2018 (10) TMI 1700 - AT - Income Tax

Additional depreciation on account of Wind Mills commissioned and operated by the assessee - whether generation of electricity was not in the nature of manufacture or production as intended u/s.32(1)(iia)? - HELD THAT - We find that the power generation is a manufacturing activity and duly recognized by the government. It is a priority section under the government policies. In this particular business, wind is the raw-material for generation of electricity and/or power by wind mills through which the turbines are operated and power is generated and transmitted to grid lines. Since this is manufacturing activity claim of additional depreciation under the provisions of section 32(1)(iia) of the Act is attracted, in fact, the activity has been well verified by the auditors of the company which have been certified separately by way of certificates which are required to be submitted for claiming such additional depreciation u/s.32(1)(iia) as discussed above in Form No.3AA copy whereof was also submitted with the return of income as a part of audited report by the assessee. As relying on GUJARAT STATE FERTILIZER AND CHEMICALS LTD 2017 (3) TMI 1337 - GUJARAT HIGH COURT assessee is entitled to claim of depreciation u/s.32(1)(iia) of the Act on windmill and we, therefore, find no reason to interfere with the order passed by the CIT(A). Thus, the appeal preferred by the Department against the impugned order is dismissed. Addition u/s. 41(1) - Assessee had failed to discharge its onus to prove existence of the liability to pay the creditors - HELD THAT - We find that merely because the liabilities are outstanding for a long period of time the same cannot be said to be ceased to exist. Neither the AO has proved that the assessee has obtained the benefit of the said liabilities by way of remission or cessation thereof. The judgments cited above have decided the same issue involved in this matter as discussed. We, therefore, find no infirmity in the order passed by the CIT(A) and respectfully following the judgments, we decline to interfere with the same. This ground of appeal preferred by the Revenue is thus dismissed. Disallowance on account of setting off STCG against depreciation - HELD THAT - A decided in MAHALAXMI SUGAR MILLS COMPANY LIMITED 1986 (7) TMI 83 - SUPREME COURT which decided the issue of the present case relating to setting off STCG against brought forward unabsorbed depreciation in favour of the assessee, we find no justification to interfere with the order passed by the Ld. CIT(A) and dismiss this ground of appeal preferred by the Department. Addition u/s.68 - HELD THAT - AO the duties of the assessee casted upon him u/s.68 of the Act has rightly been discharged in order to establish the identity, genuineness and creditworthiness. Relying upon judgment of Hon ble Gujarat High Court in the matter of Ranchood Jivabha Nakhava 2012 (5) TMI 186 - GUJARAT HIGH COURT the further observed that it was the Ld. Assessing Officer who is to find out from the records available with him since Shri Pradip S. Mehta being one of the assessees also under him has no creditworthiness before making such addition u/s.68. He therefore deleted the addition of ₹ 20,05,000/-. AO failed to consider that the loan was accepted through banking channel only and the details which was given by the authorized signatory of the Director were also not verified vis-a-vis records available with him in its proper perspective. The said lacuna has rightly been pointed out by the CIT(A) and deleted the addition accordingly. We thus do not find any infirmity in the order of the Ld. CIT(A). The ground of appeal preferred by the Revenue is therefore disallowed by us Disallowance of claim on account of bad debt written off - HELD THAT - Relying upon the judgment of TRF Ltd 2010 (2) TMI 211 - SUPREME COURT as being settled principle of law, we find no infirmity in the order passed by the Ld. CIT(A) and the same is hereby upheld. Addition of cash deposit - HELD THAT - CIT(A) on the basis of the audited books of accounts and in the absence of any adverse comment by tax auditor or finding of incorrect cash book and the recording of transactions and reflections in the books of accounts found no fault on the part of the assessee neither reason to disbelieve the assessee as made by the AO because of export business of the assessee only on assumption and without any basis. CIT(A) found the addition is based on surmises conjectures in the absence of verification made by AO. Relying upon the judgment of the Saurin Nandkumar Shodhan 1999 (2) TMI 5 - SUPREME COURT holding that presumption on surmises by the Ld. Assessing Officer cannot be justified for such audited cash book and bank book the Ld.CIT(A) deleted such addition. Taking into consideration the ratio laid down by the Coordinate Bench in the matter of Saurin Nandkumar Shodhan, we find no infirmity in the order passed by the ld.CIT(A), same is hereby upheld. Thus, this ground of appeal raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of additional depreciation on windmills.
2. Deletion of addition under Section 41(1) of the Income Tax Act.
3. Set off of Short Term Capital Gain (STCG) against unabsorbed depreciation.
4. Deletion of addition under Section 68 of the Income Tax Act.
5. Deletion of disallowance of bad debt written off.
6. Deletion of addition on account of unexplained cash deposits.

Issue-wise Detailed Analysis:

1. Deletion of Additional Depreciation on Windmills:
The Revenue challenged the deletion of an addition of ?2,73,49,248/- made for additional depreciation on windmills, arguing that the generation of electricity did not qualify as "manufacture" or "production" under Section 32(1)(iia) of the Income Tax Act. The Tribunal noted that power generation is recognized as a manufacturing activity by the government, and the assessee's windmill operations qualify for additional depreciation. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's judgments in CIT vs. Diamines and Chemicals Ltd. and Principal Commissioner of Income Tax, Vadodara vs. Gujarat State Fertilizer & Chemicals Ltd., which supported the claim of additional depreciation for windmills. Consequently, the appeal by the Department was dismissed.

2. Deletion of Addition under Section 41(1) of the Income Tax Act:
The Revenue contested the deletion of an addition of ?3,58,39,862/- made under Section 41(1) for outstanding sundry creditors, arguing that the liabilities had ceased to exist. The Tribunal found that merely because liabilities were outstanding for a long period, it could not be inferred that they had ceased to exist. The Tribunal upheld the CIT(A)'s decision, which relied on the Gujarat High Court's judgment in Bhogilal Ramjibhai Atara, stating that liabilities cannot be added as income under Section 41(1) unless there is a remission or cessation of the liability during the relevant assessment year. The appeal by the Revenue was dismissed.

3. Set Off of Short Term Capital Gain (STCG) Against Unabsorbed Depreciation:
The Revenue challenged the set off of STCG against unabsorbed depreciation, arguing that unabsorbed depreciation could only be set off against business income. The Tribunal upheld the CIT(A)'s decision, which allowed the set off based on the Supreme Court's judgment in Jaipuria China Clay Mine (P.) Ltd., stating that unabsorbed depreciation could be carried forward and set off against any head of income. The appeal by the Revenue was dismissed.

4. Deletion of Addition under Section 68 of the Income Tax Act:
The Revenue contested the deletion of an addition of ?20,95,000/- made under Section 68 for unsecured loans, arguing that the assessee failed to prove the creditworthiness of the parties. The Tribunal upheld the CIT(A)'s decision, which found that the assessee had provided PAN, addresses, and bank transaction details, discharging its burden under Section 68. The Tribunal noted that the Assessing Officer failed to verify the details properly. The appeal by the Revenue was dismissed.

5. Deletion of Disallowance of Bad Debt Written Off:
The Revenue challenged the deletion of a disallowance of ?5,49,74,891/- made for bad debt written off, arguing that the assessee failed to establish the irrecoverability of the debt. The Tribunal upheld the CIT(A)'s decision, which relied on the Supreme Court's judgment in TRF Ltd., stating that it was sufficient for the assessee to write off the debt in its books of accounts. The appeal by the Revenue was dismissed.

6. Deletion of Addition on Account of Unexplained Cash Deposits:
The Revenue contested the deletion of an addition of ?47,60,000/- made for unexplained cash deposits. The Tribunal upheld the CIT(A)'s decision, which found that the assessee had provided sufficient evidence, including audited books of accounts and cash book details, to explain the cash deposits. The Tribunal noted that the Assessing Officer's addition was based on assumptions without proper verification. The appeal by the Revenue was dismissed.

Conclusion:
The Tribunal dismissed all three appeals by the Revenue, upholding the CIT(A)'s decisions on all issues, including additional depreciation on windmills, addition under Section 41(1), set off of STCG against unabsorbed depreciation, addition under Section 68, disallowance of bad debt written off, and addition on account of unexplained cash deposits.