2021 (7) TMI 1011 - AT - Income Tax

Tribunal remands case for interest verification but dismisses claim for depreciation on assets.

M/s Karle Properties Versus The Addl. Commissioner of Income Tax, Range-9, Bengaluru.

The Tribunal partially allowed the appeal, remanding the case for further verification on the disallowance of interest under section 36(1)(iii) of the ... Disallowance of interest u/s 36(1)(iii) - HELD THAT:- We note that assessee does have its own fund to advance money to the sister concern. However in the interest of Justice we deem it fit to remand to the AO for verifying cash flow statement for relevant period. Assessee is directed to furnish the cash flow statement that would disclose the funds available as on the date of advance to the sister concern. AO shall take a pragmatic approach in accordance with law considering the business exigency in the hands of assessee.Accordingly this ground raised by assessee stands allowed for statistical purposes. Depreciation claimed on the equipments - AO did not allow sum claimed as depreciation against electrical installations and furniture’s and fixtures on the ground that deduction for electrical installation and furniture fixtures already has been claimed u/s 24(a) - HELD THAT:- We note that the furniture fixtures and the equipments on which the depreciation has been claimed by assessee as an integral part of the rented premises on which standard deduction of 30% is claimed and allowed u/s 24 by Ld.AO. The primary condition as envisaged by Section 32 to claim the depreciation is that the assets should be used for the purposes of assessee’s business which has remained unfulfilled in the present facts before us. Therefore, we are unable to concur with the stand of the Ld.AR, in this regard. Issues:1. Disallowance of interest under section 36(1)(iii) of the Act.2. Disallowance of depreciation claimed on electrical installations and furniture and fixtures.Issue 1 - Disallowance of interest under section 36(1)(iii) of the Act:The appellant challenged the disallowance of interest under section 36(1)(iii) of the Act, arguing that all borrowed funds were utilized for business purposes. The Assessing Officer disallowed the interest, considering advances made to sister concerns without interest. The CIT(A) upheld the disallowance partially. The appellant contended that interest was a business expenditure and that there were sufficient free funds to support the advances. The Tribunal remanded the case to the AO to verify the cash flow statement for the relevant period to determine the availability of funds at the time of advancing to sister concerns. The Tribunal directed a pragmatic approach considering business exigency.Issue 2 - Disallowance of depreciation claimed on electrical installations and furniture and fixtures:The AO disallowed the depreciation claimed on electrical installations and furniture and fixtures, stating that deductions had already been claimed under a different section. The Tribunal considered the assets integral to the rented premises for which a standard deduction of 30% was allowed under Section 24 of the Act. As the assets were not used for the appellant's business, the Tribunal dismissed the appellant's claim for depreciation.In conclusion, the Tribunal allowed the appeal partly for statistical purposes, remanding the case for further verification on the disallowance of interest under section 36(1)(iii) and dismissing the claim for depreciation on electrical installations and furniture and fixtures.