2014 (8) TMI 904 - HC - Income Tax

Exemption u/s 10(23C)(vi) Held that - The interest was paid on the basis of the resolution passed by the Executive Committee of the assessee - There was no discrimination between the creditors - all the creditors got the interest @ 18% - relying upon C.I.T. Vs. Amrit Soap Company 2008 (11) TMI 71 - PUNJAB AND HARYANA HIGH COURT - the interest @ 18% to close relative and associated persons is covered under Section-40A (2)(b) of the Act - Expediency, legitimacy and the business need will have to be examined from the assessee s point of view and not certainly, from the Department s view Decided against Revenue. Estimation after obtaining report from DVO Held that - The assessee has constructed the building. The AO did not accept the value shown by the assessee and referred the matter to the DVO, but without rejecting the books of account - The Tribunal held that without rejecting the books of account, addition cannot be made on the basis of D.V.O s report - books of accounts were maintained properly and were never rejected - the order of the Tribunal is upheld Decided against Revenue. Depreciation on books Held that - The assessee is maintaining a library for lending the books on charges - As per Schedule to Income Tax Rules, 100% depreciation on books is permissible - the depreciation @ 100% was rightly allowed by the appellate authorities, as per the Income Tax Rules Decided against Revenue.

Summary

Issues:
1. Assessment of interest payment at a higher rate than previous years.
2. Estimation of building value without rejecting books of account.
3. Allowability of 100% depreciation on books in a library.

Analysis:

Assessment of interest payment:
The appeals were filed by the department against the ITAT's order for various assessment years. The department contended that the interest payment by the assessee at 18% was excessive and not permissible under Section-40A (2)(b) of the Act. The counsel for the department cited a specific case to support their argument. However, the counsel for the assessee justified the interest payment at 18%, stating it was based on a resolution passed by the Executive Committee of the society. The court observed that there was no discrimination in the interest rate among creditors and cited relevant cases to support the reasonableness of the interest rate. The court upheld the ITAT's order in this regard.

Estimation of building value:
The next issue pertained to the estimation of the building value by the Assessing Officer (A.O.) based on a report from the D.V.O. without rejecting the books of account. The Tribunal held that additions cannot be made solely on the D.V.O.'s report without rejecting the books of account. It was noted that the books of account were maintained properly and not rejected. The court referred to specific cases to support the Tribunal's decision and upheld the deletion of the addition made by the A.O.

Allowability of 100% depreciation on books:
The last grievance was regarding the depreciation on books in a library maintained by the assessee for lending purposes. The department argued against allowing 100% depreciation on books, but the court noted that as per the Income Tax Rules, 100% depreciation on books is permissible. The court found no merit in the department's contention, especially considering that the books were lent to students for which library charges were collected. Therefore, the appellate authorities were correct in allowing 100% depreciation on the books.

In conclusion, after considering the facts and circumstances of the case, the court found no substantial questions of law emerging from the impugned order and dismissed the department's appeals at the admission stage.