2015 (11) TMI 1122 - AT - Income Tax

Tribunal Partially Allows Appeal, Remands Issues for Re-Examination and Fresh Adjudication

The Tribunal allowed the appeal partly, remanding various issues back to the AO for re-examination and fresh adjudication. The Tribunal directed the AO to ... Rate of depreciation on Electric Installation used in factory premises to operate various Machinery & Equipments in manufacturing of POY and polyester chips - Held that:- As decided in favour of assessee's own case [2014 (12) TMI 677 - ITAT MUMBAI] held that the electrical fittings in the instant case should be considered as plant and machinery and hence the depreciation should be allowed at the rate of 25% to plant and machinery - Decided in favour of assessee. Disallowance of interest u/s 36(1)(iii) - Held that:- As decided in assessee's own case [2014 (12) TMI 677 - ITAT MUMBAI] AR submitted that the assessee had used the internal cash accruals for funding the above said projects and the availability of its own funds could be proved to the AO by showing the balance sheet of the assessee. Accordingly, he requested that this matter may be set aside to the file of the AO so that the assessee would be able to demonstrate about the availablility of its own funds, to which the Ld DR also did not object. Accordingly, we set aside the order of the Ld CIT (A) and restore this issue to the file of AO with a direction to examine this issue afresh by considering the information and explanation that may be furnished by the assessee and take appropriate decision in accordance with law Disallowance u/s 40A(2)(b) - Held that:- We direct the AO to compute the disallowance @ 6% of the aggregate purchase value of the purchases made from Arya Industries - Decided in favour of assessee in part Allowablility of the claim u/s 35D - Held that:- The assessee brought our attention to the additional ground filed before us for the first time making an alternate claim seeking relief u/s 37(1) of the Act. In this regard, Ld Representatives of both the parties mentioned that this issue raised in ground no.4 needs to be remanded to the file of the AO for fresh adjudication after admitting the said additional ground. Disallowance of alternate claim of depreciation when the rentals were not allowed - Held that:- As relying on assessee's own case [2014 (12) TMI 677 - ITAT MUMBAI] We notice it is held that the AO has denied the benefit of depreciation also on the ground that the assessee is not the owner of the asset as per the lease agreement. There is a fallacy in the said decision. Once the AO has held that this was a case of finance transaction by ignoring the lease agreement, in our view, he should not refer to the very same lease agreement to decide about the ownership. Accordingly, we are of the view that the assessee should be allowed depreciation benefit. - Decided in favour of assessee. Issues Involved:1. Disallowance of Depreciation of Rs. 2,34,437/-2. Disallowance of Interest of Rs. 69,76,659/-3. Excess Payment to Party Covered u/s 40A(2)(b) Rs. 4,77,918/-4. Disallowance of Expenditure Covered u/s 35D of Rs. 21,94,414/- for Raising FCCB5. Not Allowing Alternate Claim of Depreciation on Assets Taken on Lease Allowed in Assessment Year 2004-2005 and 2005-06 Rs. 45,87,122/-6. Additional Ground: Alternative Claim of Revenue Expenditures u/s 37 if not allowable u/s 35DDetailed Analysis:1. Disallowance of Depreciation of Rs. 2,34,437/-:The assessee contested the disallowance of depreciation on electric installations used in the factory premises, which the CIT (A) classified as furniture and fixtures, allowing only 10% depreciation. The Tribunal referred to its earlier decision where it considered similar installations as part of plant and machinery, thus allowing a 25% depreciation rate. The Tribunal followed this precedent and allowed the depreciation at 15% as claimed by the assessee, stating, 'the 'electric fittings' should be considered as 'plant & machinery' and hence the depreciation should be allowed @ 15%.'2. Disallowance of Interest of Rs. 69,76,659/-:The issue pertained to the disallowance of interest under Section 36(1)(iii) of the Act. The assessee had incurred interest expenditure related to the purchase of land at Athal, Silvassa, which was later shifted to Sarigam, Gujarat. The AO disallowed the interest, treating it as capital expenditure. The Tribunal, referencing its previous decision, remanded the issue back to the AO to verify if the assessee used internal funds for the project. The Tribunal directed the AO to re-examine the issue, stating, 'we set aside the order of the Ld CIT (A) and restore this issue to the file of AO with a direction to examine this issue afresh.'3. Excess Payment to Party Covered u/s 40A(2)(b) Rs. 4,77,918/-:The AO had disallowed a portion of the payments made to Arya Industries under Section 40A(2)(b), considering them excessive compared to market rates. The Tribunal, following its previous decision, directed the AO to recompute the disallowance at 6% of the aggregate purchase value from Arya Industries, stating, 'we direct the AO to recompute the disallowance at the rate of 6% of the aggregate purchase value of purchases made from Arya Industries.'4. Disallowance of Expenditure Covered u/s 35D of Rs. 21,94,414/- for Raising FCCB:The assessee's claim for expenditure under Section 35D was disallowed by the AO. The Tribunal admitted an additional ground for alternate relief under Section 37(1) and remanded the issue back to the AO for fresh adjudication, emphasizing the need for a fair hearing, 'the additional ground along with the ground no.4 raised by the assessee is remanded to the file of the AO for fresh adjudication.'5. Not Allowing Alternate Claim of Depreciation on Assets Taken on Lease Allowed in Assessment Year 2004-2005 and 2005-06 Rs. 45,87,122/-:The assessee's alternate claim for depreciation on leased assets was disallowed by the AO, who questioned the ownership of the assets. The Tribunal, referencing its earlier decision, held that the assessee should be allowed depreciation benefits, stating, 'we are of the considered opinion that the assessee should be allowed depreciation benefit.'6. Additional Ground: Alternative Claim of Revenue Expenditures u/s 37 if not allowable u/s 35D:The Tribunal admitted the additional ground raised by the assessee for alternate relief under Section 37(1) and remanded it to the AO for fresh adjudication, ensuring a fair hearing process, 'the additional ground along with the ground no.4 raised by the assessee is remanded to the file of the AO for fresh adjudication.'Conclusion:The Tribunal allowed the appeal partly for statistical purposes, remanding several issues back to the AO for re-examination and fresh adjudication, ensuring adherence to principles of natural justice.