2014 (2) TMI 1366 - AT - Income Tax

Additional depreciation on plant machinery - D.R. submitted that plant and machinery by its very nature did not include electrical installation therefore, according to him, additional depreciation could not be allowed on plant and machinery - HELD THAT - There is no dispute that assessee was engaged in manufacture of jute and paper related goods. Items on which depreciation is not allowable have been specifically set out in the proviso. Electrical installation does not fall within any of the provisos. Further definition of plant given in section 43(3) of the Act is inclusive and even ships, vehicles, and books are considered as plant. If that be so, electrical installation is definitely part of a plant. In our opinion, ld. CIT(Appeals) was justified in allowing this claim of assessee. Decided against revenue Belated payments of Employees contribution to Provident Fund and ESI - HELD THAT - Hon ble jurisdictional High Court in the case of CIT vs.-Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT had held that amendment to second proviso to section 43B of the Act, as introduced by Finance Act, 2003 was curative and retrospectively applied from 1st April, 1988, relying on the decision of the Hon ble Apex Court in the case of CIT vs.- Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT . Their Lordships held that Employees contribution paid beyond due date prescribed under Provident Fund Act and Rules were also deductible if the amounts were remitted prior to the due date of filing of the return. I nterest on loan given to subsidary company - HELD THAT - Whenever a cheque issued by a party is cleared through a Bank loan account, the dues to the Bank will increase. If the cheque is cleared out of a deposit account, the dues from the Bank will be decreased. This arithmetics by itself will not show that money had gone out of interest bearing funds. Assessee has clearly pointed out that the cash credit balance had gone down over the relevant previous year. In other words, the cash credit account stood replenished by more than what was given out as advance, through deposits made by the assessee during the relevant previous year. Assessee had substantial profits during the relevant previous year and, therefore, there is much strength in its arguments that loans did not go out of any interest bearing funds. In any case, the loans were given only to a subsidiary of the assessee and Assessing Officer has not doubted the commercial expediency of such loans. We are, therefore, of the opinion that ld. CIT(Appeals) was justified in deleting this addition - Revenue appeal dismissed.

Summary

Issues:
1. Additional depreciation on plant & machinery including electrical installation.
2. Belated payments of Employees' contribution to Provident Fund and ESI.
3. Deletion of interest added by the Assessing Officer.

Issue 1: Additional Depreciation on Plant & Machinery:
The appeal filed by the Revenue challenged the deletion of an addition of Rs. 5,45,980 made by the Assessing Officer for a claim of additional depreciation on plant & machinery, including electrical installation. The Assessing Officer disallowed the additional depreciation on electrical installation, stating that only plant and machinery were eligible. The assessee argued that electrical installation was part of the plant & machinery newly installed, and thus eligible for additional depreciation. The CIT(A) agreed with the assessee, noting that electrical installation was not prohibited under the relevant section. The ITAT upheld the CIT(A)'s decision, stating that electrical installation falls under the definition of 'plant' and therefore qualifies for additional depreciation. The Revenue's grounds were dismissed.

Issue 2: Belated Payments of Employees' Contribution to Provident Fund and ESI:
The Revenue contested the deletion of an addition made by the Assessing Officer for belated payments of Employees' contribution to Provident Fund and ESI. The assessee relied on a jurisdictional High Court decision stating that such payments made before the due date of filing the return were deductible. The ITAT found that the payments were indeed made before the due date, aligning with the High Court decision, and thus dismissed the Revenue's ground on this issue.

Issue 3: Deletion of Interest Added by the Assessing Officer:
The Revenue objected to the deletion of Rs. 19,63,017 interest added by the Assessing Officer, related to loans given to a subsidiary company. The Assessing Officer claimed that the loans were given out of borrowed funds, while the assessee argued they were based on commercial expediency and supported by interest-free funds. The CIT(A) agreed with the assessee, finding no nexus between borrowed funds and the advances to the subsidiary. The ITAT upheld the CIT(A)'s decision, emphasizing that the cash credit balance decreased over the relevant period, indicating the loans were not from interest-bearing funds. The Revenue's ground on this issue was dismissed.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the decisions regarding additional depreciation on plant & machinery, belated payments of Employees' contribution, and the deletion of interest added by the Assessing Officer. The judgments were based on legal interpretations, commercial expediency, and the availability of interest-free funds, leading to the dismissal of the Revenue's grounds on all issues.