Assessee wins appeal on disallowed interest expenses and depreciation claims with proper documentation support

ITAT Delhi allowed the assessee's appeal regarding disallowance of interest and financial expenses, finding that bank statements from State Bank of India clearly showed legitimate interest payments, making the AO's disallowance unjustified. The tribunal also ruled in favor of depreciation claims supported by audited balance sheet and tax audit reports, noting that depreciation allowed in previous years should continue for existing assets. Additionally, ITAT directed the AO to allow credit for brought forward losses and unabsorbed depreciation as per Income Tax Act provisions, based on returns filed showing year-to-year carry forward of losses.

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Issues:
1. Disallowance of financial expenses
2. Disallowance of manufacturing, administrative, and selling expenses
3. Disallowance of expenses payable at year-end
4. Disallowance of commission and brokerage
5. Disallowance of professional charges
6. Disallowance of purchases made by the assessee
7. Disallowance of depreciation claimed by the assessee

Issue 1: Disallowance of Financial Expenses:
The appeal was against the disallowance of interest and financial charges paid to a bank. The assessee argued that relevant details were furnished during assessment proceedings, but some records were unavailable due to the bank's possession of the factory and lost records. The Tribunal found that the payment details were available in the bank statement submitted to the revenue authorities, justifying that the disallowance made by the Assessing Officer was not justified and should be deleted.

Issue 2: Disallowance of Depreciation:
The contention was regarding the disallowance of depreciation claimed by the assessee. The Tribunal noted that depreciation is an allowance, not an expense, and that audited balance sheets and tax audit reports were submitted during assessment. The claim of depreciation was certified by the auditor, and the Tribunal emphasized that depreciation allowed in previous years on fixed assets should also be allowed in the current year. Consequently, the claim of depreciation by the assessee was deemed justified.

Issue 3: Non-Allowability of Credit for Brought Forward Losses/Unabsorbed Depreciation:
The Tribunal observed that the company had shown brought forward losses/depreciation in various returns. It directed the Assessing Officer to allow credit for the same as per the provisions of the Income Tax Act.

Conclusion:
The Tribunal confirmed the disallowance of manufacturing, administrative, selling, and other expenses, expenses payable, commission and brokerage, professional charges, and purchases made by the assessee. However, it deleted the disallowance of financial expenses and depreciation claimed by the assessee. The appeal of the assessee was allowed, and the order was pronounced in the open court on 30/05/2024.

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