2013 (3) TMI 243 - HC - Income Tax

Disallowance of depreciation on building and interest paid to the bank - ITAT affirmed the order of CIT(A in deleting disallowance as AO has nowhere in the assessment order pointed out any defect in the books of account - revenue appeal - Held that - The grounds as urged and the questions as suggested all essentially relate to the matters of appreciation of evidence for a factual enquiry and rendering of findings on facts about the factory building construction. AO has brought nothing on record to show that the appellant has not incurred expenditure on labour payment and for purchase of material AO disallowed a part of the claim made by the assessee with reference to his view of the material on record. However, the CIT(A) disagreed with the findings of the AO after analyzing the material on record and also after referring to the ground realities as well as obvious inconsistencies in the order of the AO. Then, the Tribunal found no reason to interfere while proceeding on relevant considerations. The matter essentially related to the facts but the approach of the AO could not have been approved when the same had been either too theoretical or carried obvious inconsistencies like total disallowance of the claim towards labour payment despite there being addition to the factory building during the period in question. Thus the findings on facts have been rendered by the two appellate authorities in accordance with law and the orders impugned do not appear suffering from any perversity or wrong application of any principle of law - in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation on building
2. Disallowance of interest paid to the bank
3. Questioning the deletion of disallowances by the Tribunal

Analysis:

Issue 1: Disallowance of Depreciation on Building
The appellant challenged the order deleting the disallowance of depreciation on the building. The AO disallowed the depreciation based on alleged procedural irregularities and presumptions. However, the CIT(A) disagreed with the AO's findings, noting that the AO did not verify the condition of the factory building physically. The CIT(A) found that all transactions were properly recorded in the books of accounts and disapproved the disallowance based on procedural irregularities. The Tribunal upheld the CIT(A)'s decision, emphasizing that the bank loan was used for legitimate purposes, and complete vouchers were provided. The Tribunal found no excessive valuation of the building and confirmed the CIT(A)'s order, stating that no reason existed to interfere.

Issue 2: Disallowance of Interest Paid to the Bank
The disallowance of interest paid to the bank was consequential to the depreciation disallowance. Since the disallowance of depreciation was deleted, the Tribunal also deleted the disallowance of interest paid to the bank. The Tribunal confirmed the CIT(A)'s decision to allow the interest paid as a business expenditure, as it was paid on a borrowed amount from the bank.

Issue 3: Questioning the Deletion of Disallowances by the Tribunal
The appellant contended that the Tribunal erred in confirming the CIT(A)'s findings in deleting the disallowances. However, the High Court held that the matter involved factual inquiries and findings on the construction of the factory building. The AO's approach was criticized for being theoretical and inconsistent, such as total disallowance of labor payments despite additions to the building. The High Court found that the appellate authorities rendered findings in accordance with the law, and there was no perversity in the orders. Consequently, the appeal was dismissed.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the lower authorities regarding the disallowance of depreciation on the building and interest paid to the bank. The judgment emphasized the importance of factual analysis and consistency in decision-making based on evidence presented.