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2013 (9) TMI 450 - AT - Income TaxDisallowance of depreciation - Finance lease - Held that - It is an undisputed fact that the income from lease has been considered by Assessee as income It is an undisputed fact that the AO has considered the lease entered by the Assessee to be a Finance lease to arrive at the conclusion that the assessee is not entitled to depreciation - disallowance as assessee s use of vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire - assessee is a public limited company engaged in the business of hire purchase, leasing and real estate - High Court allowed the appeal of revenue - As long as the asset is utilized for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee. In the present case the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) and Section 2(24) the income derived from leasing of the trucks would be business income, or income derived in the course of business, and has been so assessed. Hence, it fulfills the second requirement of Section 32 viz. that the asset must be used in the course of business. See CIT Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore 1998 (3) TMI 8 - SUPREME COURT and M/S I. C. D. S. LTD. VERSUS COMMISSIONER OF INCOME TAX. MYSORE & ANR. 2013 (1) TMI 344 - SUPREME COURT and assessee s own case 2013 (9) TMI 273 - ITAT AHMEDABAD - Decided in favour of assessee. Disallowance u/s 14A - Interest on tax free bonds and debentures and dividend income - Held that - It is an undisputed fact that the Assessee has earned ₹ 39.65 Crore on account of interest on tax free bonds, debentures and dividend income which has been claimed as exempt. It is also a fact that the Assessee while computing the total income has suo motu disallowed ₹ 6.32 Crore u/s 14A. AO worked out the disallowance under Section 14A at ₹ 36.68 Crore and after setting off disallowance made by the assessee, he disallowed ₹ 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of ₹ 25.35 Crore - matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits. as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue - Decided in favour of assessee. Bad debts versus Provisions for bad and doubtful debts - rural banking - Scope and ambit of the proviso to Section 36(1)(vii) - whether deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) rural advances - Held that - U/s 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year, while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered under Section 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans. Therefore, we hold that provisions of Sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields Following decision of Catholic Syrian Bank Ltd. Versus Commissioner of Income Tax, Thrissur 2012 (2) TMI 262 - SUPREME COURT OF INDIA - Decided in favor of assessee. Penalty u/s 271(1)(c) - Held that - assessee had disclosed all the material facts before the AO and CIT(A). When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing inaccurate particulars thereof. This is a case of bona fide difference of opinion regarding the allowability of a claim of deduction between the Assessee and dept. What is to be seen is whether the said claim made by the assessee was bona fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty under s. 271(1) (c) of the Act. In the present case all the necessary facts were furnished by Assessee. In the case of CIT Vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) the Hon. Apex Court has held that there making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of Assessee. In view of the totality of facts we are of the view that the addition does not call for levy of penalty under s. 271(1)(c) - Decided in favour of assessee.
Issues Involved:
1. Depreciation on Windmills. 2. Disallowance under Section 14A. 3. Disallowance under Section 36(1)(vii). 4. Disallowance of Fraud Expenses. 5. Compensation Expenses for Termination of Rent Agreement. 6. Penalty under Section 271(1)(c). 7. Fringe Benefit Tax (FBT) on Contribution to Superannuation Fund. Issue-wise Detailed Analysis: 1. Depreciation on Windmills: The Assessee, a banking company, claimed depreciation on windmills, which was disallowed by the AO on the grounds that the Assessee was not engaged in the generation and distribution of electricity, as required for higher depreciation rates. The AO treated the transaction as financing rather than a genuine lease. CIT(A) upheld the AO's decision. However, the Tribunal, following the Supreme Court's decision in ICDS Ltd. vs. CIT and the Mumbai Tribunal's decision in Development Credit Bank Ltd., held that the Assessee is eligible for depreciation, as the asset was used for business purposes. The Tribunal allowed the Assessee's appeal on this ground. 2. Disallowance under Section 14A: The AO disallowed Rs. 30.78 Crores under Section 14A for interest and other expenses related to tax-free income. CIT(A) reduced the disallowance to Rs. 11.76 Crores. The Tribunal, following its earlier decisions and the Bombay High Court's ruling in CIT vs. Reliance Utilities & Power Ltd., remitted the matter back to the AO for fresh examination, directing the AO to consider the Assessee's submissions and provide a reasonable opportunity for hearing. 3. Disallowance under Section 36(1)(vii): The AO disallowed Rs. 156.42 Crores claimed as bad debts written off, limited to the credit balance in the provision account for bad and doubtful debts. CIT(A) reduced the disallowance to Rs. 22.92 Crores. The Tribunal, following the Gujarat High Court's decision in the Assessee's own case, allowed the Assessee's appeal, holding that only the closing balance in the provision account should be considered for disallowance. 4. Disallowance of Fraud Expenses: The AO disallowed Rs. 22.80 lacs claimed as fraud expenses due to lack of details. CIT(A) upheld the disallowance. The Tribunal found no reason to interfere with CIT(A)'s order as the Assessee failed to furnish the required details. The Assessee's appeal on this ground was dismissed. 5. Compensation Expenses for Termination of Rent Agreement: The AO disallowed Rs. 32 lacs paid as compensation for vacating a rented premise, considering it non-obligatory. CIT(A) allowed the expense, finding it genuine and necessary to avoid litigation. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal on this ground. 6. Penalty under Section 271(1)(c): The AO levied penalties at 300% on disallowances of fraud expenses and depreciation on windmills. CIT(A) reduced the penalty to 100%. The Tribunal, noting that the quantum addition on which the penalty was based had been deleted, cancelled the penalty. Both the Assessee's and Revenue's appeals on this ground were resolved in favor of the Assessee. 7. Fringe Benefit Tax (FBT) on Contribution to Superannuation Fund: The CIT invoked Section 263, finding the AO's acceptance of the Assessee's FBT return erroneous and prejudicial to the Revenue. The Assessee argued that contributions exceeding Rs. 1 lac per employee were correctly taxed. The Tribunal found no error in the AO's order and quashed the CIT's revision order, allowing the Assessee's appeal. Conclusion: The Tribunal's consolidated order provided relief to the Assessee on several grounds, including depreciation on windmills, disallowance under Section 14A, and penalty under Section 271(1)(c). It also upheld certain disallowances and directed fresh examination for others, ensuring a balanced and comprehensive resolution of the issues.
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