2014 (5) TMI 883 - AT - Income Tax

ITAT upholds CIT(A)'s decisions on appeal grounds

The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, including condoning the delay in filing the appeal, allowing ... Claim of depreciation on pellet manufacturing unit – Held that:- The reason why AO denied the depreciation claim on the new pelletization plant, was that there was no additional power used by the assessee – AO placed too much reliance on the letter sanctioning additional power load - Just because power sanction for additional power load was not given would not be a reason to say that assessee had not started working its new pelletization plant - Non-availability of certification under the Factory Safety Rules, for starting a new boiler from the concerned Boiler Control Authority, could make functioning of the unit irregular - It cannot be considered as sufficient evidence to reach a conclusion that commercial functioning had not started - assessee had produced considerable evidence which all pointed out clearly that assessee had commenced commercial production at least on 27.02.2007 - the order of the CIT(A) took a correct view when he directed depreciation to be allowed on the pelletization plant – Decided against Revenue. Disallowance of commission payment – Held that:- There was an agreement between assessee and M/s. R.B. Steel & Alloys and the commission was paid by the assessee to the said concern as per terms and agreement - The commission was paid after deducting tax and also after effecting service tax payment - Similar commissions paid in the preceding years were allowed by the Revenue - There is no case for the Revenue that M/s. R.B. Steel & Alloys was in any way related to the assessee - Commission of @ Rs.25/- per MT on sponge iron sold, and could not be considered as excessive payment - There was nothing on record to show that commission incurred was not for the purpose of business of the assessee –CIT(A) was justified in deleting the disallowances – Decided against Revenue. Allowability of keyman insurance premium – Held that:- Keyman’s Insurance policy was on the Directors of the assessee-company - Premium paid was for their life insurance - Relying upon CIT -vs. - B.N. Exports [ 2010 (3) TMI 186 - BOMBAY HIGH COURT] - Keyman’s Insurance Policy premium paid on persons who are instrumental for the effective functioning of a business, is an allowable deduction – thus, there was no infirmity in the order of the CIT(A) – Decided against Revenue. Deletion on account of interest – Held that:- Nothing was brought on record by the revenue to rebut the findings of CIT(A) - the stand of CIT(A) is upheld that Pelletization plant of the assessee had started functioning during the relevant previous year – thus, CIT(A) was justified in deleting the disallowance of interest – Decided against Revenue. Disallowance u/s 36(1)(va) of the Act – Employees’ contribution to Provident Fund - Held that:- CIT(A) had allowed the claim based on a specific finding stated that the amounts were deposited before the due date of furnishing the return of income – Following CIT -vs.- Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - Even employees’ contribution to P.F., if remitted before the due date of filing of return of income is allowable – there was no reason to interfere with the direction of CIT(A) – Decided against Revenue. Issues Involved:1. Condonation of delay in filing the appeal.2. Depreciation claim on a Pellet Manufacturing Unit.3. Disallowance of commission payment.4. Allowance of Keyman's Insurance Premium.5. Disallowance of interest on loans for the Pelletization Unit.6. Disallowance under section 36(1)(va) for employees' contribution to Provident Fund.Issue-wise Detailed Analysis:1. Condonation of Delay:The appeal was filed with a delay of 11 days. The Revenue submitted a condonation petition along with an affidavit. The reasons mentioned in the affidavit were found acceptable, and the delay was condoned without objection from the assessee's counsel. Consequently, the appeal was admitted.2. Depreciation Claim on Pellet Manufacturing Unit:The assessee claimed depreciation on a new Pelletization Unit, asserting it was commissioned during the relevant previous year. The Assessing Officer (AO) required proof of the unit's existence and operational status. The assessee provided various certificates, including one from the State Pollution Control Board and a Registered Valuer. However, the AO disallowed the depreciation claim, citing insufficient evidence of operational status and discrepancies in power supply and certification. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] found the evidence provided by the assessee credible, including certificates from local authorities and records of raw material consumption, and allowed the depreciation claim. The ITAT upheld the CIT(A)'s decision, noting the AO's over-reliance on power supply issues and recognizing the substantial evidence of operational status provided by the assessee.3. Disallowance of Commission Payment:The AO disallowed Rs.11,43,809/- paid as commission to M/s. R.B. Steel & Alloys, questioning the necessity and details of the services rendered. The assessee argued that the commission was based on an agreement and had been similarly paid and allowed in previous years. The CIT(A) accepted the assessee's argument, noting the deduction of tax at source and service tax payments, and deleted the disallowance. The ITAT upheld the CIT(A)'s decision, recognizing the legitimacy of the commission payments as per the agreement and their consistency with previous years.4. Allowance of Keyman's Insurance Premium:The AO disallowed the Keyman's Insurance Premium of Rs.54,65,175/-, but the CIT(A) allowed it, relying on the Mumbai High Court's decision in CIT vs. B.N. Exports. The ITAT upheld the CIT(A)'s decision, noting that the insurance was for directors pivotal to the business, and such premiums are consistently held as allowable deductions by various courts.5. Disallowance of Interest on Loans for Pelletization Unit:The AO disallowed interest of Rs.56,58,520/- on loans for the Pelletization Unit, arguing the unit had not commenced production. The CIT(A) deleted the disallowance, stating the unit had started functioning and was part of business expansion. The ITAT upheld the CIT(A)'s decision, confirming the operational status of the unit during the relevant year and the legitimacy of the interest expense as a business deduction.6. Disallowance under Section 36(1)(va) for Employees' Contribution to Provident Fund:The AO disallowed Rs.54,445/- for late deposit of employees' Provident Fund contributions. The CIT(A) allowed the claim, noting the amounts were deposited before the due date for filing the return of income. The ITAT upheld this decision, referencing the Supreme Court's ruling in CIT vs. Alom Extrusions Ltd., which allows such deductions if deposits are made before the return filing due date.Conclusion:The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds, including the condonation of delay, allowance of depreciation, commission payments, Keyman's Insurance Premium, interest on loans, and Provident Fund contributions.