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2014 (7) TMI 1195 - AT - Income TaxDisallowance representing commission paid to directors and disallowance u/s 36(1)(ii) - excessive and unreasonable interest - Held that - The issue involved is no longer res integra. As in the case of the assessee, the co-ordinate bench followed the order of the jurisdictional High Court in the case of AMD Met Plast Pvt Ltd (2011 (12) TMI 320 - Delhi High Court ) and has deleted the identical disallowance. n view of the above findings, we conclude that the disallowance made in the instant Assessment Year too is not tenable. The ld CIT(A), had sustained the disallowance on the basis of the order for Assessment Year 2007-08 and 2008-09, which as stated above has been set-aside. And since, the ld DR has not brought any material or fresh facts so as to persuade us to arrive at a different conclusion, we are not inclined to take another view of the issue in hand. Therefore we set-aside the impugned order and direct deletion of the disallowance towards commission paid to the Directors. - Decided in favour of assessee Disallowance on account of interest paid held to be excessive and unreasonable u/s 40A(ii)(b) - Held that - it is an undisputed position that interest has been paid to the specified persons in the earlier years at 16% which has been allowed in the respective previous years. The assessee however, has claimed deductions on the money borrowed from said ten persons at 18% in the instant year. The AO has held the same to be excessive and unreasonable in term of section 40A(2)(b) of the Act. He has referred to the interest paid to six parties at 12% and thus the difference between 18% and 12% was disallowed u/s 40A(2)(b) of the Act. We however find that it would be unfair to restrict the disallowance by adopting the interest at 12% because in earlier year interest has been allowed to such persons at 16%. Reference has been made by the authorities below to interest paid at 12% in respect of six parties. In our opinion in view of the preceding history of the ten said persons, it would be appropriate to refer to the interest paid to the said person in the earlier year for the purpose of section 4A(2)(b) of the Act. Having regard to the above, we conclude that it would be fair and appropriate to restrict the disallowance by adopting the interest rate at 16%. In view of the above the AO is directed to disallow the interest between 18% to 16% and the balance be allowed as deduction. - Decided in favour of assessee in part Disallowance on account of depreciation - either bills for purchase of assets were not provided or the bills did not mention the Appellant s name - Held that - On appreciation of the facts on records, we find that the assessee had constructed labour quarter, factory building at its factories at Chennai and Ghaziabad. The AO on examination of the said construction expenditure, found that addition of ₹ 52,50,462/- was either not supported by bills or was supported by bills in respect of which name of the assessee was not mentioned. However, in the course of hearing before us, the ld AR, has placed on record complete copies of the bills supported by vouchers in respect of expenditure of ₹ 52,50,462/-. We have perused the bills placed at Pg.63 to 145 of the Paper Book , we find apart from the petty bills, name is mentioned of the assessee on the bills. Further, even in respect of petty bills there is a certification from the vendor, in support of the claim that such expenditure was incurred by the assessee company. Furthermore payments have been made substantially through cheques and have been found recorded in the books. Therefore, we find no reason to disallow the amount of ₹ 1,99,324/- representing the depreciation claimed by the assessee. - Decided in favour of assessee Disallowance on account of Addl Depreciation claimed - denial of claim as additional depreciation is not allowable on purchases made in earlier years or on the opening balance which were carried forward from preceding years - Held that - Where any new machinery or plant has been acquired and installed after 31st March 2005, by an eligible assessee then he is entitled to additional depreciation equal to 20% of the actual cost of the machinery. The ld AR in the course of hearing substantiate the copies of the bills referred by the AO. He however submitted that the denial of depreciation is based on a fundamental misconception. It was submitted that the aforesaid bills pertains to substantial expansion of the existing plant at Ghaziabad, which involved setting up a new concast plant and furnace. It was submitted that such expansion was carried out for number of years and was completed and capitalized in the instant year. And it was thus submitted that it was not a case of claim of depreciation in respect of opening balance or expenditure incurred in earlier year. We find force in the claim of the assessee. There is no dispute that the plant was capitalized in the instant year. There is no dispute that additional depreciation on such plant has been allowed by the AO in respect of items which were purchased in the instant year. However, he denied the claim of depreciation on the items purchased in the earlier year. In doing so, the AO has over-looked the factual position that such expenditure was part of the installation of plant which has been capitalized in the instant year. And therefore the mere fact that the bills pertain to earlier year is an irrelevant consideration to deny the claim of additional depreciation when other condition are not in dispute. We also agree with the claim of the assessee that incentive granting provision should be liberally construed as held by the Hon ble Supreme court which is reported in Bajaj Tempo Limited Versus Commissioner of Income-Tax(1992 (4) TMI 4 - SUPREME Court ).- Decided in favour of assessee
Issues Involved:
1. Disallowance of Rs. 60,00,000/- commission paid to directors under Section 36(1)(ii) of the Income Tax Act, 1961. 2. Disallowance of Rs. 63,04,151/- on account of interest paid being allegedly excessive and unreasonable under Section 40A(2)(b) of the Income Tax Act, 1961. 3. Disallowance of Rs. 1,99,324/- on account of depreciation claimed by the appellant company on the assets. 4. Disallowance of Rs. 19,18,699/- on account of additional depreciation claimed by the appellant company on purchases made in earlier years or on the opening balance carried forward from preceding years. Issue-wise Detailed Analysis: 1. Disallowance of Rs. 60,00,000/- commission paid to directors under Section 36(1)(ii): The assessee company claimed a deduction for Rs. 60 lakhs paid as commission to three directors. The AO disallowed this deduction citing several reasons, including the failure to substantiate specific services rendered by the directors, the nature of services being general management already covered by their salaries, and the arrangement being a means to avoid dividend distribution tax. The CIT(A) upheld this disallowance based on previous years' findings. However, the Tribunal reversed this decision, referring to its earlier order for the assessment years 2007-08 and 2008-09, which had been overturned by the jurisdictional High Court in the case of AMD Met Plast Pvt Ltd. The Tribunal concluded that the commission was part of the directors' remuneration, duly taxed, and not a means to avoid dividend distribution tax. Thus, the disallowance of Rs. 60 lakhs was not justified and was deleted. 2. Disallowance of Rs. 63,04,151/- on account of interest paid under Section 40A(2)(b): The AO disallowed Rs. 63,04,151/- of interest paid at 18% to certain related parties, deeming it excessive compared to the 12% paid to others. The CIT(A) upheld this disallowance. The assessee argued that the 18% interest rate was consistent over the years and justified given the unsecured nature of the loans and the higher rates charged by banks. The Tribunal found that the interest rate of 16% had been allowed in previous years and deemed it fair to restrict the disallowance to the difference between 18% and 16%. Thus, the AO was directed to disallow only the excess over 16%, and the ground was partly allowed. 3. Disallowance of Rs. 1,99,324/- on account of depreciation claimed: The AO disallowed depreciation on assets amounting to Rs. 52,50,462/- due to the absence of bills or bills not bearing the appellant's name. The CIT(A) upheld this disallowance. The assessee provided bills and vouchers during the Tribunal hearing, including certifications from vendors for petty bills. The Tribunal found the documentation sufficient to support the claim and allowed the depreciation, thus deleting the disallowance of Rs. 1,99,324/-. 4. Disallowance of Rs. 19,18,699/- on account of additional depreciation: The AO disallowed additional depreciation on assets purchased in earlier years and on the opening balance. The CIT(A) upheld this disallowance. The assessee argued that the assets were part of a substantial expansion completed and capitalized in the current year. The Tribunal agreed, noting that the plant was capitalized in the current year and the expenditure was part of the installation process. Therefore, the additional depreciation was allowable, and the disallowance was deleted. Conclusion: The Tribunal allowed the appeal on the first, third, and fourth grounds, directing the deletion of disallowances totaling Rs. 81,18,023/-. On the second ground, the Tribunal partly allowed the appeal, restricting the disallowance to the interest amount exceeding 16%. The overall decision favored the assessee, providing relief on most of the disputed points.
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