2013 (1) TMI 863 - AT - Income Tax

Tribunal Decision: Depreciation Upheld for Energy-Saving Devices, Interest Disallowance Confirmed

The Assistant Commissioner of Income Tax., Circle 1, Ludhiana Versus R.N. Gupta & Co.,

The Tribunal upheld the assessee's claim for 100% depreciation on a transformer, considering it an energy-saving device. It confirmed the 15% interest ... - Issues Involved:1. Depreciation on Transformer2. Disallowance of Interest u/s 40A(2)(b)3. Depreciation on Lathe Machine4. Depreciation on Airier Vent Wind Driven Ventilators5. Depreciation on Tools and Dyes6. Disallowance u/s 14A r.w.r. 8DSummary:1. Depreciation on Transformer:The Revenue challenged the allowance of 100% depreciation on a transformer claimed by the assessee. The Assessing Officer (AO) restricted the depreciation rate, treating the transformer as an electric equipment rather than an energy-saving device, allowing only 15% depreciation. The CIT (Appeals) allowed the assessee's claim, considering the transformer as an energy-saving device, relying on the Industrial Development Corporation of Orissa Ltd. Vs. CIT (268 ITR 130 (Ori)). The Tribunal upheld the CIT (Appeals)'s decision, confirming the transformer as an energy-saving device eligible for 100% depreciation.2. Disallowance of Interest u/s 40A(2)(b):The Revenue contested the CIT (Appeals)'s restriction of disallowance of interest paid to specified persons u/s 40A(2)(b) to 15% instead of 18%. The assessee also objected to the 3% disallowance. The AO had restricted the interest rate to 12%, while the CIT (Appeals) allowed 15%. The Tribunal found no merit in the assessee's plea for 18%, noting that each assessment year is independent and should reflect current market conditions. Both the Revenue's and the assessee's appeals were dismissed, upholding the 15% interest rate.3. Depreciation on Lathe Machine:The Revenue disputed the allowance of depreciation on a lathe machine not put to use during the year. The AO disallowed depreciation as the machine was ready for use but not used. The CIT (Appeals) allowed the claim, stating that the machine was ready for use, and depreciation is allowable on assets ready for use. The Tribunal upheld this view, referencing CIT Vs. Shahbad Co-operative Sugar Mills Ltd. (2011) 56 DTR 414 (P&H), which supports depreciation on assets kept ready for use.4. Depreciation on Airier Vent Wind Driven Ventilators:The assessee challenged the restriction of depreciation on Airier Vent Wind Driven Ventilators to 35% instead of 100%. The AO treated the device as an exhaust system, allowing only 17.5% depreciation. The CIT (Appeals) upheld this view. The Tribunal, however, found merit in the assessee's claim, recognizing the device as an energy-saving system and directed the AO to allow 100% depreciation (50% for the year under consideration).5. Depreciation on Tools and Dyes:The assessee contested the disallowance of depreciation on tools and dyes reimbursed by buyers. The AO disallowed additional depreciation on reimbursed amounts, treating the accounting treatment as incorrect. The CIT (Appeals) partly accepted the assessee's plea, allowing recovery of Rs. 1,86,120/- but upheld the disallowance of Rs. 6,33,090/-. The Tribunal found no merit in the assessee's appeal and upheld the CIT (Appeals)'s decision.6. Disallowance u/s 14A r.w.r. 8D:The assessee challenged the disallowance of Rs. 59,419/- u/s 14A r.w.r. 8D, arguing that the disallowance should be computed from the date of investment, not for the full year. The Tribunal upheld the disallowance but directed the AO to verify and compute the interest disallowance from the date of investment till the year's end.Conclusion:The Tribunal partly allowed the Revenue's appeal and the assessee's Cross Objection, providing specific directions for each issue.