE FINDINGS OF THE LD. CIT(A) AS REPRODUCED HEREUNDER ARE UPHELD: 6. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY THE ASSESSEE AND THE REASONING OF THE AO. IT IS CLEAR THAT THE AO HAS SIMPLY FOLLOWED THE EARLIER ORDER WHILE DISALLOWING 1/8 TH OF THE FINANCIAL EXPENSES. THE REASON OF DISALLOWANCE OF THE FINANCIAL EXPENSES AS EVIDENT FROM THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07 IS THAT THE PROJECTS FOR WHICH THESE EXPENSES HAVE BEEN INCURRED HAVE NOT BEEN COMPLETED/COMMISSIONED AND AS SUCH THESE EXPENSES ARE CAPITAL IN NATURE. THE NOTIFICATION OF TOLL POINTS HAS BEEN TAKEN AS THE INDICATOR OF COMPLETION/COMMISSIONING OF THE PROJECTS. IT IS CLEAR FROM THE SUBMISSIONS MADE BY THE ASSESSEE THAT THREE OUT OF THE FOUR TOLL POINTS MENTIONED IN THE ASSESSMENT ORDER HAD ALREADY BEEN NOTIFIED. SO THERE IS MERIT IN ASSESSEE'S SUBMISSIONS THAT TH E RESPECTIVE PROJECTS SHOULD BE TREATED AS HAVING BEEN COMPLETED AND THE FINANCIAL EXPENSES TO THAT EXTENT SHOULD BE ALLOWED. THE AO IS DIRECTED TO DELETE THE DISALLOWANCE TO THAT EXTENT. 5. FURTHER THE FINDINGS OF THE LD. CIT(A) ARE ALSO IN CONSONANCE WITH THE RELEVANT PROVISIONS OF THE ACT AS INTERPRETED BY THE HON'BLE SUPREME COURT AS WELL AS JURISDICTIONAL HIGH COURT. IN VIEW OF THE AMENDMENT BY WAY OF INSERTION OF PROVISO TO SECTION 36(1)(III) OF THE ACT THE INTEREST ON MONEYS BORROWED FOR AC QUIRING A CAPITAL ASSET WOULD BE DISALLOWED TILL SUCH ASSET IS PUT TO U SE. IT 4 MEANS THAT INTEREST ON SUCH BORROWED CAPITAL WOULD BE C APITALIZED OR ADDED TO THE COST OF THE ASSET RATHER THAN BE ELIGI BLE FOR TREATMENT AS A CHARGE ON CURRENT PROFIT. IN A NUTSHELL SUCH INTEREST CANNOT BE CLAIMED AS REVENUE EXPENDITURE. SUCH A VIEW IS CONSISTENT WITH THE PRE-EXISTING LAW IN THE DEFINITION OF ACTU AL COST AS ENVISAGED IN EXPLANATION 8 TO SECTION 43(1) OF THE ACT. THE PRESENT LAW U/S 36(1)(III) AND PROVISO THEREUNDER CLEARLY STIPULATES THAT EXPANSION OF BUSINESS AS NO LONGER A LEGIT IMATE STATUTORY GROUND FOR THE CLAIM OF DEDUCTION OF INTEREST ON BORROWING FOR ACQUIRING ASSETS AS INTEREST ON BORROWED CAPITAL WHETHER FOR N EW BUSINESS OR EXPANSION OF BUSINESS WILL BE TREATED AS ADD ING TO THE COST OF ASSET AND WILL NOT BE A CHARGE ON PROFIT TILL SUCH DATE ON WHICH THE ASSET IS PUT TO USE. IN THIS CONTEXT EXPLANAT ION 8 TO SECTION 43(1) OF THE ACT BARRING INCLUSION OF ANY INTEREST AFT ER AN ASSET IS PUT TO USE SHOULD BE CONSTRUED AS INDICATIVE OF THE LEGISLATIVE INTENT TO TREAT INTEREST RELATING TO PERIOD TILL THE DATE OF USE AS CAPITAL EXPENDITURE. IT CAN COVER A CASE OF SUB STANTIAL EXPANSION. THE HON'BLE SUPREME COURT THEREFORE POINTED OUT IN A NUMBER OF CASES IN ACIT V ARVIND POLYCOT LTD. (2008) 299 ITR 12 (S.C) JCIT V UNITED PHOSPHOROUS LTD. (2008) 299 ITR 9 (S.C) AND DCIT V GUJRAT ALKALIES AND CHEMICALS LTD. (2 008) 299 ITR 85 (S.C) HOLDING THAT ITS EARLIER DECISION IN DCI T V CORE HEALTHCARE LTD. (2008) 298 ITR 94 (S.C) CAN HAVE APPLIC ATION FOR PRE-AMENDED PERIOD FOR ASSESSMENT YEAR BEFORE ASSES SMENT YEAR 2004-05. SINCE THE BORROWING RELATED TO THE PRE-AMENDMENT PERIOD IN THE CASE OF DCIT V CORE HEALTHCARE LTD.(SUPRA) THERE COULD BE NO DISALLOWANCE. CONSEQUENTLY SUCH DECISION HAS NO APPLICATION FOR THE ASSESSMENT YEAR FALLING IN THE POST-AMENDMENT PERIOD. A SIMILAR ISSUE WAS ADJUDICATED BY THE HON'BLE JURISDICTIONA L HIGH COURT IN CIT V VARDHMAN POLYTEX LTD. (2008) 299ITR 152 (P&H) (FB). IN AN ELABORATE JUDGEMENT AFTER EXAMINING AND APPRE CIATING A NUMBER OF PRECEDENTS THE HON'BLE HIGH COURT TOOK THE V IEW THAT INTEREST ON LOAN RAISED FOR RUNNING A BUSINESS FOR DAY-TO- DAY REQUIREMENT WOULD BE DEDUCTIBLE AND NOT FOR CREATING SUBS TANTIAL 5 ASSETS WITH NEW CAPACITY ON A NEW LOCATION. IN THE PRE SENT CASE THE ASSET IN QUESTION HAS SINCE BEEN PUT TO USE. 6. ACCORDINGLY THIS GROUND OF APPEAL OF THE REVENU E IS DISMISSED. 7. AS FAR AS GROUND NO. 2 IS CONCERNED THE CONTENT ION RAISED THEREIN BY THE REVENUE IS NOT IN CONSONANCE WITH THE FACT-SITUATION OF THE PRESENT CASE. IN THE COU RSE OF ASSESSMENT PROCEEDINGS NECESSARY SUBMISSION WAS MA DE BEFORE THE AO. THEREFORE THE CIT(A) HAS CONSIDERE D THE SAME ISSUE ON SAME MATERIAL BROUGHT BEFORE HER AN D THERE IS NO VIOLATION OF RULE 46A OF THE ACT AS CO NTENDED BY THE REVENUE. ACCORDINGLY THIS GROUND OF APPEAL OF THE REVENUE IS ALSO DISMISSED. 8. AS GROUND NOS. 3 & 4 ARE GENERAL IN NATURE THER EFORE NO SEPARATE ADJUDICATION IS BEING MADE. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 1318/CHD/2010 (ASSESSEE'S APPEAL) 10. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOL LOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE LD. CIT(A) PANCHKULA HARYANA IS PARTLY DEFECTIVE BOTH IN LAW AND FACTS OF THE CASE. 2. THAT THE LD. CIT(A) HAS NOT BEEN JUSTIFIED IN UPHOLDING THE ADDITION ON ACCOUNT OF INTEREST DISALLOWANCE ON LOAN RAISED AND TREATING THE SAME AS CAPITAL EXPENDITURE W.R.T. TOLL POINT NO.20. 6 3. THAT THE LD. CIT(A) HAS NOT BEEN JUSTIFIED IN UPHOLDING ADDITION OF RS.1 70 266/- UNDER THE PROVISIONS OF SECTION 40(A)(IA). 4. THAT ANY OTHER GROUND WHICH MAY BE TAKEN UP AT THE TIME OF HEARING WITH THE KIND PERMISSION. 11. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDICATION. 12. AS FAR AS GROUND NO. 2 IS CONCERNED LD. 'AR' CONTENDED THAT THE AO ADOPTED CONTRADICTORY APPROAC H IN ALLOWING DEPRECIATION ON THE ASSETS BUT DISALLOWED THE INTEREST EXPENSES IN RESPECT OF ACQUISITION OF THE SAID ASSETS. HE ALSO DREW OUR ATTENTION TO THE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO. 937/CHD/2008 DATED 29.10.2009 WHEREBY ON SIMILAR FACTS THE ISSUE WAS RESTORED TO THE FILE OF THE AO. RESPECTFULLY FOLLOWING THE DECISION OF THE BENCH IN ASSESSEE'S OWN CASE HAVING SIMILAR FACTUAL POSI TION THE ISSUE IS RESTORED TO THE FILE OF THE AO FOR ADJUDIC ATING THE ISSUE AFRESH AFTER NECESSARY VERIFICATION IN THE M ATTER AND IN ACCORDANCE WITH THE RELEVANT PROVISIONS OF THE A CT. THE AO IS DIRECTED TO AFFORD PROPER AND REASONABLE OPPO RTUNITY TO THE ASSESSEE. FOR THE PURPOSE OF READY REFERENCE PARA 5 OF THE AFORESAID ORDER IS REPRODUCED HEREUNDER : 5. ACCEPTING THE AFORESAID SUBMISSIONS WE AGREE THAT THE DISPUTES RAISED BY THE ASSESSEE NEED TO BE EXAMINED ON THEIR MERITS AND THE CIT(A) ERRED IN DISMISSING THE APPEAL IN AN EX-PARTE MANNER. OSTENSIBLY ON THE ISSUE OF DISALLOWANCE OF INTERES T EXPENDITURE THERE IS CONTRADICTION IN THE APPROACH 7 OF THE AO. ON ONE HAND DEPRECIATION ON ROADS CAPITALIZED DURING THE YEAR HAS BEEN ALLOWED WHEREAS THE INTEREST EXPENDITURE HAS BEEN DISALLOWED ON THE PLEA THAT THE ROADS HAVE NOT BEEN PUT TO USE. CERTAINLY THE DISALLOWANCE IS REQUIRED TO BE SUSTAINED ONLY WITH REGARD TO THOSE ASSETS WHICH HAVE NOT BEEN PUT TO USE DURING THE YEAR IN THE LIGHT OF THE PROVISO TO SECTION 36(1)(III) OF T HE ACT. THEREFORE WE DEEM IT APPROPRIATE TO SET ASIDE THE ORDER OF THE CIT(A) AND BOTH THE ISSUES ARE RESTORED BACK TO THE FILE OF THE AO TO BE EXAMINED AFRESH IN ACCORDANCE WITH LAW AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. 13 IN GROUND NO. 3 ASSESSEE CONTENDED THAT CIT(A ) HAS NOT BEEN JUSTIFIED IN UPHOLDING ADDITION OF RS.1 70 266/- UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE AC T. THE LD. CIT(A) HAS MADE CATEGORICAL FINDINGS ON THE ISSUE WHICH ARE REPRODUCED HEREUNDER : 7.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E BY THE ASSESSEE. THE ASSESSEE'S MAIN CONTENTION IS THAT SE CTION 40A(IA) IS NOT APPLICABLE IF THE AMOUNT IN QUESTION STOOD PAID AND NOTHING WAS OUTSTANDING AS AT THE END OF THE YEAR. THE ASSESSEE HAS PLACED RELIANCE ON JAIPUR BENCH DECISION IN THE CASE OF JA IPUR VIDYUT NIGAM LTD. VS. DCIT JAIPUR 123 TTJ 888 (JAIPUR) 1 HAVE HOWEVER IN MY DECISION IN THE CASE OF M/S AJAY STEEL ROLLIN G MILL IN APPEAL NO. 44/AMB/09-10 DATED 30.08.3010 HAVE ALREADY REJE CTED A SIMILAR ARGUMENT TAKEN BY THE ASSESSEE AND HAVE TAKEN A VIEW THAT SECTION 40A(IA) IS APPLICABLE IRRESPECTIVE OF THE S TATUS OF THE PAYMENT IN QUESTION. THE DECISION OF HON'BLE JAIPUR BENCH IS ALSO ON THE SAME LINES AND DOES NOT HELP THE ASSESSEE IN VIEW OF THE FOLLOWING :- (I) THE APPLICABILITY OF CHAPTER XVII B VIZ-A-VIZ THE PROVISIONS OF SECTION 40(A)(IA) HAS NOT BEEN KEPT I N VIEW. 8 (II) THE HON'BLE BENCH HAS OMITTED TO TAKE NOTE OF THE FOLLOWING FACTS THAT A) THE TAX IS DEDUCTIBLE UNDER SUB SECTION 193 194A 194C 194H AND 194J NOT EITHER AT THE TIME OF CREDIT OR PAYMENT BUT AT THE TIME OF CREDIT OR PAYMENT WHICHEVER IS EARLIER. B) THAT BARE PROVISIONS OF SECTION 40(A)(IA) DOES NOT PROVIDE FOR NON DEDUCTION OF AMOUNT WHICH REMAINS PAYABLE TO A RESIDENT IN RESPECT OF FEES FOR TECHNICAL SERVICES ETC. BUT FOR NON DEDUCTION OF AN AMOUNT ON WHICH TAX IS DEDUCTIBLE UNDER CHAPTER XVIIB BUT HAS OT BEEN DEDUCTED. THE BARE ACT DOES NOT USE THE WORD REMAINS PAYABLE. (III) FURTHER THE INTERPRETATION OF THE TERM PAYABLE AS GIVEN BY THE HON'BLE BENCH IS NOT SUPPORTED BY THE LEGAL PROVISION AS NO WHERE IN SECTION 40(A)(IA) THE LEGISLATURE HAS DRAWN ANY DISTINCTION BETWEEN CREDIT AND PAYMENT OF AMOUNT. ALL THAT THE SECTION PROVIDES IS FOR DISALLOWANCE OF AMOUNT IF THE TAX DEDUCTIBLE AS PER CHAPTER XVIIB IS EITHER NOT DEDUCTED OR NOT PAID- THERE IS NON COMPLIANCE OF PROVISIONS OF CHAPTER XVIIB A SITUATION THAT CAN ARISE BOTH AT THE TIME OF PAYMENT AND CREDIT OF THE AMOUNT. THE JUDICIAL AUTHORITIES CAN NOT IMPORT A SITUATION WHICH IS NOT STIPULATED IN THE SECTION. (IV) ONE OF THE TWO REASONS GIVEN FOR ALLOWING RELIEF T O THE ASSESSEE IN THE ABOVE CASE IS THAT WHETHER TAX IS TO BE DEDUCTED AT SOURCE ON SUCH PAYMENT IS NOT FREE FROM DOUBT. SUCH IS NOT THE CASE IN THE CASES UNDER APPEAL. (V) THE HON'BLE ITAT OMITTED TO TAKE NOTE OF THE FINDING OF HON'BLE MADRAS HIGH COURT IN THE CASE OF TUBE INVESTMENTS OF INDIA LTD. V ACIT & OTHERS 266 CTR 313 AS DISCUSSED IN PRECEDING PARAS AND AS SUMMARIZED AS UNDER - A) 40(A)(IA) IS ATTRACTED FOR CONTRAVENTION OF PROVISIONS OF CHAPTER XVIIB. B) IT IS ATTRACTED ALSO IN THE SITUATIONS WHERE THE AMOUNT HAS BEEN ACTUALLY PAID. RESPECTFULLY NOT FOLLOWING THE DECISION OF JAIPUR B ENCH AND IN VIEW OF THIS DETAILED DISCUSSION IN MY ORDER MENTIONED SUPRA THIS ARGUMENT OF THE ASSESSEE IS REJECTED. THE ASSESSEE HAVING NOT QUESTIONED THE DEDUCTIBILITY OF TAX AT SOURCE ON THE PAYMENT IN QUESTION THE DISALLOWANCE MADE U/S 40(A)(IA) IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 9 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND FAC T- SITUATION OF THE CASE WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT(A) AND THE SAME ARE UPHELD . THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSE D. 15. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16. RESULTANTLY APPEAL OF THE REVENUE IN ITA NO. 1309/CHD/2010 (A.Y. 2007-08) IS DISMISSED AND THAT OF THE ASSESSEE IN ITA NO. 1318/CHD/2010 (A.Y. 2007-08) IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEB. 2012. SD/- SD/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 24 TH FEB. 2012. POONAM COPY TO: THE APPELLANT THE RESPONDENT THE CIT(A) CIT DR ASSISTANT REGISTRAR ITAT CHANDIGARH