2017 (4) TMI 1370 - AT - Income Tax

Disallowance on account of interest - Held that - We find that the assessee has its own share capital and reserves amounting to 188.89 crore. As against that only sum of 24.19 crore was given as interest free loan to subsidiary companies. The amount of share capital and reserves is many times higher than the amount of interest free loan given to subsidiary companies. Guided by the ratio laid down in Tin Box Company 2002 (11) TMI 75 - DELHI HIGH COURT and that of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT we hold that the ld. CIT(A) was justified in deleting this disallowance - Decided in favour of assessee. Disallowance of depreciation on assets which were received without any consideration - AO s view point is that the actual written down value of the assets in the hands of the Society was not the book value assigned to it and the book value was only a notional or artificial value and the real cost was actually Nil - Held that - Where any income has been applied for the purchase of assets on which exemption has been granted then no separate claim by way of depreciation in respect of such assets can be allowed in the same or any other year. In fact this is the view point canvassed by the Assessing Officer in disallowing the claim of depreciation. However it is important to note that sub-section (6) has been inserted to section 11 w.e.f. 01.04.2015. The Hon ble Delhi High Court in DIT (E) vs. Indraprastha Cancer Society (2014 (11) TMI 733 - DELHI HIGH COURT) has held that insertion of sub- section (6) to section 11 is prospective and hence no disallowance on account of depreciation can be made in years prior to the assessment year 2015-16. Also been brought to our notice that though the assets were acquired by the assessee company in an earlier year but the disallowance on account of depreciation was never made in the past. It was also stated that the assessments for the assessment years 2004-05 to 2007-08 were reopened but the ld. CIT(A) quashed the reopening. The ld. AR submitted that the quashing of reassessment by the ld. CIT(A) has been accepted by the Revenue and no further appeal was filed to the Tribunal. This contention has not been controverted by the ld. DR. This shows that such depreciation has been allowed to the assessee in all earlier years. - Decided against revenue

Summary

Issues involved:
1. Deletion of disallowance of interest made by the Assessing Officer.
2. Deletion of disallowance of depreciation on assets received without consideration.

Analysis:

Issue 1: Deletion of disallowance of interest made by the Assessing Officer:

The dispute arose when the Assessing Officer disallowed interest amounting to ?3,07,63,223/- claimed by the assessee due to interest-free loans given to subsidiaries. The CIT(A) deleted the disallowance, leading to the Revenue's appeal. The ITAT upheld the deletion, citing the rule of consistency and the usage of interest-free surplus funds for business purposes. Reference was made to the case of CIT vs. Reliance Utilities and Power Ltd. where the Bombay High Court held that if interest-free funds are available for investments, no disallowance of interest is warranted. The Tribunal also referred to the case of CIT vs. Tin Box Company, supporting the deletion based on the ratio laid down by the High Court.

Issue 2: Deletion of disallowance of depreciation on assets received without consideration:

The Assessing Officer disallowed depreciation on assets acquired from a society due to the assets' cost being allowed as a deduction under section 11 of the Act. The CIT(A) overturned the assessment order, leading to the Revenue's appeal. The ITAT analyzed the insertion of sub-section (6) to section 11, effective from 01.04.2015, which disallows depreciation on assets acquired using exempted income. However, referring to the judgment in DIT (E) vs. Indraprastha Cancer Society, the ITAT held that no disallowance could be made for years prior to 2015-16. The ITAT also considered the judgments in DIT (Exemption) vs. Charanjiv Charitable Trust and Indraprastha Cancer Society, concluding that depreciation could be claimed on assets acquired using exempted income for the assessment year 2008-09.

In both issues, the ITAT justified the deletions made by the CIT(A) based on legal precedents and the specific circumstances of the case.

This comprehensive analysis of the judgment highlights the key legal arguments, precedents, and reasoning behind the decisions made by the ITAT regarding the deletion of disallowances of interest and depreciation.