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2012 (2) TMI 558 - AT - Income TaxAddition u/s 69 - Held that - In view of the scheme of income tax, no income can be taxed twice, as has been done by the revenue. Firstly, taxing the same income of ₹ 64 lacs in the hands of the company, the present appellant assessee as also in the hand of Shri Gurlal Singh Grewal. We fully agree with the contention raised by the assessee in the matter of taxing single item of income tax twice, is not tenable under the scheme of the Income-tax Act. Therefore, having regard to the findings of the ld. CIT(A) and above discussion, the impugned addition is deleted and ground of appeal of the revenue is dismissed. Addition on account of unaccounted interest income earned - Held that - In the case of Oswal Spinning Mills, the Hon ble Punjab & Haryana High Court 2010 (7) TMI 765 - Punjab and Haryana High Court held that interest paid on acquisition of machinery, can be treated as part of the cost of machinery. Ld. CIT(A) deleted the impugned addition made by the AO. The ld. CIT(A), on the basis of submission filed before him, held that the appellant had not raised any loan from any bank or any financial institution against installation of machinery during the year under consideration. This contention was also raised before the AO. The AO failed to give specific finding on this aspect and, hence, ld. CI T(A) held that it cannot be presumed that any interest bearing funds, have been invested, in the capital work, in process, shown by the assessee. Ld. CIT(A), found the cases relied upon by the AO as distinguishable, factually and materially. We do not find any infirmity in the findings of the ld. CIT(A) and, hence, findings of the ld. CIT(A) are upheld and ground of appeal raised by the revenue is dismissed. Disallowance of interest u/s 36(1)(iii) - Held that - Advances by company were out of its own funds of share capital or out of mixed funds, not sufficient to discharge the onus- Decided in favour of revenue
Issues Involved:
1. Deletion of addition made under Section 69 of the Income-tax Act, 1961. 2. Deletion of addition on account of unaccounted interest income. 3. Deletion of addition on account of capitalization of interest on capital work in progress. 4. Deletion of addition on account of disallowance of interest under Section 36(1)(iii) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition Made Under Section 69: The revenue contended that the CIT(A) erred in deleting the addition of Rs. 64,00,000 made under Section 69 of the Income-tax Act, 1961. The case facts reveal that during a survey conducted under Section 133A, a piece of paper marked 'Sigma' was found and torn by the Joint Managing Director, which indicated unrecorded transactions. The AO treated the total amount on the document as unexplained investment. The CIT(A) deleted the addition, observing that the document was found from the possession of the Joint Managing Director and not specifically linked to the appellant company. The CIT(A) concluded that the document belonged to the individual, not the company, based on the absence of a categorical statement from the Joint Managing Director. Additionally, the CIT(A) noted that the same amount was already taxed in the hands of the individual, making double taxation untenable. The tribunal upheld the CIT(A)'s decision, agreeing that no income can be taxed twice. 2. Deletion of Addition on Account of Unaccounted Interest Income: The revenue's second ground was consequential, as the addition of Rs. 3,96,724 was based on the unaccounted interest income from the Rs. 64,00,000 addition, which was already deleted by the CIT(A). The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground. 3. Deletion of Addition on Account of Capitalization of Interest on Capital Work in Progress: The revenue contended that the CIT(A) erred in deleting the addition of Rs. 7,12,323 made for capitalization of interest on capital work in progress under Section 36(1)(iii) and explanation 8 to Section 43(1) of the Act. The AO had observed that the capital work in progress was not used for business purposes and thus, interest expenses should be capitalized. The CIT(A) found that no loans were raised specifically for the installation of machinery during the year and the AO failed to provide specific findings on this aspect. The tribunal found no infirmity in the CIT(A)'s findings and upheld the deletion of the addition. 4. Deletion of Addition on Account of Disallowance of Interest Under Section 36(1)(iii): The revenue contended that the CIT(A) erred in deleting the addition of Rs. 72,219 made under Section 36(1)(iii) for interest disallowed on advances to an associate concern. The AO disallowed the interest based on the decision in CIT v. Abhishek Industries Ltd., which held that borrowed capital must be used for business purposes. The CIT(A) misinterpreted this ratio and deleted the addition. The tribunal reversed the CIT(A)'s decision, allowing the revenue's appeal on this ground. Appeal for Assessment Year 2007-08: 1. Deletion of Addition on Account of Unaccounted Interest Income: The revenue contended that the CIT(A) erred in deleting the addition of Rs. 7,68,000 made for unaccounted interest income. The CIT(A) deleted the addition based on the findings for the previous assessment year. The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 2. Deletion of Addition on Account of Capitalization of Interest on Capital Work in Progress: The revenue contended that the CIT(A) erred in deleting the addition of Rs. 10,00,909 made for capitalization of interest on capital work in progress. The CIT(A) deleted the addition based on the findings for the previous assessment year. The tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. 3. Deletion of Addition on Account of Disallowance of Interest Under Section 36(1)(iii): The revenue contended that the CIT(A) erred in deleting the addition of Rs. 16,510 made under Section 36(1)(iii) for interest disallowed on advances to an associate concern. The CIT(A) deleted the addition based on the findings for the previous assessment year. The tribunal reversed the CIT(A)'s decision, allowing the revenue's appeal on this ground. Conclusion: The tribunal partly allowed the revenue's appeals for both assessment years and dismissed the assessee's cross-objection as not pressed. The tribunal upheld the CIT(A)'s decisions on most grounds but reversed the deletion of interest disallowance under Section 36(1)(iii) for both assessment years.
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