Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (5) TMI AT This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2016 (5) TMI 1182 - AT - Income Tax


Issues Involved:
1. Disallowance of additional depreciation on tooling costs.
2. Disallowance of interest under section 36(1)(iii) on loans raised for business purposes.
3. Disallowance of interest on alleged interest-free advances under section 36(1)(iii).

Issue-Wise Detailed Analysis:

1. Disallowance of Additional Depreciation on Tooling Costs:
The primary contention was whether the assessee was entitled to additional depreciation on tools and dyes, which were reimbursed by the buyers. The Assessing Officer (AO) disallowed the additional depreciation of ?80,465 on the tooling cost of ?4,02,325, arguing that the reimbursement from buyers reduced the opening balance and thus the depreciation claimed was not justifiable. The learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, stating that the assessee's practice of claiming depreciation on tools and dyes, which were later reimbursed, led to an excess claim of depreciation. The Tribunal found no infirmity in the CIT(A)'s findings, agreeing that the assessee's method resulted in an undue benefit and upheld the disallowance of the additional depreciation.

2. Disallowance of Interest Under Section 36(1)(iii) on Loans Raised for Business Purposes:
The AO applied the provisions of section 40A(2)(b) of the Income Tax Act, 1961, restricting the interest paid to relatives on unsecured loans to 12%, as opposed to the 15% claimed by the assessee. The CIT(A), following the precedent set by the ITAT in the assessee's own case for the assessment year 2007-08, upheld a 15% interest rate as reasonable. The Tribunal, considering the bank interest rate during the relevant assessment year was around 15.7%, deemed a 16% rate of interest reasonable for unsecured loans, thus partly allowing the assessee's appeal.

3. Disallowance of Interest on Alleged Interest-Free Advances Under Section 36(1)(iii):
The AO disallowed interest of ?3,62,132 on the grounds that there was no proof of business expediency for the advance of ?30,00,000 given to a sister concern. The CIT(A) distinguished this case from the Punjab & Haryana High Court's ruling in Bright Enterprises Pvt. Ltd., noting that the assessee failed to establish that the funds were used for business purposes. The Tribunal, however, observed that the assessee had sufficient owned funds, and presumption is that advances were made from these owned funds. Citing the jurisdictional High Court's rulings in Bright Enterprises Pvt. Ltd. and Kapsons Associates Investments (P.) Ltd., the Tribunal concluded that no interest expenditure was incurred for the advances, thus no disallowance under section 36(1)(iii) was warranted. The Tribunal allowed this ground of appeal.

General Grounds:
Grounds 4 and 5 raised by the assessee were general in nature and required no adjudication.

Conclusion:
The appeal of the assessee was partly allowed by the Tribunal, with specific relief granted on the disallowance of interest on alleged interest-free advances and a partial relief on the rate of interest on unsecured loans. The disallowance of additional depreciation on tooling costs was upheld.

 

 

 

 

Quick Updates:Latest Updates