2020 (2) TMI 103 - AT - Income Tax

Tribunal grants relief on interest, depreciation claims, and upholds CIT(A) decisions

The Tribunal allowed the assessee's claims on interest disallowance and depreciation, citing judicial precedents and Supreme Court rulings. It upheld the ... Disallowance of interest - HELD THAT:- Considering the consistent decision of co-ordinate bench, wherein similar interest disallowance was directed to be deleted, therefore, we direct the Assessing Officer to delete the disallowance Disallowance of bad-debt - HELD THAT:- Statement of fact filed before the ld. CIT(A), the assessee has specifically stated in the fact related to ground no.2 that interest accrued on the advance to Arcot Finance Ltd. was offered to tax. In our view, the assessee has fulfilled the condition and discharge its onus by specifically pleading that interest accrued on the write off amount was shown in earlier years. We have also noted that the assessee has clearly stated that the write off amount relates to interest and that principle amount was already paid. It is settled law that no suit lie for recovery of interest. We have further noted that the assessee was allowed write off of claim in respect of other debtor. Therefore, in view of the aforesaid discussion, we direct the Assessing Officer to delete the disallowance Disallowance out of interest on account of interest free advances - HELD THAT:- When in earlier year also, the interest has not been allowed, the action of Assessing Officer was not justified in disallowance of interest in respect of Cifco Travel & Cifco Properties. In view of the aforesaid discussion and keeping in view that substantial interest disallowance has been deleted by Assessing Officer while giving effect to the order of ld. CIT(A). Therefore, we direct the Assessing Officer to delete the entire disallowance. Depreciation by treating the lease agreement with Kores India Ltd. as a financial agreement - HELD THAT:- We have noted that the lower authority has not disputed the ownership of leased asset. In AY 1995-96, there was a limited dispute about the date of put to use. Even otherwise, the dispute for AY 1994-96 was settled under KVSS, and it would not take any right of the assessee for taking up the issue in subsequent years. We have further noted that the assessee has placed on record sufficient material showing ownership of leased asset. The Hon’ble Supreme Court in ICDS Ltd. vs. CIT [2013 (1) TMI 344 - SUPREME COURT] held that when assessee purchased vehicles from manufacturers (asset) and leased out those asset to customers, it was entitled to claim depreciation in respect of vehicles so leased out. Considering the decision of Hon’ble Supreme Court, we direct the Assessing Officer to allow the depreciation on leased asset i.e. Induction Melting Furnace leased to Kores India Ltd. Depreciation on leased asset - HELD THAT:- As perused the record including various documentary evidence furnished in respect of lease asset including lease agreement, transportation, installation, insurance policy and photographs of leased equipments. We have further noted that this issue is similar to the ground taken in Ground No. 5a to 5c, which we have allowed by following the decision of Hon’ble Supreme Court in ICDS Ltd. [2013 (1) TMI 344 - SUPREME COURT] . Therefore, this ground of appeal is also allowed with similar observation. Taxing profit on sale of shares of Panchmahal Cement Ltd. - HELD THAT:- Assessee itself offered the profit on sale of shares of Panchmahal Cement Ltd., for taxation. Before the ld. CIT(A), the assessee raised the ground that in case of Oceanic Investment Ltd. the transaction of shares of Panchmahal Cement, which was treated as bogus transaction, is upheld in appeal, the amount offered by assessee should be taken away from the income of assessee. The ld. CIT(A) rejected the ground that the assessee never claimed this profit of this amount as offered by mistake and that the assessee cannot be said to have been aggrieved by the action of Assessing Officer. In our considered view, the action of ld. CIT(A) is reasoned one. There is no adverse treatment of the profit shown on sale of shares either by Assessing Officer or by First Appellate Authority. Therefore, we do not find any justification for interfering with the finding of ld. CIT(A). Disallowance of amounts written off - Addition as assessee has not furnished evidence that any action was taken for recovery of these amount - HELD THAT:- We have noted that the Hon’ble Supreme Court in TRF Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT] held that after 01.04.1989 it is not necessary for the assessee to establish that debt, infact has become irrecoverable. It is enough, if the bad is written off as irrecoverable in the accounts of assessee. We have noted that the assessee has specifically pleaded that interest income from the advance was offered in earlier years, which has not been disputed by Assessing Officer. Therefore, we do not find any merit in the ground of appeal raised by revenue. In the result, the ground of appeal raised by revenue is dismissed. Disallowance of interest advanced to Oceanic Investment Ltd - revenue submits that assessee not furnished any agreement for waiver of interest on the advance to Oceanic Investment Ltd. - CIT(A) deleted the disallowances to the extent of reopening balance - HELD THAT:- On appeal before the ld. CIT(A), the assessee made detailed submission as explained before us and also explained that no disallowance was made in earlier year. The ld. CIT(A) accepted that no disallowance of interest was made in earlier year and in view of the decision of Hon’ble Karnataka High Court in CIT vs. Sridev Enterprises [1991 (1) TMI 52 - KARNATAKA HIGH COURT] . The ld. CIT(A) directed the Assessing Officer to grant the relief to the assessee to the extent of disallowance of interest related to the debit balance carried over from the preceding year. No contrary fact or law is brought to our notice to take the different view. Therefore, we do not find any reason to interfere with the finding of ld. CIT(A), which we affirmed. In the result, Ground No.2 is dismissed. Estimation of higher lease rental received - bifurcate lease rent into repayment of principal amount and interest component - HELD THAT:- We have granted full relief to the assessee on Ground No. 5 & 6 in assessee’s appeal by following the decision of Hon’ble Supreme Court in ICDS Ltd. vs. CIT [2013 (1) TMI 344 - SUPREME COURT] . Therefore, this ground of appeal raised by revenue has become infructuous Issues Involved:1. Disallowance of interest payable to Kenilworth Investments Limited.2. Disallowance of bad debts in respect of Arcot Finance Limited.3. Disallowance of interest expenses on advances to Cifco Properties Private Limited and Cifco Travel Private Limited.4. Depreciation disallowance on lease arrangements with Kores India Limited.5. Depreciation disallowance on lease arrangements with Prakash Industries Limited.6. Taxing profit on the sale of shares of Panchmahal Cements Limited.7. Write-off of accounts in respect of Andhra Sintex Ltd., Swastik Surfactants Ltd., and Indage India Ltd.8. Interest disallowance on advances to Oceanic Investments Ltd.9. Bifurcation of lease rental income between principal and financial charges.Detailed Analysis:1. Disallowance of Interest Payable to Kenilworth Investments Limited:The assessee claimed interest expenses of Rs. 2.30 crore payable on an advance from Kenilworth Investments Pvt. Ltd. The Assessing Officer allowed only Rs. 57.60 lakhs, disallowing the remaining Rs. 1.73 crore, stating that the interest liability pertains to earlier years. The CIT(A) confirmed this disallowance. However, the Tribunal noted that the liability arose due to a Special Court order and allowed the interest claim in full, citing precedents from similar cases.2. Disallowance of Bad Debts in Respect of Arcot Finance Limited:The Assessing Officer disallowed Rs. 72,321/- of bad debts due to a lack of evidence of recovery efforts. The CIT(A) upheld this disallowance. The Tribunal, however, noted that the interest on the advance was offered to tax in earlier years and directed the Assessing Officer to delete the disallowance, following the Supreme Court’s decision in TRF Ltd. vs. CIT.3. Disallowance of Interest Expenses on Advances to Cifco Properties Private Limited and Cifco Travel Private Limited:The Assessing Officer disallowed interest expenses related to advances given to these companies, citing a lack of convincing reasons for the advances. The CIT(A) upheld the disallowance. The Tribunal, however, noted that the advances were given out of interest-free funds for business purposes and directed the deletion of the disallowance.4. Depreciation Disallowance on Lease Arrangements with Kores India Limited:The Assessing Officer disallowed depreciation claims, treating the lease arrangement as a financial agreement. The CIT(A) upheld this decision. The Tribunal, however, directed the allowance of depreciation, citing the Supreme Court’s decision in ICDS Ltd. vs. CIT, which allows depreciation on leased assets.5. Depreciation Disallowance on Lease Arrangements with Prakash Industries Limited:Similar to the Kores India Limited case, the Tribunal allowed the depreciation claim, following the same Supreme Court precedent.6. Taxing Profit on the Sale of Shares of Panchmahal Cements Limited:The assessee offered Rs. 22.50 lakhs as profit from the sale of shares for taxation. The CIT(A) did not delete this income, stating that the assessee was not aggrieved by the action of the Assessing Officer. The Tribunal upheld this decision, finding no justification for interfering with the CIT(A)’s finding.7. Write-off of Accounts in Respect of Andhra Sintex Ltd., Swastik Surfactants Ltd., and Indage India Ltd.:The Assessing Officer disallowed the write-off claims, stating that no recovery efforts were shown. The CIT(A) allowed the write-offs, noting that the interest income from these advances was offered to tax in earlier years. The Tribunal upheld the CIT(A)’s decision, referencing the Supreme Court’s ruling in TRF Ltd. vs. CIT.8. Interest Disallowance on Advances to Oceanic Investments Ltd.:The Assessing Officer disallowed interest on advances to Oceanic Investments Ltd., stating that the waiver was one-sided. The CIT(A) granted relief, stating that no disallowance was made in earlier years and cited the Karnataka High Court’s decision in CIT vs. Sridev Enterprises. The Tribunal upheld the CIT(A)’s decision.9. Bifurcation of Lease Rental Income Between Principal and Financial Charges:The CIT(A) directed the bifurcation of lease rental income into principal and financial charges. The Tribunal found this ground to be interconnected with the depreciation issues and dismissed the revenue’s appeal as infructuous after granting relief on depreciation claims.Conclusion:The Tribunal allowed several claims of the assessee, particularly on interest disallowance and depreciation, by following judicial precedents and Supreme Court rulings. It also upheld the CIT(A)’s decisions on write-offs and interest disallowance on advances, emphasizing the need for consistency and adherence to established legal principles.