Disallowance of interest on loan on Plant & Machinery and Capital WIP by capitalizing it is unsustainable

DCIT Vs GNA Duraparts Ltd (ITAT Amritsar)

Facts- AO noticed that the assessee has made an addition to fixed assets of INR 53,06,14,928/- and has also taken a new term loan of INR 28,41,66,284/- from the Central Bank of India. AO made an addition of an Addition of INR 2,86,84,840/-. Further, the interest amounting to INR 51,24,000/- interest paid on the purchase of machinery is disallowed from revenue expenses and is capitalized into Machinery under installation. Additionally, the interest paid on the loan to the addition of the building under construction and for the new term loan for the building is calculated @ 15% which is Rs. 63,59,908/- also disallowed from revenue expenditure by the AO.

Conclusion- Held that order of CIT(A) sustained on the issue restricting the disallowance of non-capitalization of interest on bank loan on Plant & Machinery and on account of non-capitalization of interest expenditure on Capital Work in Progress u/s 36(1)(iii) of the Income Tax Act.

FULL TEXT OF THE ORDER OF ITAT AMRITSAR 

The cross appeals are filed by the Revenue and the assessees against the order of the Commissioner of Income Tax (Appeals)-5, Ludhiana even dated 17.10.2017 in respect of assessment year 2013-14.

2. The Department has taken the following grounds of appeal in ITA No. 800/Asr/2017:

“1. Whether on facts and in circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance of Rs. 2,41,77,820/- to Rs. 47,69,748/-made on account of interest expenditure u/s 36(1)(iii) of the Income Tax Act, 1961 for non capitalization of interest expenditure on Capital Work in Progress by relying on additional evidences without allowing any opportunity to the AO and ignoring the mandatory provisions of Rule 46A of Income Tax Rules, 1962.

2. The appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.”

3. Grounds of appeal in ITA No. 801/Asr/2017:

“1. Whether on facts and in circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance of Rs. 1,19,95,692/- to Rs. 44,55,010/-made on account of non capitalization of interest on loan on Plant & Machinery and Rs. 1,66,89,148/- to Rs. 58,58,800/- made on account of non capitalization of interest expenditure on Capital Work in Progress u/s 36(1)(iii) of the Income Tax Act, 1961 by relying on additional evidences without allowing any opportunity to the AO and ignoring the mandatory provisions of Rule 46A of Income Tax Rules, 1962.

2. The appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.”

4. The counsel for the assessee has taken the following grounds of appeal in ITA No. 12/Asr/2018:

“1. That on the facts and circumstances of the case, the authority below has wrongly confirmed the addition of Rs. 9,68,989/- out of Foreign Tour expenses without any justification.

2. That on the facts and circumstances of the case, the Ld. CAT (A) has wrongly confirmed the addition of Rs. 3,80,783/- out of registration charges of vehicles.

3. That on the facts and circumstances of the case, the authority below has wrongly confirmed the addition of Rs. 4,15,000/- under printing & stationery expenses head.

4. That on the facts and circumstances of the case, a sum of Rs. 1,40,159/-has wrongly been disallowed by the Id. AO and upheld by the Ld. CTT(A) on account of payment made by the assessee to M/s. Rupcon Engineers.

5. That on the facts and circumstances of the case, the Ld. CIT(A) has wrongly confirmed the addition of Rs.l3,48,000/- on account of training expenses of Sh. Keerat Seehra.

6. That on the facts and circumstances of the case, the authority below has wrongly confirmed the addition of Rs. 47,69,748/- ( Rs. 42,27,860/- + Rs. 5,41,888/-) being interest disallowed without any justification.

7. That the Ld. CIT(A) has failed to appreciate that on facts and circumstances of the case, the learned AO has erred in law and on facts in framing impugned assessment order in violation of CBDT instruction No. 7 of 2014 dated 26.09.2014.

8. That the Ld. CIT(A) has failed to appreciate that the Ld. AO exceeded his jurisdiction in framing impugned assessment order.

9. That the impugned assessment is against the principles of natural justice.

10. That the explanations and submissions of the appellant should have been considered in proper context.

11. That proper opportunity should have been allowed.

12. The appellant prays to add or amend any ground of appeal before or at the time of hearing.”

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