2019 (12) TMI 589 - AT - Income Tax

Disallowance of the interest u/s 36(1)(iii) - investment made on Capital Work in Progress (CWIP) - HELD THAT - A perusal of the balance sheet of the assessee reveals that the assessee during the year had taken unsecured loans / interest bearing loan of ₹ 84170175.58 from the banks. The loan and advances made by the assessee at the end of the year were of ₹ 85591716.58. The own capital of the assessee is not sufficient either to meet the loan and advances or to meet the capital work in progress. It is admit ted case of the assessee that the term loan was used for acquisition of the capital assets. Assessing Officer rightly calculated the proportional disallowance of the amount of CWIP. There is no justification to distribute the entire term loan amount over the total assets. Addition u/s 68 - unexplained cash credits - HELD THAT - Assessee apart from filing the confirmation from the investor company has also produced on file the Income-tax returns and PAN numbers of the investor and statement of the financials of the Investor to prove the identity and financial capacity of the Investor. To prove the genuineness of the transactions, the assessee also filed conformation from the Investor regarding the investment made by it in the assessee company. During the appellate proceedings before the CIT(A), the assessee also furnished bank statement of M/s Reliable Realtech P Ltd. depicting that the funds were paid by the said company out of its available business limit . The assessee also proved from the financials of the investor that it was possessed of sufficient funds to make investment in the assessee company. Assessee also placed on file the bank statement of the assessee to show that the payments were repaid to the Investor in the next year. In our view, the aforesaid documents were sufficient to prove the identity, financial capacity as well as the genuineness of the transactions. CIT(A) has confirmed the addition on just assumption and presumption basis without pointing out any suspicious circumstance or rebuttal to the evidence furnished by the assessee - Decided in favour of assessee.

Summary

Issues: Appeal against order of CIT(A) - Delay in filing appeal - Addition of interest on capital work in progress - Addition of unexplained cash credits - Grounds of appeal challenged.

Analysis:
1. Delay in Filing Appeal: The appeal was filed 74 days late, but a condonation application was submitted citing a mistake by the company's accountant in misplacing the order copy. The application, supported by affidavits, was accepted, and the delay was condoned.

2. Addition of Interest on Capital Work in Progress: The AO disallowed interest on CWIP, leading to an addition of ?1,22,920. The assessee argued for a proportionate disallowance based on loan usage, but CIT(A) upheld the AO's decision. ITAT agreed with the AO, stating that the term loan was used for acquiring capital assets, justifying the disallowance.

3. Addition of Unexplained Cash Credits: An addition of ?22 lakhs was made as unexplained cash credits due to lack of bank statements from the investor company. Assessee provided various documents proving identity, financial capacity, and genuineness of the transaction. Despite this, CIT(A) upheld the addition. ITAT found the documents sufficient and deleted the addition.

4. General Grounds 3 & 4: These grounds were of a general nature and did not require specific adjudication.

In conclusion, the appeal was partly allowed, with the addition of ?22 lakhs under unexplained cash credits being deleted. The judgment was pronounced on 11.07.2019 by the ITAT Chandigarh.