2015 (1) TMI 1461 - AT - Income Tax

Depreciation related to Multi Metal Project - Disallowance of claim as project not actually used in year - Assessee s claim is that even though machines in the Multi Metal Project were not actually used during the year still claim of depreciation is allowable since the machineries were put in a condition ready to use - CIT-A deleted disallowance - HELD THAT - CIT(A) has followed its decision for A.Y. 1997-98 to 2000-01 and Tribunal in 2013 (9) TMI 520 - ITAT AHMEDABAD has decided the similar issue in favour of assessee - so following the same reasoning we are not inclined to interfere in the finding of CIT(A) who has deleted the disallowance on account of depreciation related to Multi Metal Project. Disallowance on account of prior period charges - HELD THAT - As decided in own case 2013 (9) TMI 520 - ITAT AHMEDABAD A.O. has not given this finding that the expense did not crystelise during the present year. Therefore in our considered opinion this fact has to be brought out on record as to whether the expenses in question have crystalised during this year and if the assessee is able to do so no disallowance should be made. The A.O. should pass necessary order as per law. Disallowance of alternative claim of assessee to tax only interest portion of lease rental by disallowance of depreciation on assets leased to Gujarat State Road Transport Corporation ( GSRTC ) - HELD THAT - As decided in own case 2013 (9) TMI 520 - ITAT AHMEDABAD we are not inclined to interfere in the finding of CIT(A) who has directed the Assessing Officer to tax the interest portion out of lease rentals offered as income by assessee. Same is uphold. Disallowance u/s 14A - HELD THAT - No disallowance of interest expenses is required because revenue is expected to establish a nexus between interest bearing funds borrowed and these invested by the assessee. In such situation disallowance u/s. 14A of Act is not justified. Assessing Officer is directed accordingly. Accordingly appeal of revenue on this issue is dismissed. Disallowance being expenditure of lignite project at Mata no Madh holding it to be preoperative expenses - HELD THAT - As decided in own case 2013 (9) TMI 520 - ITAT AHMEDABAD issue decided in favour of assessee. Expenditure on power project at Akri Mota and further rejecting the claim of interest and financial charges forming part of total expenditure being not allowable u/s. 36(1)(iii) - HELD THAT - As decided in own case 2013 (9) TMI 520 - ITAT AHMEDABAD borrowed funds were not used for setting up of a new unit of an existing running business but it was setting up of a new unit for production of an altogether new product i.e. power whereas the existing business of the assessee was production of lignite. Since this aspect is not fulfilled in the present case even interest expenditure is not allowable in the present case u/s. 36(1)(iii) because in the present case the product to be manufactured by the new unit is an altogether new product. Facts being similar so following the same reasoning we are not inclined to interfere in the order of CIT(A) who has held that in view of admitted factual position that Akri Mota Power project is not extension of its existing business. This is the first power project being put by assessee. It is undisputed that assessee did not have any business of power generate in earlier. In the light of above factual legal discussion has been done in above assessee s appeal we are not inclined to interfere in the finding of CIT(A) who has confirmed the disallowance - Decided against assessee. Disallowance being salary to staff at residence of Chairman - HELD THAT - As decided in own case 2013 (9) TMI 520 - ITAT AHMEDABAD disallowance is not justified. If the expenditure is incurred in violation of the guidelines of Government of Gujarat and against Article 192 of the assessee corporation then the remedy lies somewhere else and action can be taken as per law against the person responsible for such violation but this cannot be the basis for making disallowance of expenses without proving that it is not for the purpose of assessee s business. This is not the claim of the revenue that this expenditure is not for the purpose of business and therefore this disallowance is deleted. This ground of the assessee is allowed. Addition of miscellaneous income of Assessee s claim was miscellaneous income should be set off against expenditure - HELD THAT - In the present case we find that when the A.O. made this addition there is no discussion as to whether these two incomes were directly connected or incidental to construction of plant by the assessee or not. In the order of Ld. CIT(A) also there is no finding on this aspect of the matter. Before us also although reliance was placed by the Ld. A.R. on these two judgements of Hon ble Apex Court BONGAIGAON REFINERY 2001 (7) TMI 4 - SUPREME COURT and BOKARO STEEL LIMITED 1998 (12) TMI 4 - SUPREME COURT but this fact is not available on record as to whether the income in question were directly connected and incidental to construction of plant by the assessee or not. Under these facts and in the interest of justice we feel that this issue should go back to the file of the A.O. for a fresh decision.

Summary

Issues Involved:
1. Disallowance of depreciation on Multi Metal Project.
2. Disallowance of prior period expenses.
3. Taxation of lease rentals.
4. Disallowance under Section 14A.
5. Disallowance of expenditure on Mata-no-Madh Project.
6. Disallowance of expenditure on Akri Mota Power Project.
7. Disallowance of depreciation on assets used in projects.
8. Disallowance of salary to staff at the residence of Chairman.
9. Addition of miscellaneous income.
10. Disallowance of employees' contribution to PF paid after the due date.

Detailed Analysis:

1. Disallowance of Depreciation on Multi Metal Project:
The Revenue's appeal contested the deletion of a Rs. 5,00,000 disallowance for depreciation on the Multi Metal Project. The CIT(A) had deleted this disallowance based on prior years' decisions. The Tribunal upheld the CIT(A)'s decision, noting that similar disallowances were previously deleted for the assessment years 1997-98 to 2000-01, and no new contrary facts were presented.

2. Disallowance of Prior Period Expenses:
The Revenue appealed against the deletion of Rs. 18,76,968 in prior period expenses, while the assessee contested the confirmation of Rs. 58,22,018. The Tribunal restored the issue to the Assessing Officer (AO) for re-examination, directing the AO to determine if the expenses crystallized in the relevant year, following the precedent set in ITA No. 402/Ahd/2005 for A.Y. 2001-02.

3. Taxation of Lease Rentals:
The Revenue contested the CIT(A)'s direction to tax only the interest portion of lease rentals from GSRTC, disallowing depreciation of Rs. 2,00,34,358. The Tribunal upheld the CIT(A)'s decision, referencing the Special Bench decision in IndusInd Bank Ltd., which established that only the interest component of lease rentals should be taxed in financial lease transactions.

4. Disallowance under Section 14A:
The Revenue's appeal involved a disallowance of Rs. 58,68,355 under Section 14A, while the assessee contested a disallowance of Rs. 2,15,024. The Tribunal found that the AO failed to establish a nexus between interest-bearing funds and the investments made. It cited judicial precedents indicating that if interest-free funds are available, no disallowance should be made. The Tribunal upheld the deletion of Rs. 58,68,385 and directed the AO to delete the disallowance of Rs. 2,15,024.

5. Disallowance of Expenditure on Mata-no-Madh Project:
The assessee's appeal contested the disallowance of Rs. 99,62,450 for the Mata-no-Madh Project. The Tribunal noted that similar expenses were allowed in earlier years and directed the AO to delete the disallowance, citing consistent decisions in the assessee's favor for previous years.

6. Disallowance of Expenditure on Akri Mota Power Project:
The assessee's appeal contested the disallowance of Rs. 55,89,17,419 for the Akri Mota Power Project, including interest and financial charges. The Tribunal upheld the CIT(A)'s decision, noting that the project represented a new line of business distinct from the assessee's existing operations, consistent with decisions in earlier years.

7. Disallowance of Depreciation on Assets Used in Projects:
The assessee contested disallowances of depreciation on assets used in the Mata-no-Madh and Akri Mota projects. The Tribunal directed the AO to allow depreciation for Mata-no-Madh, following earlier decisions. For Akri Mota, the Tribunal restored the issue to the AO for verification, as the depreciation claim was disputed.

8. Disallowance of Salary to Staff at the Residence of Chairman:
The assessee contested the disallowance of Rs. 2,06,516 for salary to staff at the Chairman's residence. The Tribunal deleted the disallowance, noting that similar expenses were allowed in earlier years and that such expenses were not prohibited by law.

9. Addition of Miscellaneous Income:
The assessee contested the addition of miscellaneous income, arguing it should be set off against project expenses. The Tribunal restored the issue to the AO to determine if the income was directly connected to the construction of the plant, following precedents set by the Supreme Court.

10. Disallowance of Employees' Contribution to PF Paid After Due Date:
The assessee contested the disallowance of Rs. 1,11,06,377 for PF contributions paid after the due date but before filing the return. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's ruling in CIT v. Gujarat State Road Transport Corporation, which disallowed such contributions.

Conclusion:
The Tribunal's judgment involves a detailed examination of multiple disallowances and claims, with decisions largely based on precedents and consistent treatment of similar issues in previous years. The Tribunal upheld some disallowances, restored others for re-examination, and directed the deletion of several disallowances, ensuring that the principles of consistency and judicial precedents were adhered to.