2014 (8) TMI 206 - HC - Income Tax

High Court affirms Tribunal's decision on interest & depreciation disallowances for Met Masts.

The High Court upheld the Tribunal's decisions to delete the disallowances of excessive interest paid and depreciation on Met Masts. The Court found that ... Excessive interest paid to associates u/s 40A(2)(b) – Held that:- There was no basis for the AO to come to the conclusion that amount of interest paid at the rate of 12% would relate to the concerned parties was otherwise excessive and / or unreasonable - solely because the assessee for whatever reasons/consideration charged the interest at different rates by that itself cannot be a ground to come to the conclusion that charging of interest at higher rate than charged from other party was excessive and / or unreasonable – Tribunal have rightly deleted the disallowance made by the AO u/s 40A(2)(b) of the Act – Decided against Revenue. Depreciation on wind measure equipment – Failure to prove that the assets have commissioned and put to use – Held that:- The Tribunal rightly noted that similar evidence produced by the assessee also for met masts put to use up to February 2009 was accepted by the AO as evidence for date of put to use of met masts - when AO itself accepted and considered the certificate as evidence sufficient to prove that the assets were commissioner and put to use for the purpose of business during the year, it cannot be said that the Tribunal has committed any error and deleting the disallowance u/s 32 of the Act – Decoded against Revenue. Issues:1. Disallowance of excessive interest paid to related companies under Section 40A(2)(b) of the Income Tax Act.2. Disallowance of depreciation of Met Masts (wind measure equipment) due to failure to prove commissioning and use for business purposes.Analysis:Issue 1: Disallowance of Excessive Interest PaidThe Revenue challenged the Tribunal's decision confirming the deletion of disallowance of Rs. 1,22,13,280 under Section 40A(2)(b) of the Act for excessive interest paid to related companies. The AO disallowed the interest paid at 12% to related companies, considering it excessive. However, the Tribunal upheld the deletion, stating that the interest rate was not found to be in excess of the market rate. The Revenue argued that the interest rate difference between related and unrelated parties justified the disallowance. The High Court held that the mere difference in interest rates was not sufficient to deem the payment excessive. Without evidence of market rates, the disallowance was not justified. The Court agreed with the Tribunal's decision to delete the disallowance.Issue 2: Disallowance of Depreciation on Met MastsThe Revenue contested the deletion of disallowance of depreciation on Met Masts by the CIT(A) and ITAT. They argued that the certificate provided by the DGM Wind Mill Resources was insufficient evidence of commissioning and use for business purposes. However, the High Court noted that the AO had previously accepted a similar certificate as evidence for another period. As the AO had considered such certificates valid previously, the Court upheld the Tribunal's decision to delete the disallowance under Section 32 of the Act. The Court found no error in the Tribunal's reliance on the certificate. Therefore, the appeal on this issue was also dismissed.In conclusion, the High Court dismissed the Revenue's appeal, upholding the Tribunal's decisions to delete the disallowances of excessive interest paid and depreciation on Met Masts.