Appellate Tribunal allows carry forward of unabsorbed depreciation & disallows interest disallowance

M/s. Asian Peroxides Ltd. Versus Dy. Commissioner of Income Tax, Company Circle-I (1), Chennai And Vice-Versa

M/s. Asian Peroxides Ltd. Versus Dy. Commissioner of Income Tax, Company Circle-I (1), Chennai And Vice-Versa - TMI Issues:
1. Disallowance of carry forward of unabsorbed depreciation.
2. Disallowance of interest on loans to sister concerns.

Analysis:

Issue 1: Disallowance of carry forward of unabsorbed depreciation
The assessee, a limited company in the business of manufacturing hydrogen peroxide, filed its return for the assessment year 2008-09 with Nil income after setting off brought forward unabsorbed depreciation. The Assessing Officer disallowed the carry forward claim citing Section 32(2) of the Act. The Appellate Tribunal noted that the Finance Act, 2001, allowed unabsorbed depreciation to be carried forward indefinitely from April 1, 2002, onwards. Relying on decisions of the Gujarat High Court and Madras High Court, the Tribunal held that the assessee could set off unabsorbed depreciation from earlier years amounting to Rs. 10,5717,523. Consequently, the Assessing Officer was directed to modify the order in favor of the assessee.

Issue 2: Disallowance of interest on loans to sister concerns
The Assessing Officer disallowed interest expenditure of Rs. 1,82,67,713, citing loans given interest-free to sister concerns. The CIT (A) confirmed the disallowance related to a subsidiary but held that a portion of the amount should not be treated as diversion of interest-bearing borrowed funds. The Appellate Tribunal noted the sufficient own funds of the appellant and cited precedents where interest expenditure cannot be disallowed if the assessee has own funds exceeding the advances to sister concerns. Relying on decisions of the Bombay High Court and Delhi High Court, the Tribunal held that the Assessing Officer erred in disallowing interest expenditure and deleted the addition made by the Assessing Officer. Consequently, the ground raised by the assessee was allowed, and the Revenue's appeal was dismissed.

In conclusion, the Appellate Tribunal allowed the assessee's appeal regarding the carry forward of unabsorbed depreciation and disallowed the Revenue's appeal concerning the disallowance of interest on loans to sister concerns. The judgment was pronounced on February 18, 2014, at Chennai.