Tax Tribunal Upholds Depreciation, Interest Chargeability, and Inter-Corporate Deposit Write-Off

The Tribunal dismissed the appeals filed by the assessee and the Revenue. It upheld the lower authorities' decisions on the grant of depreciation and the chargeability of interest under section 234B of the Income Tax Act. Additionally, the Tribunal affirmed the CIT(A)'s decision to allow the write-off of irrecoverable inter-corporate deposits. The order was pronounced on 31.12.2014.

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Issues Involved:
1. Grant of depreciation under section 43(6) of the Income Tax Act.
2. Non-chargeability of interest under section 234B of the Income Tax Act.
3. Disallowance of irrecoverable inter-corporate deposits written off.

Issue-wise Detailed Analysis:

1. Grant of Depreciation under Section 43(6) of the Income Tax Act:

The primary issue raised by the assessee pertains to the interpretation and applicability of Explanation 2B to section 43(6) of the Income Tax Act for the assessment year 2003-04. The assessee contended that the written down value (WDV) of the block of assets should be taken as per the books of accounts of the demerged company, Godrej Appliances Limited, immediately before the demerger. The assessee claimed depreciation of Rs. 65,90,99,922/- based on this interpretation.

The Assessing Officer (AO) disagreed, stating that the WDV should be as per the provisions of the Income Tax Act, not the book value. The AO allowed depreciation of Rs. 39,75,12,704/-, arguing that the demerger should be tax neutral and should not provide any undue benefit to the assessee. The AO's stance was that the WDV of the assets transferred should be considered for computing depreciation under section 32 of the Act.

Upon appeal, the CIT(A) upheld the AO's decision, referencing a similar case involving Godrej Industries Ltd., where the ITAT had decided against the assessee. The CIT(A) observed that the amendment made to Explanation 2B by the Finance Act, 2003, effective from 1st April 2004, was prospective and did not apply to the assessment year 2003-04.

The Tribunal agreed with the lower authorities, stating that the amendment made by the Finance Act, 2003, was clarificatory and curative in nature, not affecting any substantive rights of the assessee. The Tribunal emphasized that the WDV of the transferred assets should be as per the Income Tax Act for the resulting company. The Tribunal also noted that the amendment removed ambiguity and was not intended to provide any new rights to the revenue or take away any rights from the assessee.

2. Non-Chargeability of Interest under Section 234B of the Income Tax Act:

The assessee also contested the chargeability of interest under section 234B of the Act. The Tribunal noted that the levy of interest under section 234B is mandatory and consequential. Therefore, these grounds were decided against the assessee.

3. Disallowance of Irrecoverable Inter-Corporate Deposits Written Off:

The Revenue appealed against the CIT(A)'s decision to delete the disallowance made by the AO on account of irrecoverable inter-corporate deposits written off. The assessee had written off inter-corporate deposits of Rs. 41,00,000/- placed with Godrej Hi-care Ltd. The AO disallowed the claim, stating that the bad debts could only be allowed if the debt had passed through the trading/P&L account of the company.

The CIT(A) allowed the claim, noting that the demerged company, Godrej Capital Ltd., was in the business of lending money, and the interest income from these loans was assessed as business income. The CIT(A) held that the claim was allowable as a bad debt under section 36(1)(vii) read with section 36(2) of the Act, even if the debts were not passed through the P&L account.

The Tribunal upheld the CIT(A)'s decision, agreeing that the finance business of the demerged company was carried over by the assessee company. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The appeals filed by the assessee and the Revenue were dismissed. The Tribunal upheld the lower authorities' decisions regarding the grant of depreciation and the chargeability of interest under section 234B. The Tribunal also upheld the CIT(A)'s decision to allow the write-off of irrecoverable inter-corporate deposits. The order was pronounced in the open court on 31.12.2014.

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