TaxTMI 
TaxTMI 
2021 (7) TMI 826
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.... of depreciation. 3. That she was further not justified to arbitrarily uphold the addition of Rs. 35,60,870/- made by the Ld. Assessing Officer by resort to provisions of Sec. 41(1) on account of outstanding balances of sundry creditors for a period of more than three years. 3. Vide ground no. 1 the grievance of the assessee relates to the sustenance of disallowance of Rs. 26,81,157/- made by the A.O. under section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'). 4. Facts of the case in brief are that the assessee filed its return of income on 29/09/2011 declaring loss of Rs. 26,41,16,886/- under the normal provisions of the Act and the income was shown at Rs. 7,92,46,075/- under section 115JB of the Act, thereafter the assessee filed revised return on 29/09/2011 showing a net loss of Rs. 26,41,16,886/- and income under section 115JB of the Act was revised to Rs. 9,04,31,275/- Later on the case was selected for scrutiny. 4.1 During the course of assessment proceedings the A.O. noticed that the assessee had given funds to M/s G. Drugs and Pharmaceuticals Ltd. (GDPL) its associated concern, the balance on the last date was Rs. 2,06,24,284/- which was ....
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....ster concern M/s G. Drugs and Pharmaceuticals Limited. Your Honour's kind attention is drawn to the latest decision of the Hon'ble Supreme Court in the case of Hero Cycles Limited reported in 379ITR page 347 wherein Their Lordships have held that if the funds available with the assessee are more than the amount advanced, no disallowance of interest is warranted. Keeping in view these facts, the disallowance deserves to be deleted. Further Your Honour's kind attention is also drawn to the latest jurisdictional High Court judgement in the case of CLT v/s Kapsons Associates (P & H High Court) (2016) reported in 381 ITR p. 204. Also the issue is decided in favour of the appellant company in the earlier assessment years i.e. 2007-08, 2008-09, 2009-10 and 2010-11 by Ld. CIT-A (4), Ludhiuna. Copy of order of' CIT-A(4), Ludhiana for the A. Y.2010-11 is enclosed for your kind reference. The above ground may kindly be adjudicated in the light of the submissions made above. 5.1 The Ld. CIT(A) however did not find merit in the submissions of the assessee and sustained the disallowance by observing in para 3.4 to 3.6 of the impugned order which read as under: 3.4....
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....ntion. However the assessee has merely reiterated the same submissions as relied upon at the time of assessment proceedings. During the entire assessment proceedings and appellate proceedings the assessee has not been able to correlate or substantiate amount given to M/S G. drugs and pharmaceuticals Ltd (GDPL) out of commercial expediency. Reliance was placed on the following case laws: * C.R. Auluck & Sons (2014) 360 ITR 93 (P&H) * S.A. Builders, (2007) 288 ITR 1 (SC) * CIT Vs. Malyalam Plantations (1964) 53 ITR 140 (SC) * CIT Vs. Birla Cotton Spinning and Weaving Mills, (1971) 82 ITR 166 (SC) * Tulip Star Hotels (2012) 21 Taxmann 97 (SC) * Crescent Organics (P.) Ltd. Vs. DCIT (2014) 49 taxmann.com 128 (Bom) * Hero Cycles (SC) Civil Appeal No. 514 of 2008 * CIT Vs. Kapsons Associates (2017) 79 taxmann.com 364 (P&H) * CIT Vs. Abhishek Industries Ltd. 286 ITR 1 * CIT Vs. Orissa Cement Ltd. 258 ITR 365 (Del) * CIT Vs. H.P. Sugar Factory Pvt. Ltd. (All) 187 ITR 363 6. Now the Assessee is in appeal. 7. Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and further submitted that the debit balance was on account....
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..... Therefore, no addition of interest was made in the capitalization of fixed assets. However, the assessee company has capitalized due interest paid on loan availed on the amount of capital work in progress which is still not capitalized during the year under consideration details of which has already been submitted on 08-01-2014." 11.1 The A.O. however was not satisfied from the submissions of the assessee and made the disallowance of Rs. 1,80,694/- by observing as under: The assessee's submission is considered but the same are not acceptable because it has taken loan for purchase of machinery during the year. There is gap between the payments made and the date on which machinery is put to use. There is addition to assets to the extent of Rs. 2,94,41,623/-. Interest worked out from the date of payments to date of asset put to use comes to Rs. 1,80,694/-. Interest relevant to the date of payment to asset put to use is required to be disallowed u/s 36(1 )(iii) of the LT. Act Accordingly applying the interest @ 13% on asset put to use i.e. Rs. 1,80,694/- is disallowed and added to the total income. Penalty proceedings u/s 271 (1)(c) are initiated on this point for submitting ....
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....es to Rs. 19,14,381/-. Same is capitalised to building under construction. In respect of capital advances the AR explained that it has gone out of the term loan whose interest has been capitalized. The argument put forth is not acceptable because the entire amount of building under construction, machinery under installation and capital advances is much/more than the term loan utilized. Further, no working in respect of the interest on capital advances has been furnished. Hence, in-absence of details, the interest is worked out at half of the entire year. The capital advances are to the extent of Rs. 4,96,51,140/-. Interest on the same at half of the interest for entire year comes to Rs. 32,27,324/- (Rs. 49651140 * 13% /2). Total disallowance on this account comes to Rs. 51,41,705/- (Rs. 1914381 +Rs. 3227324). The interest to the extent of Rs. 51,41,705/- is therefore disallowed and capitalized under proviso to section 36(l)(iii) of the I.T. Act The same would form part of the assets and depreciation would be allowed accordingly when the asset is put to use. Penalty proceedings u/s 271(l)(c) of the I.T. Act are initiated on this point for furnishing inaccurate particulars of income.....
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.... as to why these are not treated as cessation of liability and brought to tax u/s 41(1) of the Act, in reply, it is submitted that as a matter of practice, the assessee company review such creditors periodically and as per the decision of the Board of Directors of the company these creditors are written back. However, few amounts were still outstanding which are pending because of some dispute which is to be settled. Because of pending settlement these are not written back and as and when the same is settled, this will be adjusted. 18.1 The A.O. however did not find merit in the submissions of the assessee by observing that the sundry creditors amounting to Rs. 35,60,870/- were outstanding for more than three years, so it was liable to be taxed under section 41(1) of the Act as cessation of liability. Accordingly the addition of Rs. 35,60,870/- was made. 19. Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under: Addition of Rs. 35,60,870/- n/s 41(1) on account of sundry creditors balances outstanding for the last 3 years and has not been paid till now, therefore, it is being brought to Tax u/s 41(1) of the Income Tax Act, 1961 as cessation of....
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....ly. 8.3. After careful consideration of submission of appellant, it is observed , that the appellant has merely filed a written submission, however the appellant , has not annexed, any documentary evidence w.r.t its claim of payment o some of parties, and filing of legal suits against two parties. In absence of same, the contention of appellant has no force, hence the same is rejected. Accordingly, in my considered view the assessing officer has rightly disallowed the amount of Rs. 35,60,870/- on account of cessation of liability in the section 41 (1). Accordingly the disallowance on account of cessation of liability in the section 41(1) is upheld. These grounds of appeal are therefore dismissed. 20. Now the assessee is in appeal. 21. Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that since there was no cessation of the liability, therefore the Ld. CIT(A) was not justified in sustaining the addition made by the A.O. It was further submitted that certain payments were made after passing of the assessment order and amounts of few had been written back as per practice of the assessee company, in two cases the asse....