2017 (12) TMI 535 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on tax issues, including Section 68, depreciation disallowance. Assessee appeal allowed.

Sourashtra Ferrous P Ltd. Versus ITO, Wd 9 (2) (2), Mumbai And Vice-Versa

Sourashtra Ferrous P Ltd. Versus ITO, Wd 9 (2) (2), Mumbai And Vice-Versa - Tmi Issues Involved:1. Addition made on account of share application money under Section 68 of the Income-tax Act.2. Disallowance of depreciation on assets under Section 32 of the Act.3. Disallowance of interest under Sections 36(1)(iii) and 37(1) of the Act.4. Disallowance of interest under Section 43B(e) of the Act.5. Addition made on account of excise duty towards cost of stock under Section 145A of the Act.6. Addition made on account of excise credits in the balance sheet under Section 145(3) of the Act.7. Disallowance of expenses under Section 40(a)(ia) of the Act.8. Addition made on account of reduction in production by rejecting books of account under Section 145 of the Act.9. Disallowance of repairs and maintenance expenditure being capital in nature.Detailed Analysis:1. Addition on Account of Share Application Money under Section 68:The revenue challenged the deletion of the addition of Rs. 8,51,26,250 made by the AO under Section 68. The AO had questioned the genuineness and creditworthiness of the share application money received from M/s Great Value Company Ltd of Mauritius. The CIT(A) deleted the addition, observing that the assessee had provided sufficient evidence, including confirmations, bank details, and statutory approvals. The Tribunal upheld the CIT(A)’s decision, noting that the share application money was received in the previous financial year and the assessee had discharged its burden of proof.2. Disallowance of Depreciation under Section 32:The AO disallowed 50% of the depreciation claimed, arguing that the assets were used for less than 180 days. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, finding that the assessee had correctly classified assets used for more and less than 180 days, supported by bills and other evidence.3. Disallowance of Interest under Sections 36(1)(iii) and 37(1):The AO disallowed interest on term loans, treating it as capital expenditure. The CIT(A) deleted the disallowance, noting that the interest was paid after the commencement of production. The Tribunal upheld the CIT(A)’s decision, emphasizing that interest on loans for business purposes is deductible under Section 36(1)(iii), irrespective of whether the loan was for working capital or capital assets.4. Disallowance of Interest under Section 43B(e):The AO disallowed interest on the cash credit account, arguing that it was converted into a loan. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, finding that the interest was paid on or before the due date for filing the return, and thus Section 43B(e) was not applicable.5. Addition on Account of Excise Duty under Section 145A:The AO added Rs. 42,30,010, alleging that the assessee failed to include excise duty in the valuation of closing stock. The CIT(A) deleted the addition, noting that the AO’s conclusions were without basis and the assessee had included excise duty in the valuation, supported by an auditor’s certificate. The Tribunal upheld the CIT(A)’s decision.6. Addition on Account of Excise Credits under Section 145(3):The AO added Rs. 12,91,55,890, arguing that the assessee did not route excise duty through the P&L account. The CIT(A) deleted the addition, noting that the assessee had correctly presented accounts in accordance with Section 145(1). The Tribunal upheld the CIT(A)’s decision.7. Disallowance of Expenses under Section 40(a)(ia):The AO disallowed Rs. 33,00,944 for transportation charges, arguing that the assessee failed to deduct TDS under Section 194C. The CIT(A) deleted the disallowance, noting that the assessee had a valid certificate under Section 197 for non-deduction of TDS. The Tribunal upheld the CIT(A)’s decision.8. Addition on Account of Reduction in Production under Section 145:The AO added Rs. 21,65,77,838, alleging a reduction in production. The CIT(A) deleted the addition, noting that the assessee had justified the reduction with evidence of by-products and quality issues with raw materials. The Tribunal upheld the CIT(A)’s decision, emphasizing that the AO had no evidence of unaccounted sales or excess stock.9. Disallowance of Repairs and Maintenance Expenditure:The AO disallowed Rs. 2,24,08,100, treating it as capital expenditure. The CIT(A) allowed partial relief, confirming Rs. 2,08,21,467 as capital expenditure. The Tribunal found that the repairs were necessary to restore the existing blast furnace and did not create a new asset, thus treating the expenditure as revenue in nature and directing the AO to delete the addition.Conclusion:The Tribunal upheld the CIT(A)’s decisions on all issues, providing detailed reasoning and referring to relevant case laws. The appeal filed by the assessee was allowed, and the appeal filed by the revenue was dismissed.