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TMI Blog2017 (7) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... f presumption. We therefore direct the deletion of disallowance of interest made by the AO. - Decided in favour of assessee. - ITA No.1208/PUN/2015, AND ITA No.1267/PUN/2015 - - - Dated:- 6-3-2017 - SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Suhas Bora For The Revenue : Shri Hitendra Ninawe ORDER PER ANIL CHATURVEDI, AM : These cross-appeals filed by assessee and Revenue emanate out of order of Commissioner of Income-Tax (A)-1, Pune dt.31.12.2014 for A.Y. 2010-2011. 2. The relevant facts as culled out from the material on record are as under :- 2.1 Assessee is a company stated to be engaged in the business of printing and publishing newspapers. Assessee electronically filed its return of income for A.Y. 2010-11 on 14.10.2010 declaring total income of ₹ 7,13,37,080/-. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) vide order dt.31.03.2013 and the total income was determined at ₹ 7,93,44,940/-. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who vide order dt.31.12.2014 in (appeal No.PN/CIT(A)-1/Addl.CIT Rg-1/Pn/71/2013-14) granted partia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Revenue, the Revenue is aggrieved by the relief of ₹ 22.41 lakhs granted by Ld. CIT(A). He submitted that the appeal of Revenue needs to be dismissed on account of low tax effect as the tax effect is less than the limit prescribed by CBDT Circular dated 10.12.2015. On the other hand, Ld. D.R. fairly admitted that the tax effect on the impugned additions raised in Revenue s appeal is less than the limit prescribed by the CBDT Circular Dt.10.12.2015 bearing No.21/2015 and therefore the appeal be decided accordingly. 7. We have heard both the parties and perused the material available on record. On perusing the grounds of appeal raised by the Revenue, we find that Revenue is aggrieved by the order of ld. CIT(A) in respect of the relief given by him. As per the announcement of Central Board of Direct Taxes (CBDT) dated 10/12/2015 (Circular No. 21 of 2015), no Department appeals are to be filed against relief given by ld. CIT(A) before the Income Tax Appellate Tribunal unless the tax effect, excluding interest, exceeds ₹ 10 lakhs and it further states that the instructions will apply retrospectively to the pending appeals also. In the present case, since it is an und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , worked out disallowable interest at ₹ 9,75,826/-. Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who decided the issue by holding as under : 11. The next item of addition in the assessment order, which is subject matter of present appeal, is disallowance of interest amounting to ₹ 14,31,882/- on the amount borrowed for work- in-progress as term loan on the ground that the loan was utilized for acquiring capital assets which were not put to use as on 31.03.2010. 11.1 During assessment proceedings, the Assessing Officer noted that the appellant has secured loans from various bankers and as per the ledger extract of Bank interest, the total interest payable as per ledger is ₹ 4,15,68,842/- up to 31.03.2010, which includes interest on term loan from SBI as under : Date Particulars Amount ( Rs.) Bank Name 30.04.2009 Term Loan 15020-00 10318686857 1,04,460 State Bank of India. 30.04.2009 Term Loan 01502-01WIP10318686868 89,601 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.02.2010 Term Loan 01502-01 WIP1031868868 61,011 State Bank of India. 31.03.2010 Term Loan 01502-01WIP1031868868 54,735 State Bank of India. 14,31,882 11.1.1 According to the AO, the interest of ₹ 14,31,882/- pertained to capital borrowed for work-in-progress as term loan and the same is required to be capitalized as the assets were not put to use during the year. Accordingly, interest of ₹ 14,31,882/- claimed as revenue expenditure was disallowed and added to the total income of the appellant. 11.2 During the appellate proceedings, Ld. Counsel for the appellant submitted that the Assessing Officer erred in disallowing an expenditure amounting to ₹ 14,31,882/- being interest on capital borrowed for work in progress as term loan being expenditure of capital nature. It is submitted that the interest disallowed amounting to ₹ 14,31,882/- relates to two different term loans availed from SBI Bank by the appellant company namely Term Loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the relevant material placed on record. The interest in question amounting to ₹ 14,31,882/- relates to two different term loans availed from SBI Bank by the appellant namely Term Loan account No.1031868868 interest on which amounts to ₹ 9,19,855/- and Term Loan account No.10318686857 interest on which amounts to ₹ 5,12,027/-. As per the Annexure F to the letter of SBI dated 01/01/2005, the first loan 01502-01WIP-10318686868 was taken for expansion of corporate office and creation of related infrastructure and the account number starting with work WIP also indicated that this loan was availed for capital WIP. As mentioned in the assessment order, the capital WIP shown by the appellant includes capital WIP relating to Hotel project and capital WIP relating to extension of corporate office and during the year a part of capital WIP of Hotel project was transferred to Building (H) and other Hotel assets as is evident from the fixed assets schedule. Even in the present proceedings, the appellant has not furnished any details that expansion of corporate office and creation of related infrastructure for which the term loan was availed was completed during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55) on this ground. Ground of appeal No. 8 stands partly allowed. 12. Ground of appeal No. 9 states that the Assessing Officer erred in disallowing an expenditure amounting to ₹ 1,95,442/- , being proportionate interest expenditure on funds used for repayment of loan borrowed for work in progress as term loan being expenditure of capital nature. 12.1 During the assessment proceedings, Assessing Officer also noticed that the appellant has utilized the following amounts for repayment of loan taken for capital WIP and Citlotels and therefore interest on proportionate part of funds utilized is required to be capitalized towards the cost of asset not put to use and the same cannot be allowed as revenue expenses. The Assessing Officer placed reliance in this regard on the decision of the Hon ble High Court of Punjab and Haryana in the case of Abhish ek Industries reported in 286 ITR 1. Term loan 01502-01WIP10318686868 : Date Amount (Rs.) Rate Days Interest (Rs.) 01.04.2009 94893 10.75% 365 10201.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.02.2010 200000 10.75% 58 3416.44 01.03.2010 61011 10.75% 30 539.07 02.03.2010 200000 10.75% 29 1708.22 195442.20 12.1.1 The Assessing Officer stated that the effective rate of interest as per terms and conditions for Term loan as well as corporate loan sanctioned as above by SBI was ₹ 10.75% per annum and therefore the same rate of interest was adopted for arriving at the interest cost for funds used by the appellant for repayment of loan. Accordingly, a sum of ₹ 1,95,442/- as worked out in the above chart was disallowed and added back to the total income of the appellant. 12.2 In the present proceedings Ld. Counsel submitted that the decision of Hon ble High Court of Punjab and Haryana in the case of Abhishek Industries reported in 286 ITR 1 referred by the Assessing Officer basically relates to utilization of borrowed fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst put to use, shall not be allowed as deduction. In this case though cash credit loan was not borrowed for the purpose of acquisition of capital assets for hotel project, yet as per ledger a/c, cash credit funds were utilized for repayments of term loan availed for capital WIP before the hotel project became operation in Jan 2010 and therefore interest relatable to such repayments made up to January, 2010 has to be capitalized and added to the cost of assets of the said project. Accordingly, out of the disallowance of interest of ₹ 1,95,442/- made by the Assessing Officer under the proviso to sec. 36 (1)(iii), the interest to the extent of ₹ 1,88,561/- was confirmed after excluding interest of ₹ 6,881/- relatable to the repayments made in February/ March 2010. Ground of appeal No. 9 is partly allowed. 13. Ground of appeal No. 10 states that the Assessing Officer erred in disallowing an expenditure amounting to ₹ 9,75,826/- being proportionate interest expenditure on funds used for repayment of term loan borrowed from Axis Bank being expenditure of capital nature. 13.1 Assessing Officer also noticed that the appellant has utilized the following am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24110.52 14.50% 182 1743.22 01.10.2009 526131.5 14.50% 182 38040.03 05.10.2009 500000 14.50% 178 35356.16 03.11.2009 17943.1 14.50% 151 1076.34 03.11.2009 1045310 14.50% 151 62704.28 01.12.2009 60531.28 14.50% 121 2909.647 07.12.2009 978781.7 14.50% 115 44715.58 01.01.2010 95093 14.50% 90 3399.9 01.01.2010 457783 14.50% 90 16367.31 01.01.2010 500000 14.50% 90 17876.71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with reference to the facts of the case and the details of the loans on which the interest was paid by the appellant. The interest of ₹ 9,75,826/- was disallowed by the Assessing Officer on the ground that the part of the cash credit funds were utilized for repayment of Axis Bank project loan taken for capital WIP and new Hotel Project i.e towards the cost of assets not put to use. The contention of the appellant in this regard is that the funds borrowed by the appellant company from the banks have been utilized for the same purpose for which the loans were sanctioned and no borrowed funds have been diverted for non-business purposes and therefore the decision of P H High Court in the case of Abhishek Industries reported in ITR 286 ITR 1 referred by the Assessing Officer is not applicable to the facts of the case. The contention of the appellant cannot be accepted. As per the Director s report, The Citiotel i.e hotel project became operational only from January 2010 and under the proviso to sec. 36(1) (iii), any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession ( whether capitalized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of any capital assets. We further find that the AO has proceeded on the basis of presumption that the loans have been utilized for the purpose of acquisition of capital assets but the aforesaid conclusion is not supported by any evidence on record. We find that while upholding the order of AO, though Ld. CIT(A) has stated that though the cash credit loan account was not used for the purpose of acquisition of capital assets but since as per the ledger, the cash credit funds were utilized for the repayment of funds availed for work in progress, the expenditure was not allowable. Thus it is seen that Ld. CIT(A) though has disallowed the interest but has given a finding that the amount borrowed from cash credit account was not utilized for acquisition of capital assets. In the present case, we further find that no evidence has been brought on record by Revenue to demonstrate that the general purpose loan or term loan which was for take-over of loan from Bank of Maharashtra was utilized for acquisition of capital assets. In such a situation, we are of the view that no disallowance of interest is called for merely on the basis of presumption. We therefore direct the deletion of disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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