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TMI Blog2022 (4) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... in not sustaining the alternate disallowance - The Ground of appeal raised by the revenue is dismissed in terms of our aforesaid observations. Trading liability which had ceased within the meaning of section 41(1) - HELD THAT:- Ceased liability can be added u/s. 41(1) of the Act only in the year, when some benefit in respect of trading liability i.e., by way of remission or cessation thereof, had been obtained by the assessee. As such, the addition of a trading liability which had ceased can only be made in the previous year, in which, some benefit in respect of such trading liability by way of remission or cessation thereof, had been obtained by the assessee. In our considered view, the Assessing Officer in the case before us had though pointed out that there is a cessation of liability but had failed to place on record any material which would irrefutably evidence that such cessation had taken place during the year in question i.e. A.Y. 2013-14, and as a result thereof, the consequential benefit by way of remission or cessation thereof had been obtained by the assessee during the said year itself. We, thus, in terms of our aforesaid observations not being able to persuade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was selected for scrutiny assessment u/s.143(2) of the Act. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had in its Profit loss a/c debited an amount of ₹ 1,61,56,414/- towards interest paid on Overdraft Account (OD A/c) with the bank. It was noticed by the Assessing Officer that the aforesaid interest expenditure was not included by the assessee in its closing stock of Work-in-Progress (WIP) of its projects. Observing, that the assessee had claimed the entire amount of interest expenditure as a deduction against the revenue generated from its business activities, the Assessing Officer called upon it to justify its aforesaid claim. As the reply filed by the assessee did not find favor with the Assessing Officer, therefore, he included the entire amount of interest expenditure of ₹ 1,61,56,414/- (supra) in the closing stock of WIP. 3. Alternatively, the Assessing Officer taking cognizance of the fact that the assessee had borrowed interest bearing funds at a higher rate of interest i.e @ 15.38% p.a from banks and had advanced part of the same to its associates/sister concern /partners at a lower rate of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee on the basis of bank statements had demonstrated that a liability to the tune of ₹ 5,60,566/- (out of ₹ 7,62,165/-) had thereafter been paid/discharged by it till 31.03.2017. Backed by the aforesaid facts, the CIT(Appeals) concluded that as the liability towards the aforesaid creditors to the tune of ₹ 5,60,566/-(supra) had been discharged/paid by the assessee, therefore, the same could not be held to have ceased to exist on 31.03.2013. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations vacated the addition of ₹ 5,60,566/- (supra) made by the Assessing Officer u/s.41(1) of the Act. As regards the balance addition of ₹ 2,01,609/- [₹ 7,62,165/- (-) ₹ 5,60,566/-], it was observed by the CIT(Appeals) that the said amount was outstanding even on 31.03.2017. It was noticed by the CIT(Appeals) that out of the aforesaid amount the assessee had produced before him confirmations from the parties for an amount of ₹ 1,27,306/-. As regards the e balance outstanding liability of ₹ 74,303/- (out of ₹ 2,01,609/-) it was observed by the CIT(A) that not only the assessee had failed to place on record the confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that as the assessee had substantiated to the hilt that liability of ₹ 5,60,566/- (supra.) was paid/discharged upto 31.03.2017, therefore, the CIT(Appeals) had rightly vacated the addition to the said extent. It was, however, submitted by the Ld. AR that the CIT(Appeals) had erred in sustaining the addition of ₹ 2,01,609/- made by the Assessing Officer u/s.41(1) of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that though the assessee had placed on record confirmations evidencing the existence of the outstanding liabilities to the extent of ₹ 1,27,306/- (supra) during the course of proceedings before the CIT(Appeals), however, he had on the basis of a hyper technical approach most arbitrarily brushed aside the same and upheld the view taken by the Assessing Officer. As regards the addition made by the Assessing Officer u/s. 41(1) of the Act of ₹ 74,303/-, it was submitted by the Ld. AR that though the said liability admittedly had ceased to exist, however, the lower authorities without pointing out the basis as to how such cessation of liability was related by them to the year under consideration i.e. A.Y. 2013-14, had m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andard AS-2 that interest cost will not be added to the inventories, as under:- Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories . Further, we have observed that assessee has borrowed the said amount from Andhra Bank for the purpose of working capital facilities which is used for making advance of ₹ 8 crores to MDC and also for other purposes for meeting administrative expenses . It is stated that assessee has advanced the said amount to MDC for commercial expediency and placed reliance on the decision of the Hon'ble Supreme court in the case of SA Builders Limited v. CIT (2007) 288 ITR 1(SC).The assessee is partner in MDC entitled for 50% share in profits and the said concern is also engaged in real estate and construction. The Revenue could not controvert the said contention of the assessee that the said amount was advanced keeping in view commercial expediency as stated above, thus keeping in view our above detailed reasoning , we are of the considered view that the addition of ₹ 1,59,27,795/- made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly attributed to the work in progress, is incorrect. Mr. Kulkarni, the learned Counsel for the Respondent-Assesses submitted that the question raised is a question of fact and no question of law arises. 7. We have gone through the orders passed by the Assessing Officer, the Commissioner (Appeals) and the Tribunal. The Tribunal and the Commissioner (Appeals) had, after considering the mate before them, found that no additions were made in the work progress, which fact was not controverted by the Departmental Representative and rather it was conceded by the Departmental Representative. The Tribunal observed that the Revenue did controvert the contention of the Respondent-Assessee that amount was advanced keeping in view the commercial expediency The Tribunal also observed that the Revenue was not able to show that the inventories were acquired out of borrowings and interest to be capitalized keeping in view AS-16, issued by the Institute of Chartered Accountants of India. Further, the Tribunal also noted that the advances received from the customers by the Assessee were at ₹ 68.57 crores, while the closing work in progress was ₹ 45.04 crores and the advances were hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y preceding year i.e. A.Y.2012-13 and vacated the disallowance of the interest paid on bank OD of ₹ 1,61,56,414/-. We, thus, uphold the view taken by the CIT(Appeals) and dismiss the Ground of appeal No. 2 3 raised by the revenue before us. 9. We shall now advert to the claim of the revenue that the CIT(Appeals) had erred in not sustaining the alternative disallowance of ₹ 1,11,30,410/-(supra) on account of interest-bearing funds that were diverted by the assessee to its associates/sister concerns/partners at a lower rate of interest. 10. Shorn of unnecessary details, it is the alternate claim of the ld. DR that though the assessee had paid higher interest rate i.e 15.38% p.a on loans that were raised from banks, however, it had charged lower interest rate i.e 4.78 % p.a. on advances that were given to its associates/sister concerns/partner i.e. Milroc Development company. Backed by his aforesaid observations the Assessing Officer called upon the assesee to explain as to why the excess interest of ₹ 1,11,30,410/- that was paid to the banks on borrowed funds may not be disallowed. In reply, it was submitted by the assessee that as in the immediately precedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter been approved by the Hon ble High Court of Bombay. Backed by our aforesaid observations we find no merit in the aforesaid grievance of the revenue that the CIT(Appeals) had erred in not sustaining the alternate disallowance of ₹ 1,11,30,410/-. The Ground of appeal No.4 raised by the revenue is dismissed in terms of our aforesaid observations. 13. Grounds of appeal No.(s) 1 5 being general in nature are dismissed as not pressed. 14. In the result, appeal of the Revenue in ITA No.26/PAN/2018 for the assessment year 2013-14 is dismissed in terms of our aforesaid observations. CO No.06/PAN/2018 A.Y. 2013-14 15. Now, we shall advert to the cross-objection filed by the assessee before us. The assessee has objected to the order of the CIT(Appeals), for the reason, that he had erred in upholding the addition of ₹ 2,01,609/- u/s. 41(1) of the Act. As observed by us hereinabove, the assessee in the course of the assessment proceedings had failed to substantiate the existence of the outstanding liability of ₹ 7,62,165/- (supra) as was so claimed in its books of accounts. Backed by the aforesaid fact the Assessing Officer had dubbed the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 41(1) of the Act only in the year, when some benefit in respect of trading liability i.e., by way of remission or cessation thereof, had been obtained by the assessee. As such, the addition of a trading liability which had ceased can only be made in the previous year, in which, some benefit in respect of such trading liability by way of remission or cessation thereof, had been obtained by the assessee. In our considered view, the Assessing Officer in the case before us had though pointed out that there is a cessation of liability qua the aforesaid amount of ₹ 2,01,609/-, but had failed to place on record any material which would irrefutably evidence that such cessation had taken place during the year in question i.e. A.Y. 2013-14, and as a result thereof, the consequential benefit by way of remission or cessation thereof had been obtained by the assessee during the said year itself. We, thus, in terms of our aforesaid observations not being able to persuade ourselves to the summarily dubbing of the aforesaid amount of ₹ 2,01,609/- (supra) as the assessee s ceased liability for the year under consideration vacate the same. Our aforesaid view is fortified by the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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