9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (12) TMI 677 - AT - Income TaxLease rentals claimed by the assessee disallowed operating lease or financial lease - Held that - There was a business arrangement between the assessee and M/s BD - the assessee agreed to purchase prescribed quantity of DMT from M/s BD - the assessee has sought assistance from M/s BD for expanding its capacity - M/s BD agreed to lease out the machinery to the assesse - the machinery was identified by the assessee and M/s BD purchased the same - M/s BD agreed to purchase the machinery and lease it out to the assessee only to provide financial assistance to the assessee to expand its production capacity, so that M/s BD would also be benefited from sale of DMT to the assessee - the intention of M/s BD was to provide financial assistance to the assessee and not leasing out of the assets - the AO has denied the benefit of depreciation also on the ground that the assessee is not the owner of the asset as per the lease agreement - There is a fallacy in the said decision - Once the AO has held that this was a case of finance transaction by ignoring the lease agreement, he should not refer to the very same lease agreement to decide about the ownership thus, the assessee should be allowed depreciation benefit thus, the order of the CIT(A) is set aside and the disallowance of lease rentals is upheld and the AO is directed to allow the depreciation - Decided in favour of assessee. Computation of book profits u/s 115JB Held that - The view of the CIT(A) that the unabsorbed depreciation should be taken as NIL does not appear to be correct view, since the unabsorbed depreciation as well as unabsorbed business loss shall be described as negative figures only - as per the provisions of sec. 115JB, lower of the both is required to be deducted from the book profit thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for examination of claim of assessee - Decided in favour of assessee. Interest pertaining to earlier years disallowed Held that - The assessee claimed interest on SBI loans relating to FY 2001-02 and 2002-03 as deduction assessee rightly contended that if the loan account is categorised as Non-Performing Asset , nothing prevented the assessee to make provision for payment of interest - Though the assessee has not paid the interest amount either by way of cash or cheque, yet the fact remains that the bank has recovered the interest by enhancing the Cash credit limit - There should not be any dispute that the enhancement of Cash Credit limit places funds at the disposal of the assessee - recovery of interest from out of the enhanced limit is nothing but payment of interest by the assessee - the provisions of sec. 43B do not provide anything about the source from which the payment should be made - the claim of the assessee is admissible u/s 43B thus, the order of the CIT(A) is set aside Decided in favour of assessee. Depreciation on leased premises disallowed - Held that - The assessee has not established that it was a case of letting out for a temporary period due to adverse situation prevailing in the business, which means that the building has ceased to remain as a business asset- thus, the CIT(A) was justified in confirming the disallowance of depreciation Decided against assessee. Depreciation claimed on electrical fittings disallowed Held that - Under the Depreciation Schedule electrical fittings is clubbed along with Furniture & fixures - the expression Electrical fittings should mean only those items which can be considered as Fixtures of general nature - the heavy electrical items, which are attached to plant and machinery should be considered as part of Plant and Machinery and it cannot be classified as fixtures of general nature in Madhu Industries Ltd V/s ITO 2010 (7) TMI 953 - ITAT AHMEDABAD it has been held that the electrical installation attached to plant and machinery should be considered as plant and machinery only thus, the electrical fittings in the instant case should be considered as plant and machinery and the depreciation should be allowed at the rate of 25% to plant and machinery. Disallowance made u/s 40A(2)(b) Held that - The AO has compared the rates of M/s Arya Industries with that of M/s Excel Tubes and Cones. The AO has tabulated the said comparison in a Tabular form - there is a variation in the price - the AO has noted down the description of the product, quality, size and quantity - the AO has adopted the average rate of 12% for making the disallowance, with the observation that the variation ranges from 10 to 15% - on three occasions, the purchase rate of products purchased from M/s Arya Industries was lower than the rate of M/s Excel Tubes and Cones - the purchase rate was dependent upon various factors - the disallowance of 12% made out of purchases made from M/s Arya Industries is on higher side thus, the AO is directed to compute the disallowance at the rate of 6% of the aggregate purchase value of purchases made from M/s Arya Industries the order of the CIT(A) is modified Decided partly in favour of assessee.
Issues Involved:
1. Disallowance of lease rentals claimed by the assessee. 2. Disallowance of brought forward loss while computing book profit u/s 115JB. 3. Disallowance of interest pertaining to earlier years. 4. Charging of interest u/s 234A, 234B, and 234C. 5. Disallowance of depreciation on leased premises. 6. Disallowance of depreciation on electrical fittings. 7. Disallowance of interest u/s 36(1)(iii). 8. Disallowance under section 40A(2)(b). 9. Computation of book profit without allowing adjustment of amount transferred from general reserve. Issue-wise Detailed Analysis: 1. Disallowance of Lease Rentals Claimed by the Assessee: The AO disallowed the lease rentals claimed by the assessee, treating the lease agreement as a financial lease rather than an operating lease. The CIT(A) reversed this, treating it as a genuine lease transaction. However, upon review, it was determined that the lease was intended to provide financial assistance rather than leasing out assets. Thus, the AO's disallowance of lease rentals was upheld, but the assessee was allowed depreciation on the value of the machinery. 2. Disallowance of Brought Forward Loss While Computing Book Profit u/s 115JB: The AO disallowed the deduction of unabsorbed business loss without assigning reasons. The CIT(A) erroneously considered unabsorbed depreciation as NIL. The Tribunal set aside the CIT(A)'s order, directing the AO to verify and re-examine the figures provided by the assessee. 3. Disallowance of Interest Pertaining to Earlier Years: The assessee claimed interest on SBI loans from previous years, arguing it was crystallized in the current year. The AO disallowed this, and the CIT(A) upheld the decision. However, the Tribunal found merit in the alternative submission that the interest should be allowed on a payment basis under sec. 43B, directing the AO to allow the claim after necessary examination. 4. Charging of Interest u/s 234A, 234B, and 234C: The charging of interest was deemed consequential and did not require separate adjudication. 5. Disallowance of Depreciation on Leased Premises: The AO assessed rental income from leased premises under the head "income from house property" and disallowed depreciation. The Tribunal upheld this, stating that the building ceased to remain a business asset, thus justifying the disallowance of depreciation. 6. Disallowance of Depreciation on Electrical Fittings: The AO categorized electrical fittings under "furniture and fittings" and allowed a lower depreciation rate. The Tribunal, referencing a similar case, held that heavy electrical items related to plant and machinery should be considered as part of plant and machinery, allowing a higher depreciation rate. 7. Disallowance of Interest u/s 36(1)(iii): The AO capitalized additional interest, which the assessee contested, claiming internal funds were used for projects. The Tribunal remanded the issue to the AO for fresh examination, allowing the assessee to demonstrate the availability of its own funds. 8. Disallowance under Section 40A(2)(b): The AO disallowed 12% of purchases from a related concern, citing higher prices. The Tribunal found the disallowance excessive, reducing it to 6% of the aggregate purchase value. 9. Computation of Book Profit Without Allowing Adjustment of Amount Transferred from General Reserve: The AO disallowed the deduction of an amount transferred from the general reserve, related to impairment loss. The Tribunal remanded the issue to the AO to examine the claim under clause (i) of Explanation 1 to sec. 115JB, considering the assessee's submissions. Conclusion: The appeal filed by the revenue for the assessment year 2002-03 is partly allowed, and the appeals filed by the assessee for assessment years 2004-05 and 2005-06 are treated as partly allowed. The Tribunal directed various issues back to the AO for re-examination and appropriate decisions in accordance with the law.
|
