TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 99
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....ts and in the circumstances of the case and in law, the learned CIT(A) erred in considering the facts that expenditure incurred on CWIP has not resulted into an extension of any existing business within the meaning of the proviso to section 36(1)(iii) of the Act and accordingly, no disallowance of interest can be made under section 36(1)(iii) of the Act. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in rejecting that the Appellant has sufficient owned funds to make investment in CWIP and accordingly, no interest on borrowed funds should be disallowed under section 36(1)(iii) of the Act. 4. On the facts and circumstances of the case and in law, the learned CIT(A), has erred in not appreciating the fact that the Appellant has made the payments towards CWIP from its own funds and no immediate borrowings have been utilized to make the payments for the CWIP. 5. Without prejudice to the above, the learned CIT(A) erred in not considering the submission of the Appellant that in case he wishes to consider that borrowed funds have been utilized for CWIP, disallowance of interest can be restricted to Rs. 13,73,065/- by taking into consideratio....
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....61 ("the Act"). Accordingly, he calculated such interest by applying rate of 12% per annum at Rs. 15,52,172/- and capitalized the same which resulted in addition/disallowance on account of interest to the extent of Rs. 15,52,172/-. 3. The addition of Rs. 15,52,172/- made by the Assessing Officer to its total income on account of capitalization of interest was challenged by the assessee in the appeal filed by the assessee before the ld.CIT(A). During the course of appellate proceedings before the ld. CIT(A), a detailed submission was made on behalf of the assessee in support of its stand on this issue which in nutshell was as under: * "the costs incurred towards CWIP for construction of first floor of the factory premises and cold storage facilities does not amount to extension of business and hence, no disallowance under section 36(1)(iii) of the Act can be made. * Section 36(1) (iii) of the Act does not make any distinction between the funds borrowed for capital purpose or revenue purpose as long as the funds have been borrowed for the purpose of business. Hence, even if it is considered that the borrowed funds have been used for the capital purpose, the interest costs on the....
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....e case of Nirma Limited in which Honourable Tribunal has stated that in a case of cash credit account, where business receipts are credited in the same bank account, it cannot be said conclusively that overdraft in the bank account on the date of payment of advance tax is on account of payment of advance tax and not on account of other business payment made on the same date or preceding dates. The ratio in above case does not help the appellant as Honourable Bench has itself stated that overdraft in the bank account cannot be exclusively said to be on account of other business payments. In view of the above, the AC was justified to make the disallowance. 3.6. It is noted that identical issue has been decided by CIT(A)-2, Ahmedabad in appellant's own case in A.Y. 2012-13 vide appellate order dated 29/02/2016, whereby the issue has been decided against the appellant. The relevant portion of the order is reproduced hereunder:- "4.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submissions of the appellant. The AO has made the disallowance of interest amounting to Rs. 10,75,906/- on the average WIP. The AO observed that the....
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....ing the payment of CWIP, the overdraft balance has increased to the extent of the payment towards CWIP. Thus, from the above table, the claim of the appellant that the payment have been made out of its own funds in the form of share capital, reserves and surplus is found not correct. In fact, the share capital and reserves and surplus funds have already been exhausted by the appellant by investment in various assets and towards working capital requirements. The case laws relied upon by the appellant are not relevant and not identical to the facts of the case. 4.4. The appellant has further contended that the provisions of section 36(1)(iii) are not applicable in view of the various judgments for the reason that it was not the extension of business but it was mere continuation of the existing business of the appellant and do not represent capital assets utilised for setting up of another line of business. This argument itself contradicts with the appellant's own stand taken before the AO that the interest for the two months in respect of the new plant in A.Y. 2011-12 has already been capitalised by the appellant obviously treating the same as extension of the existing business....
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....n Poiytex Limited Vs Commissioner of Income Tax (254 CTR 102)(SC) 3. Joint Commissioner of Income Tax Vs United Phosphorous Limited (299 ITR 9)(SC) 4. Commissioner of Income Tax Vs Nirma Limited (367 ITR 12)(Gujarat HC) 5. Deputy Commissioner of Income Tax Vs Gujarat Narmada Valley Fertilizers Co. Ltd. (215 taxman 616) 6. Deputy Commissioner of Income Tax Vs Vodafone West Limited (ITA No. 909/Ahd/2014 & 944/Ahd/2014) (Ahmedabad ITAT) 7.Assistant Commissioner of Income Tax Vs Raajratna Metal Industries Limited (ITA No. 540/Ahd/2012 and 542/Ahd/2012) (Ahmedabad ITAT) We observe after perusal of above judicial pronouncements and from the proviso to section 36(1)(iii) that any interest paid in respect of capital borrowed for acquisition of an asset, even for the extension of the existing business has to be capitalized till the date on which such asset was first put to use and the same cannot be allowed as deduction. However, for want of information and supporting evidences, the assessing officer capitalized the interest @12% on the various items forming part of CWIP. After considering the above facts and judicial findings, we consider it will be appropriate to restore this ....
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....ance of any interest. 6. The Ld.DR, on the other hand, has contended that the Tribunal in assessee's own case for the immediately preceding year has upheld the decision of lower authorities in capitalizing the interest attributable to the acquisition of interest as reflected in CWIP by relying on the proviso to section 36(1)(iii) of the Act after having found that it was a case of extension of existing business of the assessee-company. He has contended that the facts involved in the case of CIT vs. Nirma Limited (supra) relied upon by the Ld. Counsel for the assessee are different and since the issue relating to capitalization of interest in the said case was decided in an altogether different context, the ratio of the same cannot be applied in the present case. He has also invited our attention towards the impugned order of the Ld.CIT(A) to point out that the assessee-company having incurred the cost of CWIP from the cash credit account, the nexus between the borrowed funds for acquisition of an asset was clearly established and there is no merit in the arguments of the Ld. Counsel for the assessee that its own funds were utilized by the assessee-company for acquisition of the sa....
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....taken by the assessee and since it was an extension of existing business, the disallowance of interest was rightly deleted by the Tribunal by relying on the decision of Hon'ble Supreme Court in the case of Dy.CIT vs. Core Health Care Ltd. reported in 298 ITR 194 (2008)[SC]. It is thus clear that the context in which the issue relating to disallowance of interest expenditure came to be decided by the Hon'ble Jurisdictional High Court in the case of Nirma Limited (supra) was entirely different and eventhough it was found as a fact in that case that it was a case of extension of existing business, the interest expenditure was allowed as deduction since the proviso to section 36(1)(iii) of the Act inserted by Finance Act, 2003, w.e.f. 01-04-2004 was not apparently applicable in that case. As rightly contended by the Ld. DR, the ratio of the decision of Hon'ble Jurisdictional High Court in the case of Nirma Limited (supra), thus is not applicable in the present case and the reliance of the Ld. Counsel for the assessee thereon in support of the assessee's case is clearly misplaced. Similarly, the other judicial pronouncements cited by the Ld. Counsel for the assessee are distinguishable ....
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....we consider it fair and proper in the interest of justice to restore this issue to the file of the Assessing Officer for such examination. The Assessing Officer is directed to verify the claim of the assessee of having been made the investment in the asset (CWIP) from its own funds from the overall financial position of the assessee-company as reflected in the relevant balance-sheet and cash-flow statement and decide the issue afresh on such verification in accordance with law after giving the assessee a proper and sufficient opportunity of being heard. Grounds as originally raised in this appeal are thus treated as partly allowed for statistical purposes. 9. During the course of appellate proceedings before the Tribunal, the assessee has raised the following additional ground and also filed an application to admit the same. "On the facts and circumstances of the case and in law, the Appellant may please be granted deduction under section 80-IB(11A) of the Act, amounting to Rs. 6,57,71,906, being profits and gains derived by the eligible undertaking engaged in the manufacturing of ice cream." 10. As submitted in the application filed by the assessee and further reiterated by th....