2017 (4) TMI 1010 - AT - Income Tax

ITAT decisions: Depreciation, write-offs upheld; interest disallowance deleted; additional grounds admitted for assessment

Rajasthan Explosives and Chemicals Ltd. Versus J.C.I.T., Range- Bharatpur, Bharatpur and Assistant Commissioner of Income Tax, Circle- Bharatpur Versus Rajasthan Explosives and Chemicals Ltd.

Rajasthan Explosives and Chemicals Ltd. Versus J.C.I.T., Range- Bharatpur, Bharatpur and Assistant Commissioner of Income Tax, Circle- Bharatpur Versus ... Issues Involved:1. Deletion of addition by disallowance of depreciation on plant and machinery due to factory closure.2. Disallowance of writing off sundry debtors.3. Disallowance of write-off of loans and advances.4. Disallowance of write-off of fixed assets.5. Disallowance of interest amount.6. Admission of additional grounds regarding extraordinary income.Detailed Analysis:1. Deletion of Addition by Disallowance of Depreciation on Plant and Machinery due to Factory Closure:The revenue appealed against the deletion of Rs. 55,10,113/- added by the Assessing Officer (AO) by disallowing the depreciation claim on plant and machinery due to factory closure. The assessee's factory was closed from 03/06/1998 to 19/06/2000 due to liquidity problems, and the matter was pending before the Board for Industrial and Financial Reconstruction (BIFR) for revival. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the depreciation, citing that the assets were in passive use and referred to the Delhi High Court's judgment in CIT Vs. Laxmi Sugar Mills Ltd., which allowed depreciation during the closure period. The ITAT upheld the CIT(A)'s decision, stating that depreciation is allowable even if the factory is closed for reasons beyond control, as the assets were ready for use.2. Disallowance of Writing Off Sundry Debtors:The assessee appealed against the disallowance of Rs. 58,80,646/- for writing off sundry debtors M/s Nam Nam Dhaka. The AO disallowed the write-off as the assessee did not produce RBI approval. The CIT(A) confirmed the disallowance, referencing the Supreme Court's decision that provisions made by NBFCs for NPAs are not deductible under the Income Tax Act. However, the ITAT allowed the write-off, referencing the Supreme Court's decision in T.R.F. Limited Vs CIT, which held that post-1989, it is sufficient if the bad debt is written off in the accounts. The ITAT directed that the write-off is allowable and any recovery in subsequent years should be treated as income.3. Disallowance of Write-Off of Loans and Advances:The assessee contested the disallowance of Rs. 1,47,62,069/- written off as per the BIFR's rehabilitation scheme. The AO disallowed the write-off due to lack of details and efforts for recovery. The CIT(A) upheld the AO's decision. The ITAT allowed the write-off, noting that the BIFR's scheme recasted the balance sheet, showing only recoverable assets and liabilities. The ITAT found merit in the assessee's claim and allowed the write-off.4. Disallowance of Write-Off of Fixed Assets:The assessee appealed against the disallowance of Rs. 13,67,295/- for writing off fixed assets found missing during the takeover by new management. The AO disallowed the write-off due to lack of FIR and insurance claims. The CIT(A) confirmed the disallowance, stating no evidence of theft or loss was provided. The ITAT upheld the CIT(A)'s decision, noting the assets were part of the block assets and depreciation was already allowed, thus dismissing the assessee's ground.5. Disallowance of Interest Amount:The assessee contested the disallowance of Rs. 35,00,000/- out of a total interest of Rs. 65,00,000/- provided as per BIFR's scheme. The AO computed hypothetical interest at 15% on Rs. 2 crores, disallowing the excess. The CIT(A) upheld the disallowance. The ITAT found the AO's computation incorrect, noting the actual interest was on a working capital of around Rs. 5.25 crores. The ITAT allowed the interest claim, directing deletion of the addition.6. Admission of Additional Grounds Regarding Extraordinary Income:The assessee sought to admit additional grounds regarding the inclusion of extraordinary income of Rs. 6,04,98,043/- in the assessable income, arguing it was not taxable per the BIFR scheme. The ITAT admitted the additional grounds, referencing the Supreme Court's decision in NTPC, which allows raising new grounds if they pertain to the correct assessment of tax liability. The ITAT remanded the issue to the AO for verification and decision on merit.Conclusion:The ITAT dismissed the revenue's appeal and partly allowed the assessee's appeal, directing the AO to reassess certain issues and admitting additional grounds for statistical purposes. The order was pronounced in the open court on 11/04/2017.