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of <h1>Tribunal rules for assessee, allowing depreciation, up-front fee, and interest claims. Genuineness upheld.</h1> <h3>M/s. Brace Iron & Steel Pvt. Ltd. Versus The Addl. Commissioner of Income Tax, Special Range-2, C.R. Building, New Delhi.</h3> M/s. Brace Iron & Steel Pvt. Ltd. Versus The Addl. Commissioner of Income Tax, Special Range-2, C.R. Building, New Delhi. - [2021] 90 ITR (Trib) 582 (ITAT ... Issues Involved:1. Disallowance of depreciation claim of Rs. 71,43,75,000.2. Disallowance of Rs. 1,10,82,175 being up-front fee.3. Disallowance of interest expenditure of Rs. 1,62,10,881.Issue-wise Detailed Analysis:1. Disallowance of Depreciation Claim of Rs. 71,43,75,000:The Assessing Officer (A.O.) disallowed the depreciation claim on the grounds that the transaction between the assessee and M/s. BSL was a 'sham transaction' aimed at claiming higher depreciation. The A.O. highlighted that the assessee had no financial worth, no prior business activity, and purchased the assets at an inflated cost. The assets were not physically transferred and remained with M/s. BSL, indicating a mere paper transaction.The CIT(A) upheld the A.O.'s decision, stating that the assessee arranged the transaction to avoid taxes by paying a disproportionately high price for the assets and not utilizing the equipment for its own business purposes.The Tribunal, however, found merit in the assessee's arguments, supported by the Hon'ble Delhi High Court's decision in M/s. Brace Iron & Steel Pvt. Ltd. vs. Tata Steel BSL Ltd., which upheld the validity of the Lease Agreement and rejected the Revenue's claim of it being a sham transaction. The Tribunal noted that the transaction was appraised by 17 banks, and the terms were at arm's length. The Tribunal also referenced various judicial precedents, including the Hon'ble Supreme Court's decisions, which supported the assessee's claim for depreciation under Section 32 of the Income Tax Act, even if the assets were not physically used by the assessee but leased out.2. Disallowance of Rs. 1,10,82,175 Being Up-front Fee:The A.O. disallowed the up-front fee of Rs. 1,10,82,175, considering it a capital expenditure. The CIT(A) upheld this disallowance on the grounds that the assessee had not carried out any business operations or utilized the machinery for business purposes.The Tribunal, however, allowed the claim, noting that the up-front fee was related to the term loan taken for acquiring the fixed asset, which is an allowable business expenditure. The Tribunal referenced judicial precedents, including the Hon'ble Supreme Court's decision in Commissioner of Income Tax vs. Rama Multi Tech Ltd., which allowed such fees as revenue expenditure.3. Disallowance of Interest Expenditure of Rs. 1,62,10,881:The A.O. disallowed the interest expenditure on the grounds that the assessee had not undertaken any business activity and the transaction with M/s. BSL was a sham. The CIT(A) upheld this disallowance.The Tribunal, however, allowed the claim, reiterating that the transaction was genuine and the interest expenditure was incurred for business purposes. The Tribunal referenced the Hon'ble Delhi High Court's decision and other judicial precedents supporting the claim.Conclusion:The Tribunal set aside the orders of the A.O. and CIT(A) on all issues, allowing the assessee's claims for depreciation, up-front fee, and interest expenditure. The Tribunal emphasized the genuineness of the transaction and the applicability of relevant judicial precedents in favor of the assessee.
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