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2023 (12) TMI 135
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....o.850/Ind/2019 Assessee 2013-14 Order dated 03.05.2019 passed by CIT(A)-II, Indore. I.T.A.No.784/Ind/2019 Revenue 2013-14 Cross Appeal I.T.A.No.12/Ind/2019 Assessee 2014-15 Order dated 11.10.2018 passed by CIT(A)-II, Indore. I.T.A.No.23/Ind/2019 Revenue 2014-15 Cross Appeal I.T.A.No.13/Ind/2019 Assessee 2015-16 Order dated 11.10.2018 passed by CIT(A)-II, Indore. I.T.A.No.24/Ind/2019 Revenue 2015-16 Cross Appeal Since these appeals are related to the same assessee; argued by same representatives and involve certain issues of common nature; they were heard together at the request of parties and are being disposed of by this common order for the sake of convenience and clarity. 2. Heard the learned Representatives of both sides at length and case records perused. 3. The registry has informed that ITA No. 22/Ind/2019 is filed by Revenue after a delay of 3 days and therefore time-barred. Ld. DR for the revenue submitted that the delay is very small and caused by administrative procedure. He prayed to condone the delay in the interest of justice. We are satisfied with the reasoning and prayer made by Ld. DR. Th....
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...., the Hon'ble CIT(A) was justified in restricting the disallowance on account of depreciation on plant and machinery at Rs. 2,26,37,000/- instead of total disallowance of Rs. 4,02,07,797/- because the Hon'ble CIT(A) has not given exact working and basis of disallowable depreciation and the same cannot be worked out on the basis of figures available in various schedules and audit report filed electronically? 2. Whether on the facts and in the circumstances of the case, the Hon'ble CIT(A) was justified in deleting the disallowance made on account of sundry creditors u/s 41(1) of the I. T. Act? Assessee's ITA No. 12/Ind/2019 for AY 2014-15: 1. That the Ld. CIT(A) erred in maintaining disallowance of deprecation to the extent of Rs. 2,87,14,642/- (actually this figure should have been 1,49,11,045/-) out of claim of depreciation of Rs. 4,36,25,687/-. That since the assessee has used plant and machinery in the business during the year, entire claim of Rs. 4,36,25,687/- was to be allowed. The same require to be now allowed. Revenue's ITA No. 23/Ind/2019 for AY 2014-15: 1. Whether on the facts and in the circumstances of the case, the Hon'bl....
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....bmitted that the assessee is a company. He carried us to the meticulous details of foreign travel expenses, details of imports and export sales made by assessee at Page No. 48 to 53 of Paper-Book. He demonstrated that out of total expenditure of Rs. 2,70,708/- , major expenditure of Rs. 3,700 + 1,79,050 was on visits by Shri R.C. Gupta, President of assessee-company to Spain; followed by expenditure of Rs. 47,353 + 28,539 + 3,718 + 548 on visits by Mr. Amitva Sarkar to Istanbul/turkey; and the rest of expenditure is incurred on passport/visa fee of some persons. He submitted that all visitors are employees of assessee and a small amount of Rs. 2,500/- is incurred for passport/visa fee of Mr. Vivek Loiwal, director of company. He carried us to the country-wise breakup of imports/exports done by assessee and submitted that the assessee has made imports/exports from Spain and Turkey besides other countries. He submitted that gross value of import and export made by assessee during the year was Rs. 10,01,34,723/- and Rs. 22,56,64,881/- respectively. He submitted that the assessee is a company; the expenditure is incurred for visits by employees (a nominal expenditure for director's vis....
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....73/-. Now, the assessee claims that it should have been allowed fully. 11. Facts apropos to this issue as explained by Ld. AR are such that the assessee took loan from bank for purchase of plant and machinery. Subsequently, the assessee was declared as a sick company by Board for Industrial and Financial Reconstruction (BIFR). In terms of rehabilitation package sanctioned by BIFR, the assessee entered into One Time Settlement (OTS) with its lending Bank whereunder the assessee got waiver of the principal amount of loan. The waiver was granted in AY 2007-08 and while completing scrutiny-assessment of AY 2007-08, the then assessing authority adopted "Nil" value of the opening W.D.V. of fixed assets and thereby disallowed the depreciation claimed by assessee. The AO did this on the basis of provision of section 43(1) read with Explanation 10 to section 43(1). During current AY 2012-13 under consideration, Ld. AO followed his predecessor's approach of AY 2007-08 and accordingly disallowed entire depreciation of Rs. 3,89,37,375/- claimed by assessee in current year vide Para No. 5 of assessment-order. During first-appeal, Ld. CIT(A) agreed with the observation of AO but, however, he ....
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.... cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." 14. Ld. AR submitted that the revenue's stand is such that the waiver of loan obtained by assessee under OTS falls within "reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority" as occurring in the main body of section 43(1) or within "Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee" as occurring in Explanation 10 to section 43(1). But this stand is totally mis-con....
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....epreciation actually allowed to the assessee in the past. We are unable to accept the submission. The Appellate Tribunal has categorically found that Atlanta Corporation is only a financier and when Atlanta Corporation wrote off the liability of the assessee, it cannot be said in retrospect that the cost of the assessee of any part of the machinery purchased in 1967, was met by the Atlanta Corporation. The Appellate Tribunal held that the remission of the liability by Atlanta Corporation long after the liability was incurred cannot be relied on to hold that Atlanta Corporation met directly or indirectly, part of the cost of the machinery of the assessee purchased as early as 1968, as per section 43(1) of the Act, if the cost of the asset is met directly or indirectly. At the time of purchase of the machinery, by any other person or authority, to that extent, the actual cost of the asset to the assessee will stand reduced. But it is far cry to state that though at the time of purchase of the machinery, no person met the cost either directly or indirectly, if, long thereafter a debt incurred in that connection is written off, it could be equated to a position that the financier met p....
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....r any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Cost incurred/payable by the assessee alone could be the basis for any tax allowance. This Explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement so received, shall not be included in the actual cost of the asset to the assessee. The amendment made through Explanation 10 will take effect from 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years." 22. Even the aforesaid provisions of Expln. 10 will apply only when there is a subsidy or grant or reimbursement. In the present case there was no such subsidy or grant or reimbursement. There was....
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....as well as the depreciation actually allowed in that year have reached finality and cannot be changed in the assessment year under appeal. They could have been changed only if the assessment of that or earlier years could be re-opened. Such an action was barred by limitation. Further, as per section 43(6)(c)(ii) & (i), the only adjustments permitted in the WDV of the block with reference to the year in which depreciation is to be allowed are (a) addition actual cost of asset acquired during the year and (b) reduction of monies receivable on sale, discarding, demolition or destruction of the assets and its scrap value." 24. As far as the validity of initiation of reassessment proceedings are concerned, we find that there were no assessments u/s. 143(3) of the Act and only an intimation had been issued. In the circumstances, we have to view that the ld. CIT(Appeals) was right in coming to the conclusion that the reopening of assessment u/s. 148 was valid. We therefore uphold the order of the ld. CIT(A) on the issue of validity of initiation of reassessment proceedings u/s. 148 of the Act. 25. On the merits of the addition made by the AO in all the assessmen....
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....Thus, the said section has application only if the cost of assets is met directly or indirectly at the time of the purchase of capital assets. The waiver of loan is not equivalent to reimbursement or a grant or a subsidy. Hence, it is held that the waiver does not fall within the ambit of explanation (10) to section 43(1) or proviso thereof. Therefore, following the judgment of Hon'ble High Court of Kerala in the case of CIT Vs. Kochin Co. P. Ltd., it is held that explanation (10) to s. 43(1) does not apply to the facts of the case and therefore, WDV of assets is not to be reduced by the amount of loan waived by the banks. This ground is decided in favour of the assessee." Aggrieved, the revenue is in appeal before us. 22. The learned DR strongly relied upon the order of the AO and submitted that the AO has rightly reduced the principal amount of loan written off of Rs. 4,91,16,833/- from the WDV of building, plant and machinery by invoking explanation (10) to section 43(1) of the Act, but, the CIT(A) was wrong in directing the AO not to reduce the WDV of the assets by the principal amount of loan waived. The learned DR further submitted that the decision relied u....
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....see purchased as early as 1968. As per section 43(1) of the Act, if the cost of the asset is met directly or indirectly, at the time of purchase of the machinery, by any other person or authority, to that extent, the actual cost of the asset to the assessee will stand reduced. But it is a far cry to state that though at the time of purchase of the machinery, no person met the cost either directly or indirectly, if, long thereafter a debt incurred in that connection is written off, it could be equated to a position that the financier met part of the cost of the asset to the assessee. We are unable to accept the plea that the remission of liability by Atlanta Corporation can, in any way, be said to be one, where the Corporation met directly or indirectly the cost of the asset to the assessee. In this view of the matter, we are of the view that the remission by Atlanta Corporation could not be reduced from the cost of the machinery of the assessee for the purpose of income-tax". 25. The principle laid down by the Hon'ble Kerala High Court in the said case is squarely applicable to the facts of the case under consideration. 26. In so far as Explanation 10 to section 4....
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....event subsequent to the acquisition of the asset. In our judgment the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals are dismissed. There will be no order as to costs." 16. Ld. AR also relied upon the decision of Hon'ble Supreme Court in CIT Vs. Tata Iron & Steels Co. Ltd. (1998) 2 SCC 366, the relevant paragraphs are re-produced below: "4. Coming to the questions raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, cost of the asset will not change. What has to be borne in mind is that cost of an asset and cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchase....
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....& Steels (supra), we find that the said decision dealt with a situation of exchange gain which arose to assessee from fluctuation in exchange-rate at the time of repayment of loan (the loan was originally taken for acquisition of assets) and the department wanted to reduce the 'cost of asset' by amount of gain and thereafter allow depreciation on reduced cost. That decision was not on the issue of waiver of bank loan. But while deciding the same, the Hon'ble Supreme Court has clearly observed in Para No. 4 that the manner of repayment of loan cannot affect the cost of asset. The actual cost must depend on the amount paid by the assessee to acquire the cost. The amount may have been borrowed by the assessee but even if the assessee did not repay the loan, it will not alter the cost of asset. This observation-cuminterpretation given by Hon'ble Supreme Court has also been used by ITAT, Bangalore in Akzo Nobel Coatings (supra), Para No. 23 of order reproduced earlier, while deciding the case of waiver of loan. In any case, the decision in CIT Vs. Cochin Co. (P) Ltd. (1990) 184 ITR 230 (Kerala HC); Akzo Nobel Coatings India Private Ltd. Vs. DCIT (Bangalore ITAT) (2012) 139 ITD 612; Adit....
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....ery frankly that the Checkmate Service (supra) is against assessee. However, he carried us to a different corner. He placed reliance on a decision taken by ITAT, Cuttack Bench in M/s BBG Metal Syndicate Pvt. Ltd. Vs. DCIT, ITA No. 112/CTK/2022 order dated 17.11.2022, which is a decision subsequent to and after considering the Checkmate Service (supra). Ld. AR argued that the ITAT has, although not expressed its own opinion, remanded the matter to AO to examine the allowability of deduction under residuary provision of section 37(1) of the act. Accordingly, Ld. AR too prayed us to remand the issue to AO in the same terms i.e. to examine allowability u/s 37(1). Ld. DR strongly opposed the prayer of Ld. AR. 24. We have considered rival submissions of both sides. First of all, both sides agree that after decision of Hon'ble Supreme Court in Checkmate Services (supra), the issue is very much clear that the deduction is not allowable to assessee in terms of section 36(1)(va)/43B. Now, coming to the issue of allowability u/s 37(1), we firstly refer the verdict of section 37(1) which reads as under: "37. General (1) any expenditure (not being expenditure of the nature ....
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....o be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection. In this scheme the deduction made by employers to approved provident fund schemes, is the subject matter of Section 36 (iv)......" [Emphasis supplied] 25. Therefore, we are of the considered view that the employees' contribution to PF falls, nature-wise and specifically, u/s 36(1)(va) and the same goes out of scope of section 37(1). Being so, we not inclined to remand this issue back to AO for any re-adjudication as prayed for by Ld. AR. As held by Hon'ble Supreme Court in Checkmate Service (supra), we approve the disallowance made by AO. Revenue's ground is allowed. Ground No. 2: 26. This ground relates to the disallowance of Rs. 4,50,271/- made by AO on account of prior period expenses claimed by assessee. 27. The AO has made this disallowance, in Para No. 4 of assessment-order, by observing that the assessee has claimed 'prior period expenses' which did not relate to the year unde....
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....e Ld. AR submitted his inability to submit details for the reason that the assessee-company has already closed functioning much earlier, it has become a sick company and no details are forthcoming from assessee. Since it is an undisputed fact that the expenditure are prior-period and no assistance is coming from assessee on the details of expenditure, much less having crystallised in current year, we have no reason to interfere with the orders of lower-authorities. Therefore, we uphold the disallowance made by AO. Revenue's ground is allowed. Ground No. 3: 31. This ground relates to the disallowance of depreciation on plant and machinery. In fact, this ground is counter-part of ground No. 2 raised in Assessee's appeal for AY 2012-13 adjudicated by us in earlier part of this order. As noted by us there, the AO made full disallowance of depreciation of Rs. 3,89,37,375/- but the CIT(A) restricted/upheld disallowance partly to the extent of Rs. 1,82,66,673/- only qua the assets acquired pre-OTS and deleted extra disallowance qua the assets acquired post-OTS. Now, the revenue's grievance is such that the CIT(A) ought to have upheld full disallowance of Rs. 3,89,37,375/- since ther....
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....1(1) of the I.T.Act,1961. I have carefully gone through the assessment order as well as submission of the appellant in this regard. 7.1 While passing the Assessment order the AO had observed that some of the Sundry Creditors parties had outstanding balance for more than 3 years and the appellant was not required to pay the said liabilities any more therefore he had taxed the old outstanding balance of following parties though these were shown as liabilities in the Balance Sheet. S.No. Name Amount 1. M/s.Shree Enterprises 35,751 2. M/s. New Tech P.Ltd. 64,899 Total 1,00,650 7.2 The appellant had submitted that merely balance outstanding for more than 3 years cannot be the reason for taxing the amount to the income of the appellant by invoking the provision of section 41(1) of the I.T. Act. 7.3 Let us understand what does section 41(1) says. The language of provision of section 41(1) of the I.T. Act read as under :- "5(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to ....
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....it by virtue of remission or cessation is sine-quo-non for the application of Section unless such liability is written off in books of accounts by unilateral act of the assessee. We find that the liability of Rs. 6,76,266/- in respect of Mahima Porsepun was outstanding for more than three years, but the same has not been written off in the books of accounts by the assessee. Therefore, there was no basis by treating the said amount as remission or cessation of a trading liability of the assessee when it was not unilateral written off by the assessee. We find that the AO has made this addition merely on the basis of expiry of limitation to file the suit by creditor, where he cannot who come up with a proceedings for enforcement of debt. However, we find that this amount was subsequently settled by the assessee in the succeeding years therefore, the assessee has not derived or obtained any benefit in respect of such trading liability. Therefore, the addition made on the basis of presumption cannot be sustained in the eyes of law. The Ld. AR has relied in the case of CIT v/s Southern Roadways Ltd. 282 ITR 379 wherein the decision of the Apex Court in the case of CIT v/s Sugauli Sugar W....
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....has written off liability in books of account. But, in present case, there is none. Therefore, Ld. CIT(A) is very much correct in deleting the addition. We subscribe to the order of CIT(A). Revenue's ground is dismissed. Assessee's ITA for AY 2014-15: Ground No. 1: 40. This ground relates to the disallowance of depreciation on plant and machinery. The ground is similar to Ground No. 2 of Assessee's appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutadis mutandis. Respectfully applying the same, Assessee's ground is allowed. Revenue's ITA for AY 2014-15: Ground No. 1: 41. This ground relates to the disallowance of depreciation on plant and machinery. The ground is similar to Ground No. 3 of Revenue's appeal for AY 2012-13 already adjudicated by us in foregoing paragraph. Hence, our same view shall apply mutadis mutandis. Respectfully applying the same, Revenue's ground is dismissed. Ground No. 2: 42. This ground relates to the disallowance delayed payment of employees' contribution to Provident Fund (PF) made by AO but deleted by CIT(A). The ground is similar to Ground No. 1 of Revenue's appeal for AY 2....