2015 (10) TMI 2494 - AT - Income Tax

Tribunal grants depreciation, interest reconsideration, and deletes share capital addition

M/s Lotus Integrated Taxpark Ltd., Versus The DCIT, Circle, Sangrur and The Addl. CIT, Dhaula,

The Tribunal allowed the appeals partly, directing authorities to grant depreciation on capital expenditures and reconsider disallowances of interest on ... Addition u/s 68 - share capital and share premium received from non-resident company - Held that:- In the present case, assessee company had received money on allotment of shares from M/s Glacis Investment Limited through banking channel and furnished complete details of the shareholder, no addition would be made under section 68 of the Act, in the absence of any positive material or evidence to indicate that the shareholder company was benamidar or fictitious company or that any part of the share capital represented the assessee's own income from undisclosed sources. The assessee on the basis of the documentary evidence on record has been able to prove that Non Resident Company i.e. M/s Glacis Investment Limited was an existing company and that the shareholder company made investment in the assessee company would prove that assessee received genuine share application money from this non-resident company. Thus, assessee had established the identity of the shareholder company and that transaction was genuine. The assessee has also proved the credit worthiness of the shareholder company, therefore, authorities below were not justified in making the huge addition against the assessee. We are of the view that assessee has been able to prove the identity of the creditor which is not in dispute, credit worthiness of the shareholder company and genuineness of the transaction in the matter. Therefore, addition under section 68 of the Act is wholly unjustified. - Decided in favour of assessee Disallowance of amount paid for up- gradation of Power Station required for supply of power to the assessee company - Held that:- Assessee has explained the scheme formulated by Ministry of Textiles, Government of India, the aim of the scheme of Integrated Textile Parks was to encourage group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work. Therefore, the scheme in the case of the assessee was intended to encourage the group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work and the grant-in-aid was given for setting up of the industries/textile parks in the State, therefore, the grant-in-aid could not be considered as a payment directly or indirectly to meet any portion of actual cost and thus, it would fall outside the purview of Explanation 10 to Section 43(1) of the Act. All the decisions relied upon by ld. counsel for the assessee are on identical point and support the contention of the assessee that assessee is entitled for depreciation on the same amount. Considering the above discussion in the light of the scheme formulated by the Government of India we set aside the orders of authorities below and direct them to grant depreciation to assessee on the amount of ₹ 3 Cr being the capital expenditure. - Decided in favour of assessee Disallowance of depreciation - Held that:- Expenditure 10 to Section 43 (1) is not applicable in this case because the scheme of the Government was to encourage group of entrepreneurs to come together and establish integrated textile parks with worth class infrastructure under a Public Private partnership frame work. The grant-in-aid was granted to the entrepreneurs to develop textile parks under the scheme. Following the reasons for decision on ground No. 2 above, we set aside the orders of authorities below and direct the authorities below to grant depreciation to the assessee without reducing the grant received from Ministry of Textiles.- Decided in favour of assessee Disallowance of proportionate interest on interest free advances - Held that:- The details furnished by the assessee show that assessee was having sufficient funds to make advances out of its own sources. The details of capital advances have also been filed which according to the ld. CIT(Appeals), were not filed before the authorities below. The authorities below should also give a finding whether amounts are advanced for commercial exigencies. Therefore matter should be remanded to Assessing Officer. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Addition of Rs. 3,70,00,000/- as share capital and share premium.2. Disallowance of Rs. 3,00,00,000/- paid for upgradation of Power Station.3. Disallowance of depreciation amounting to Rs. 3,04,63,791/-.4. Disallowance of depreciation amounting to Rs. 2,95,97,212/-.5. Disallowance of Rs. 81,62,546/- in respect of capital advances.6. Disallowance of Rs. 30,68,339/- in respect of amounts spent towards capital work in progress.Issue-wise Detailed Analysis:1. Addition of Rs. 3,70,00,000/- as Share Capital and Share Premium:The assessee challenged the addition of Rs. 3,70,00,000/- received from M/s Glacis Investment Limited as share capital and share premium. The Assessing Officer (AO) questioned the identity, creditworthiness, and genuineness of the transaction. The assessee provided documents including the certificate of incorporation, Tax Residence Certificate, and Reserve Bank of India approval. The AO and CIT(A) were not satisfied, citing the lack of bank statements and balance sheets of the subscriber company. The Tribunal admitted additional evidence, including the balance sheet of M/s Glacis Investment Limited, and concluded that the assessee had proved the identity, creditworthiness, and genuineness of the transaction. The Tribunal relied on various judicial precedents, including CIT v. Lovely Exports Pvt. Ltd., to support the assessee's case and deleted the addition.2. Disallowance of Rs. 3,00,00,000/- Paid for Upgradation of Power Station:The assessee claimed Rs. 3,00,00,000/- paid to M/s Abhishek Industries Ltd. for upgradation of a Power Station as a capital expenditure and amortized it over ten years. The AO and CIT(A) treated it as a capital expenditure and disallowed the depreciation, stating it was funded by a grant from the Ministry of Textiles. The Tribunal confirmed the capital nature of the expenditure but allowed depreciation, holding that the grant-in-aid could not be considered as a payment directly or indirectly to meet any portion of the actual cost. The Tribunal relied on judicial precedents, including CIT v. Standard Fireworks P. Ltd., to support the assessee's claim for depreciation.3. Disallowance of Depreciation Amounting to Rs. 3,04,63,791/-:The AO disallowed depreciation on the ground that the grant-in-aid received from the Ministry of Textiles should be reduced from the cost of assets. The assessee argued that the grant was for the overall project and not for specific assets. The Tribunal, following its decision on the previous issue, held that the grant-in-aid was not directly related to the acquisition of specific assets and allowed the depreciation without reducing the grant from the cost of assets.4. Disallowance of Depreciation Amounting to Rs. 2,95,97,212/-:For the assessment year 2011-12, the CIT(A) followed the reasoning from the previous year and disallowed depreciation by reducing the grant-in-aid from the value of total assets. The Tribunal, consistent with its earlier decision, directed the authorities to grant depreciation without reducing the grant from the cost of assets.5. Disallowance of Rs. 81,62,546/- in Respect of Capital Advances:The AO disallowed interest on capital advances, arguing that the assessee used borrowed funds. The assessee claimed the advances were made from interest-free grant-in-aid and operating income. The Tribunal noted that the assessee had sufficient own funds and remanded the issue back to the AO for reconsideration, directing the AO to verify the details and apply the principles laid down in judicial precedents, including Bright Enterprises Pvt. Ltd. v. CIT.6. Disallowance of Rs. 30,68,339/- in Respect of Amounts Spent Towards Capital Work in Progress:The AO disallowed interest on amounts spent towards capital work in progress, stating the assets were not put to use during the financial year. The assessee argued that investments were made out of own funds. The Tribunal remanded the issue back to the AO for reconsideration, directing the AO to verify the details and apply the principles laid down in judicial precedents.Conclusion:The Tribunal allowed the appeals partly, directing the authorities to grant depreciation on capital expenditures and reconsider the disallowances of interest on capital advances and amounts spent towards capital work in progress based on the evidence and judicial precedents provided by the assessee.