ITO WD 22(2)-4, NAVI MUMBAI v. TOYO AUTO ENGINEERS, MUMBAI

ITA 3992/MUM/2010 | 2007-2008
Pronouncement Date: 24-02-2012 | Result: Dismissed

Appeal Details

RSA Number 399219914 RSA 2010
Assessee PAN AABHH1162B
Bench Mumbai
Appeal Number ITA 3992/MUM/2010
Duration Of Justice 1 year(s) 9 month(s) 7 day(s)
Appellant ITO WD 22(2)-4, NAVI MUMBAI
Respondent TOYO AUTO ENGINEERS, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 24-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 24-02-2012
Date Of Final Hearing 07-02-2012
Next Hearing Date 07-02-2012
Assessment Year 2007-2008
Appeal Filed On 17-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI B. RAMAKOTAIAH A.M. AND SHRI V. DURGA RAO J.M. ITA NO. 4662/MUM/2010 ASSESSMENT YEAR: 2007-08 TOYO AUTO ENGINEERS APPELLANT C/O M/S MERCHANT & BABARIA CHARTERED ACCOUNTANTS A/7 ANNAPURNA ESTATE TILAK ROAD GHATKOPAR (E) MUMBAI 400 077. (PAN AABHH1162B) VS. INCOME-TAX OFFICER-22(2)4 RESPONDENT MUMBAI. ITA NO. 3992/MUM/2010 ASSESSMENT YEAR: 2007-08 INCOME-TAX OFFICER-22(2)4 APPELLANT MUMBAI. VS. TOYO AUTO ENGINEERS RESPONDENT C/O M/S MERCHANT & BABARIA CHARTERED ACCOUNTANTS A/7 ANNAPURNA ESTATE TILAK ROAD GHATKOPAR (E) MUMBAI 400 077. (PAN AABHH1162B) ASSESSEE BY : MR. FIROZE B. ANDHYATUJIWA & MR. VIREN MERCHANT REVENUE BY : MR. JITENDRA YADAV DATE OF HEARING : 07/02/2012 DATE OF PRONOUNCEMENT : 24/02/2012 ORDER PER V. DURGA RAO J.M.: THESE ARE THE CROSS APPEALS FILED DIRECTED AGAI NST THE ORDER OF CIT(A)-33 MUMBAI PASSED ON 19/03/2010 FOR THE ASS ESSMENT YEAR 2007-08. ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 2 ITA NO. 4662/MUM/10 APPEAL BY THE ASSESSEE 2 GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF TH E CIT(A) IN CONFIRMING THE DISALLOWANCE OF SALES CONSULTANCY CH ARGES OF RS. 7 50 000/-. 3. THE FACTS RELATING TO RAISE THIS GROUND ARE THAT THE ASSESSEE HAD CLAIMED CONSULTANCY CHARGES OF RS. 7 50 000/- PAID TO I) DILIP K. LILANI (HUF) II) HEMANT K. LILANI (HUF) AND III) R AJESH LILANI (HUF) OF RS. 2 50 000/- EACH. ON BEING ASKED BY THE AO TO JU STIFY THE PAYMENTS MADE ON ACCOUNT OF CONSULTANCY CHARGES TO THE SAID PERSONS IT WAS SUBMITTED THAT THE SAID SALES CONSU LTANCY CHARGES WERE PAID ON ACCOUNT OF EFFORTS TAKEN BY MEMBERS OF CONCERNED HUFS FOR THE SALE DEVELOPMENT AND THE HUFS PROVIDE INFO RMATION ABOUT FUTURE SALES OPPORTUNITIES AND MARKET EXPOSURE. IT WAS FURTHER SUBMITTED THAT THE ABOVE PAYMENTS WERE MADE IN CONN ECTION WITH THE BUSINESS OF THE ASSESSEE THEREFORE ALL THE AMOUNT S PAID WERE FULLY ALLOWABLE. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NOT SUBMITTED THE DE TAILS ABOUT THE SERVICES RENDERED BY THE HUFS AND THERE WAS NOTHING ON RECORD WHAT WERE THE SPECIFIC SERVICES RENDERED BY THEM. HE TH EREFORE DISALLOWED THE CLAIM OF THE ASSESSEE OF RS. 7 50 000/- AND ADD ED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDE R OF THE AO THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO OBSERVING AS UNDER:- 5.2 I HAVE CAREFULLY CONSIDERED THE ORDER OF THE AO AND THE SUBMISSION MADE BY THE APPELLANT IN THE STATEMENT O F FACTS. I FIND THAT THE AO HAD DISALLOWED THE SALES CONSULTANCY CH ARGES AS THEY HAD REMAINED UNPROVED AND UNSUBSTANTIATED BY THE APPELLANT. THE APPELLANT HAS GIVEN A DETAILED WRITE UP AS TO WHY IT IS AN ALLOWABLE EXPENSE DURING THE COURSE OF APP ELLATE HEARING. I HAVE CONSIDERED THE SUBMISSION. I FIND THAT NOTHI NG NEW HAS BEEN BROUGHT ON RECORD. THE APPELLANT HAS CONTINUE D TO MAKE A GENERAL STATEMENT. THE APPELLANT HAS FOUND FAULT WI TH THE AOS OBSERVATION BUT HAS OFFERED NO DETAILS IN FORM OF D OCUMENTARY PROOF TO SUBSTANTIATE THE SALES CONSULTANCY DONE T O WARRANT PAYMENTS. IT IS OBSERVED THAT INSPITE OF OPPORTUNIT IES GIVEN THE ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 3 APPELLANT HAS NOT BEEN ABLE TO GIVE DETAILS OF SERV ICES RENDERED. NO DOCUMENTARY EVIDENCE TO SHOW THE MODE OF WORK AD OPTED BY THESE SALES REPRESENTATIVES WAS PRODUCED. I WAS ALS O NOT EXPLAINED HOW AND WHAT WAS THE RESULT OF THE SALES CONSULTANCY CHARGES PAYMENTS MADE. WITHOUT ANY DOCUMENTARY EVID ENCE NAMES ETC SUCH SERVICES THAT HAVE BEEN SAID TO BE PROVIDED BY THE CONSULTANTS TO THE APPELLANT CANNOT BE ACCEPTED . FOR AN APPELLANT TO BE ENTITLED TO THE BENEFIT CLAIMED REG ARDING CREDITS IN ITS ACCOUNTS THE ONUS IS ON THE APPELLANT TO PROVE AND VERIFY THE SAID PAYMENTS/EXPENSES WITH PRIMARY DOCUMENTARY EVI DENCE. IN THIS CASE THERE IS ABSOLUTELY NO MATERIAL ON RECOR D TO SUGGEST THAT THE PAYMENTS MADE ON SERVICES TO THE APPELLANT S BUSINESS. I THEREFORE AM NOT INCLINED TO INTERFERE WITH THE ORD ER OF THE AO O THIS ISSUE. THE ADDITION MADE IS SUSTAINED. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENTS MADE ON ACCOUNT OF CONSULTANCY CHARGES TO THREE PERSONS ARE HUFS AND ALL THE PAYMENTS WERE MADE THR OUGH ACCOUNT PAYEE CHEQUES. HE FURTHER SUBMITTED THAT THE DETAIL S IN RESPECT OF THE PAYMENTS MADE TO HUFS WERE FILED BEFORE THE AO AND IT IS NOT THE CASE OF THE REVENUE THAT THE PAYMENTS ARE NOT GENUI NE. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF UOI VS. MARTIN LOTTERY AGENCIES LTD. [2009] 20 STT 203 = 24VST 1 (SC) AND PARASMAL BAM V S. CCE 2002 STT 368 = 7 STT 198 (CEGAT) AND SUBMITTED THAT NO P ARTICULAR QUALIFICATION IS REQUIRED FOR MANAGEMENT CONSULTANT AS LONG AS THE CONSULTANCY SERVICE RELATING TO PRODUCTION MARKETI NG FINANCE ETC. IS PROVIDED SERVICE TAX IS PAYABLE. HE POINTED OUT TH AT THE GRIEVANCE OF THE AO IS THAT THE DETAILS OF SERVICES WERE NOT PRO VIDED BY THE ASSESSEE AND NOT DISPUTED THAT THE SERVICES WERE NO T RENDERED BY HUFS. 5. ON THE OTHER HAND THE LEARNED DR SUBMITTED THAT PAYMENTS WERE MADE TO THREE HUFS RS. 2 50 000/- EACH ON ACC OUNT OF CONSULTANCY CHARGES BUT WHAT ARE THE NATURE OF SE RVICES RENDERED BY THE SAID HUFS WERE NOT EXPLAINED OR SUBMITTED THE D ETAILS BEFORE THE ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 4 AO. HE THEREFORE SUBMITTED THAT THE ISSUE TO BE R ESTORED TO THE FILE OF THE AO FOR FRESH DECISION. 6. WE HAVE HEARD THE PARTIES PERUSED THE RECORD AN D GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS OBSERVED THAT THE FACT OF PAYING RS. 7 50 000/- TO THREE HUFS ARE NOT DISPUTE D BY THE REVENUE. THE ONLY GRIEVANCE OF THE REVENUE IS THAT DETAILS O F NATURE OF SERVICES RENDERED BY THE HUFS AND HOW THOSE SERVICES WERE UT ILIZED FOR THE BUSINESS OF THE ASSESSEE WERE NOT FILED BY THE ASE SSSEE. WE ARE OF THE VIEW THAT SINCE THE SAID REQUIRED DETAILS ARE NECES SARY TO DECIDE THE ISSUE WE RESTORE THE ISSUE TO THE FILE OF THE AO T O DECIDE THE ISSUE AFTER EXAMINING THE DETAILS WHICH WILL BE PUT-FORT H BY THE ASSESSEE BEFORE HIM AND IN ACCORDANCE WITH LAW AFTER PROVIDI NG REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSE E IS DIRECTED TO FURNISH THE DETAILS LIKE WHAT WAS THE SERVICES REND ERED BY THE HUFS AND HOW THE SERVICES WERE USEFUL IN THE BUSINESS OF THE ASSESSEE IN RESPECT OF THE CONSULTANCY CHARGES IN SUPPORT OF I TS CLAIM. THUS THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATIS TICAL PURPOSES. ITA NO. 3992/MUM/2010 APPEAL BY THE REVENUE 7. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN RESTRICTING THE ADDITION ON ACCOUNT OF DEPRECIATION ON FIXED ASSETS FROM RS. 3 89 464/- TO RS. 84 000/-. 8. THE AO DISALLOWED THE DEPRECIATION CLAIM OF THE ASSESSEE ON TWO COUNTS THAT I) THERE IS NO DOCUMENT OR EVIDENCE TH AT THE ABOVE BUILDING AND OFFICE WERE PUT TO USE IN FINANCIAL YE AR 2006-07 AND NO ELECTRICITY BILL WATER BILL ETC. HAS BEEN PRODUCE D TO EVIDENCE USAGE AND II) WHAT THE APPELLANT PURCHASED IN PAWANI WAS SIMPLY LAND WITH AC SHEET ROOFING AND AS SUCH DEPRECIATION WILL NOT BE ALLOWED ON THAT PROPERTY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 5 CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 84 000/- BY OBSERVING AS UNDER:- 3.3 REGARDING THE FIRST OBJECTION I FIND THAT THE APPELLANT HAS PRODUCED COPY OF ELECTRICITY AND WATER BILLS PAID. IT IS TRUE THAT THESE BILLS ARE RAISED IN THE NAME OF THE PREVIOUS OWNER BUT I FIND THAT THE PAYMENTS ARE EFFECTED BY THE APPELLANT AS THE BANK ACCOUNT SHOW. THE APPELLANT I FIND HAS ALSO PAID BY CHEQUE THE MUNICIPAL TAXES DUE ON THE SAID PROPERTY IN OCTOBER 2007. BESIDES THE ABOVE THE APPELLANT HAS ALSO SUBMITTED THE PROOF OF MOVEMENT OF STOCK FROM AND TO THE GODOWN SITUATED I N THE SAID PLOT BY WAY OF PURCHASE BILLS DELIVERY CHALLANS S TOCK REGISTER ETC WHICH CLEARLY SHOW THAT THERE WAS A MOVEMENT OF STO CK FORM THE SAID PROPERTY. THIS WOULD ALSO PUT AN END TO THE OB SERVATION MADE BY THE AO THAT THERE WAS NO BUILDING ON THE SA ID PLOT TO QUALIFY FOR DEPRECIATION. IN FACT THE STORING OF S TOCK IN THE PLOT PROVES THE EXISTENCE OF A GODOWN ALBEIT WITH A AC S HEET ROOFING. I ALSO FIND THAT THE APPELLANT IS RIGHT WHEN HE SUBMT S THAT THE AO HAS PICKED AND CHOSEN STATEMENTS FROM THE PURCHASE DEED AND HAS NOT CONSIDERED IT AS A WHOLE. THE SALE DEED DAT ED 20/09/2006 CLEARLY SPEAKS OF THE TOTAL PLOT AREA OF 600 MTRS WITH BUILTUP AREA OF 112.5 MTRS WHICH HAS BEEN CONSTRUCT ED BY THE MIDC AUTHORITIES ON OR ABOUT 1991. HE HAS SIMPLY TA KEN INTO CONSIDERATION THE DEED OF ASSIGNMENT DATED 18/04/20 07 AND FROM THERE PICKED UP PART OF CLAUSES AT WILL IGNOR ING OTHERS. A READING OF THE SAID DOCUMENTS DO PROVE THIS CONTENT ION OF THE APPELLANT AND THE FACT THAT THERE WAS A BUILDING ST ANDING AS A PART OF THE PROPERTY. IN VIEW OF THE ABOVE I AM NO T IN AGREEMENT WITH THE AO THAT THE PROPERTY DID NOT QUALIFY FOR D EPRECIATION AS THE SECTION NOWHERE STATES THAT THE BUILDING SHOULD HAVE A CERTAIN SPECIFICATIONS SO LONG AS THERE IS A BUILDI NG ON THE SAID PLOT AND IT IS USED FOR THE BUSINESS OF THE APPELLA NT DEPRECIATION CANNOT BE DENIED. THE AO IS DIRECTED TO ALLOW DEPRE CIATION ON THE SAID PROPERTY. HOWEVER AS THE LAND VALUE WOULD NOT QUALITY FOR DEPRECIATION THE DEPRECIATION ON LAND HAS TO BE DI SALLOWED. THE APPELLANT HAS SUBMITTED THAT THE VALUE OF LAND IS R S. 16 80 000/- AND THE DEPRECIATION ON IT @ 5% FOR YEARS WORKS O UT TO RS. 84 000/-. THE AO AFTER VERIFICATION IS TO DISALLOW THIS. SIMILARLY FOR THE ADDITION OF GODOWN AT NO. W 471 AS THE PUR CHASE DATE IS 20/09/2006 AS IT HAS BEEN PUT TO USE ONLY IN OCTOBE R 2006 DEPRECIATION IS ALLOWABLE ONLY FOR YEAR @ 5%. I F IND THE APPELLANT HAS ITSELF CLAIMED DEPRECIATION AS MENTIO NED ABOVE. THE AO MAY VERIFY THE SAME WHILE ALLOWING DEPRECIAT ION. REGARDING THE ADDITION OF OFFICE PREMISES I FIND T HAT THE SAME HAS BEEN PUT TO USE IN THE YEAR FROM FEBRUARY ONWAR DS TO BE USED AS A STORAGE CENTRE. DOCUMENTS TO PROVE THE SA ME HAS BEEN SUBMITTED. THE AO I FIND HAS MADE NO EFFORT TO ESTA BLISH HIS OBSERVATION THAT THE OFFICE WAS NOT USED. IT IS NOT NECESSARY THAT WHAT IS PURCHASED AS AN OFFICE BUILDING SHOULD BE U SED FOR OFFICE PURPOSE. AS LONG AS THE PREMISES ARE USED FOR THE B USINESS OF THE ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 6 APPELLANT AND THE APPELLANT IS ABLE TO PROVE SO D EPRECIATION WOULD BE ALLOWABLE. THE AO IS TO ALLOW THE SAME. HO WEVER WHILE CALCULATING THE DEPRECIATION ON OFFICE BUILDING IT IS TO BE KEPT IN MIND THAT THE PREMISES HAS BEEN PUT TO USE ONLY AFT ER 21/02/2007. WHILE CALCULATING THE DEPRECIATION THE AO IS DIRECTED TO KEEP IN VIEW THE CONCEPT OF BLOCK OF AS SETS. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 9. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE CIT(A) WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PRODUCE EITHER ELECTRICITY BILL OR WATER BILL IN SUPPORT OF ITS CLAIM RESTRICTED THE ADDITION ON ACCOUNT OF DEPRECIATION ON FIXED ASSETS FROM RS. 3 89 464/- TO RS. 84 000/-. HE THEREFORE SUBM ITTED THAT THE ACTION OF THE CIT(A) IS NOT PROPER AND THE ORDER OF THE CIT(A) MAY BE SET SIDE. 10. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE ORDER OF THE CIT(A). 11. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTI ES PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE BEFORE RESTRICTING THE DISALLOWANCE OF DEP RECIATION THE CIT(A) GAVE A CATEGORICAL FINDING THAT THE ASSESSEE BY WAY OF DOCUMENTS PRODUCED DURING THE APPELLATE PROCEEDINGS HAS BEEN ABLE TO ESTABLISH THAT THERE WAS AN ASSET AVAILABLE IN HIS HAND AS FI XED ASSET AND AS THIS ASSET WAS PUT TO USE IN THE YEAR UNDER CONSIDE RATION FOR BUSINESS PURPOSE IT WOULD QUALIFY FOR CLAIMING DEPRECIATION U/S 32 OF THE ACT. HE FURTHER GAVE A FINDING THAT THE AO HAS NOT DISPUTED THE PURCHASES OF THE PROPERTY AT PLOT NO. 471 TTC INDUSTRIAL AREA PAWANI AND OFFICE PREMISES AT 605 MARDHOLI SIGNATE PLOT NO. 3914 SE CTOR 30A VASHI FOR BUSINESS PURPOSE BUT HE HAS DISALLOWED THE DEPRECIA TION CLAIMED ON THE GROUND THAT I) NO ELECTRICITY BILL WATER BILL ETC. HAS BEEN PRODUCED TO EVIDENCE USAGE AND II) WHAT THE APPELLANT PURCHASED IN PAWANI WAS ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 7 SIMPLY LAND WITH AC SHEET ROOFING AND AS SUCH DEPRE CIATION WILL NOT BE ALLOWED ON THAT PROPERTY. AGAINST THE SAID OBJECTIONS THE CIT(A) HELD THAT THE ASSESSEE HAD PRODUCED COPY OF ELECTRICITY AND WATER BILLS PAID AND IT IS TRUE THAT THESE BILLS ARE RAISED IN THE N AME OF THE PREVIOUS OWNER BUT THE SAID PAYMENTS ARE EFFECTED BY THE ASS ESSEE AS THE BANK ACCOUNT SHOW AS THE PAYMENT MADE BY CHEQUE. IN VIE W OF THE FINDINGS OF THE CIT(A) WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE ORDER OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE OF DEPRE CIATION FROM S. 3 89 464/- TO RS. 84 000/-. ACCORDINGLY WE UPHOLD T HE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE REVENUE . 12. GROUND NO. 2 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN RESTRICTING THE ADDITION MADE ON ACCOUNT OF INTERES T ON BORROWED CAPITAL FROM RS. 7 98 459/- TO RS. 73 015/-. 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E AO FOUND THAT ASSESSEE HAD PAID INTEREST OF RS. 7 87 104/- AT 18% PER ANNUM TO THE PERSONS FROM WHOM UNSECURED LOANS HAD BEEN TAKEN. A LL THESE PERSONS ARE WITHIN THE MEANING OF SECTION 40A(2)(B) . ON QUERY BY THE AO THE ASSESSEE HAD SUBMITTED THAT INTEREST PAID B Y THE ASSESSEE TO THE INDIVIDUALS @ 18% PER ANNUM ON BORROWED CAPITAL CHEAPER THAN THE INTEREST RATES PREVAILING IN THE MARKET DURING THAT PERIOD WHICH WAS AROUND 21% AND ALSO SUBMITTED THAT THESE LOANS WERE UNSECURED LOANS AND THE RATES OF INTEREST IS MORE THAN BANK R ATES FOR UNSECURED LOANS. THE AMOUNT BORROWED WAS USED TO PURCHASE LON G TERM FIXED DEPOSIT AND THEREFORE USED FOR THE PURPOSE OF BUS INESS. THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HAD OB SERVED THAT THE ASSESSEE HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO SUPPORT INTEREST BEING CHARGED @ 21% IN THE FY. HE FURTHER OBSERVED THAT EVEN BANKS ARE CHARGING @ 14% DURING THE FY 2006-07 AND INTERE ST PAID BY THE ASSESSEE IS THE PERSONS SPECIFIED U/S 40A(2)(B) AND HENCE THE INTEREST PAID BY THE ASSESSEE IS EXCESSIVE AND THE SAME IS RESTRICTED TO 15% PER ANNUM. THE AO HAD FURTHER OBSERVED THAT THE BORROWED ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 8 FUNDS HAD BEEN UTILIZED FOR PURCHASE OF FIXED ASSET AND THE SAME WERE NOT PUT TO USE AND THEREFORE AS PER THE PROVISION S OF SECTION 36(3) OF THE ACT THE INTEREST IS ACCORDINGLY BEING CAPITALI ZED AND SAME SHALL NOT BE ALLOWED AS DEDUCTION. AGGRIEVED THE ASESSSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE THE CIT(A) HELD AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE ORDER OF THE AO AND THE SUBMISSION MADE BY THE APPELLANT IN THE STATEMENT O F FACTS. IT IS SEEN THAT THE AO HAS DISALLOWED THE INTEREST PAID O N BORROWED CAPITAL USED TO PURCHASE ASSETS HOLDING THAT THE SA ME NEEDED TO BE CAPITALIZED AS THE ASSETS WERE NOT PUT TO USE DU RING THE ASSESSMENT YEAR IN QUESTION. HOWEVER AS DISCUSSED EARLIER IN THIS ORDER IT IS SEEN THAT THE APPELLANT HAS CLEAR LY PROVED THAT THE ASSETS WERE PUT TO USE IN THE YEAR AND QUALIFIE D FOR DEPRECIATION. THEREFORE IN THE YEAR INTEREST PAID ON CAPITAL SAID TO BE BORROWED FOR PURCHASE OF ASSET NEEDS TO BE AL LOWED AS AN EXPENDITURE. HOWEVER IT IS ALSO SEEN THAT THE DETA ILS OF PURCHASES SHOW THAT AN AMOUNT OF RS. 12 83 750/- WA S USED FOR ACQUIRING CAPITAL ASSET AND USED IN A PRE-CAPITALIZ ATION PERIOD. THEREFORE INTEREST ON THIS AMOUNT @ 12% IS NOT TO BE ALLOWED AS A DEDUCTION. TO THIS EXTENT ADDITION OF RS. 73 015 /- UNDER THE ISSUE IS SUSTAINED. FOR THE BALANCE AMOUNT IT IS S EEN THAT AS THE AO HAS NOT DISPUTED THE LOAN ITS USAGE OR QUANTUM OF INTEREST PAID THE SAME CANNOT BE DISALLOWED AS DONE BY THE AO AND THE ADDITION MADE IS DELETED. AO TO TAKE ACTION ACCORDI NGLY. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 14. BEFORE US THE LEARNED DR SUBMITTED THAT BORROW ED FUNDS HAVE BEEN UTILIZED FOR PURCHASE OF FIXED ASSET AND AS AS SET ARE NOT PUT TO USE THEREFORE IT IS PROVED THAT AMOUNT BORROWED I S NOT USED FOR THE PURPOSE OF BUSINESS. HE FURTHER SUBMITTED THAT AS P ER THE PROVISIONS OF SECTION 36(III) THE INTEREST IS ACCORDINGLY BEIN G CAPITALIZED AND THE SAME SHALL NOT BE ALLOWED AS DEDUCTION. 15. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THE PROPERTIES BOUGHT DURING THE PREVIOUS YEAR 2006-07 ARE PUT TO USE AND DETAILS OF VARIOUS EXPEN SES INCURRED FOR USAGE OF THE SAID PROPERTY SUCH AS WATER CHARGES T AXES ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 9 TRANSPORTATION EXPENSES ETC ARE EXPLAINED PROPERLY BUT THE AO WITHOUT CONSIDERING THE SAME DISALLOWED THE INTERE ST. THE LEARNED COUNSEL FOR RELIED UPON THE JUDGMENT OF THE HONBL E SUPREME COURT IN THE CASE OF DCIT VS. CORE HEALTH CARE LTD. [200 8] 298 ITR 194(SC) IN SUPPORT OF ITS CASE. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUS ED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. THE GRIEVANCE OF THE AO FOR DISALLOWING THE INTEREST CLAIM OF THE AS SESSEE IS THAT THE THERE IS NO DOCUMENT OR EVIDENCE THAT THE BUILDING AND OFFICE WAS PUT TO USE DURING THE FY 2006-07 AND HAS BEEN USED FOR THE PURPOSE OF BUSINESS AND NEITHER THE ASSESSEE HAS PRODUCED ELEC TRICITY BILL NOR COPY OF WATER BILL SO AS TO EVIDENCE THE USE OF PRE MISES. THE CIT(A) ON THE OTHER HAND OBSERVED THAT THE ASSESSEE HAS CLEA RLY PROVED THAT THE ASSETS WERE PUT TO USE IN THE YEAR AND QUALIFIED FO R DEPRECIATION. HE FURTHER OBSERVED THAT THE AO HAS NOT DISPUTED THE LOAN ITS USAGE OR QUANTUM OF INTEREST PAID THEREFORE THE INTEREST C ANNOT BE DISALLOWED. THE HONBLE SUPREME COURT IN THE CASE OF CORE HEALT H CARE LTD. (SUPRA) ON WHICH RELIANCE PLACED BY THE ASSES SEE HELD THAT IT MAKES NO DISTINCTION BETWEEN MONEY BORROWED TO ACQU IRE A CAPITAL ASSET OR A REVENUE ASSET. ALL THAT SECTION REQUIRES IS THAT THE ASSESSEE MUST BORROW CAPITAL AND THE PURPOSE OF THE BORROWIN G MUST BE FOR BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE YEAR OF ACCOUNT.. THE APEX COURT FURTHER HELD AS UNDER:- UNLIKE SECTION 37 WHICH EXPRESSLY EXCLUDES AN EXPEN SE OF A CAPITAL NATURE SECTION 36(1)(III) EMPHASIZES THE U SER OF THE CAPITAL AND NOT THE USER OF THE ASSET WHICH COMES I NTO EXISTENCE AS A RESULT OF THE BORROWED CAPITAL. THE LEGISLATUR E HAS THEREFORE MADE NO DISTINCTION IN SECTION 36(1)(III ) BETWEEN CAPITAL BORROWED FOR A REVENUE PURPOSE AND CAPITA L BORROWED FOR A CAPITAL PURPOSE. AN ASSESSEE IS ENTITLED TO CLAIM INTEREST PAID ON BORROWED CAPITAL PROVIDED THAT THE CAPITAL IS US ED FOR BUSINESS PURPOSE IRRESPECTIVE OF WHAT MAY BE THE RESULT OF U SING THE CAPITAL WHICH THE ASSESSEE HAS BORROWED. ACTUAL CO ST OF AN ASSET HAS NO RELEVANCY IN RELATION TO SECTION 36(1) (III). ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 10 17. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES O F THE CASE AND THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE SA ID CASE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) A ND THEREFORE THE SAME IS HEREBY UPHELD. ACCORDINGLY THE GROUND RAIS ED BY THE REVENUE IS DISMISSED. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF FEBRUARY 2012. SD/- SD/- (B. RAMAKOTAIAH) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 24 TH FEBRUARY 2012 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 13/02/12 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 14/02/12 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S ITA NOS. 4662 & 3992/MUM//2010 M/S TOYO AUTO ENGINEERS 11 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER