Tribunal partially allows appeal, directs deletion of interest disallowance, upholds depreciation & sales promotion expense disallowances.

The Tribunal allowed the appeal in part by directing the deletion of the disallowance under section 36(1)(iii) related to interest on borrowed funds. However, the disallowances concerning additional depreciation on moulds and sales promotion expenses were upheld.

---

---

Issues Involved:
1. Disallowance under section 36(1)(iii) towards interest on borrowed funds.
2. Disallowance towards additional depreciation on expenditure on moulds.
3. Disallowance incurred on sales promotion expenses.

Issue-wise Detailed Analysis:

1. Disallowance under section 36(1)(iii) towards interest on borrowed funds:
The assessee, a private limited company engaged in the manufacture of P.S.C. Poles, had made investments in shares of sister concerns and given interest-free loans and advances to them. The Assessing Officer (AO) noted that the assessee had interest-bearing borrowed funds and calculated a notional disallowance of interest at 12% on the net investment in shares and interest-free advances. The AO restricted the disallowance to the actual interest debited in the books. The CIT(A) upheld this disallowance but adjusted it considering the interest-free funds available with the assessee, resulting in a disallowance of Rs. 5,89,573/-. The assessee argued that no new investments were made during the year and that the investments were made due to commercial exigency. The Tribunal found that the investments were made in earlier years without any disallowance of interest and concluded that there was no merit in the disallowance under section 36(1)(iii) of the Act. The Tribunal relied on the Bombay High Court's decision in CIT Vs. Reliance Utilities and Power Limited and directed the AO to delete the disallowance.

2. Disallowance towards additional depreciation on expenditure on moulds:
The AO disallowed additional depreciation claimed by the assessee on the expenditure incurred for converting old moulds into new ones, arguing that no new plant and machinery were purchased. The CIT(A) confirmed the disallowance of Rs. 13,607/- on the conversion of old moulds into new ones but accepted the claim for additional depreciation on a generator set and other items incorrectly disallowed by the AO. The Tribunal upheld the CIT(A)'s decision, stating that additional depreciation is not allowable for converting old assets into new ones without purchasing new plant and machinery.

3. Disallowance incurred on sales promotion expenses:
The assessee claimed sales promotion expenses but failed to provide documentary evidence or bills to support the claim. The AO disallowed the entire expenditure, noting that the main customers were through tenders and the claim of presenting gifts was irrelevant. The CIT(A) allowed 1/3rd of the expenditure due to payments made through credit card but confirmed the disallowance of Rs. 1,02,193/-. The Tribunal upheld the CIT(A)'s decision, emphasizing the requirement for the assessee to furnish basic details and evidence to claim such expenses under section 37(1) of the Act.

Conclusion:
The appeal was partly allowed, with the Tribunal directing the deletion of the disallowance under section 36(1)(iii) but upholding the disallowances related to additional depreciation on moulds and sales promotion expenses.

---