2017 (2) TMI 922 - AT - Income Tax

Addition of scrap sale - Assessing Officer treated as unaccounted sale - CIT-A allowed clam - Held that - On appraisal of the said CIT-A order, it came into the notice that it is not in dispute that the generation of scrap was @ 2.91% equivalent to 124.22 metric tons. The CIT(A) has allowed the scrap sale in view of the norms prescribed by the DGFT of foreign trade wherein the normal scrap can be allowed to the extent of 5%. The scrap of the assessee was to the extent of 2.91% which was found within the limit. The scrap record was maintained by the assessee in RG 1 which was verified by the excise department. Moreover, in earlier years also the scrap was sold and accepted by DCIT u/s.143(3) of the Act in view of the order dated 30.12.2010 for A.Y.2008-09. In view of the above said reasons, we are of the view that the CIT(A) has decided this issue judiciously and correctly which is not require to be interfere with at this appellate stage. Allowance of depreciation - Held that - CIT(A) has considered the assessment of the assessee in which the assessee submitted the details of assets along with tax audit report, the annexure of the addition to the fixed assets. The purchase has also been submitted and the record in connection with put to use in the said assessment order has also been furnished. In fact the assessee made an addition to the existing fixed asset in the building to the tune of ₹ 2,19,990/-, plant and machinery of ₹ 27,16,063/- and electrification of ₹ 65,448/- and accordingly the depreciation was claimed. The Assessing Officer declined the claim of the assessee on the basis of the finding in case M/s. Metcraft Engineering Corporation. No independent views were given for declining the claim of the assessee. In view of the said circumstances when the assessee has demonstrated his case justifiably by proceeding the record as well as working, therefore, in view of the said circumstances, we are of the view that the CIT(A) passed the order on this issue judiciously and correctly which is not require to be interfere with at this appellate stage. Disallowance u/s 36(1)(iii) and disallowance of the interest expenditure incurred towards the acquisition of fixed assets - Held that - CIT(A) has deleted the disallowance of interest of ₹ 7,21,831/- on investment of ₹ 42,00,000/- in a share of private limited company. In fact the assessee purchased the equity share of ₹ 13,50,000/- of M/s.Metacraft Engineering Pvt. Ltd. which is the subsidiary company of assessee company. The said investment was not made with the intention to not to earn the dividend income which is strategic investment and expended a sum of ₹ 30,01,501/- on account of fixed assets (dies and moulds) which were put to use immediately after acquisition and the said amount was paid out of running business. The CIT(A) allowed the interest in view of the law settled in of CIT Vs. Tulip Star Hotel 2011 (8) TMI 524 - Delhi High Court which does not seems wrong against law and facts. So far the expenditure incurred towards the acquisition of the fixed assets is concerned the same is capital in nature. No doubt the expenditure was in the nature of arbitrary and other expenditure but the same is capital in nature which were put to use immediately after acquisition and the amount was paid out of running business. In view of the said circumstances, we are of the view that the CIT(A) has rightly allowed the said interest/expenditure.

Issues Involved:
1. Deletion of addition related to scrap sale.
2. Allowance of depreciation on fixed assets.
3. Deletion of disallowance of interest on investment in shares.
4. Deletion of disallowance of interest expenditure on acquisition of fixed assets.
5. Deletion of addition related to other disallowances.

Issue-wise Detailed Analysis:

Issue No.1: Deletion of addition related to scrap sale
The revenue challenged the deletion of ?70,32,414/- treated as unaccounted scrap sale by the Assessing Officer (A.O.). The CIT(A) found no dispute over the generation of scrap at 2.91%, equivalent to 124.22 metric tons, which was sold for ?25,97,221/- and duly reflected in the sales. The CIT(A) noted that similar scrap sales were accepted in earlier years and the scrap value was within the norms prescribed by the Director General of Foreign Trade (DGFT). The scrap record was verified by the excise department and accepted by the DCIT in the previous assessment year. The Tribunal agreed with CIT(A)'s decision, finding it judicious and correct.

Issue No.2: Allowance of depreciation on fixed assets
The revenue contested the allowance of ?9,11,707/- depreciation by the CIT(A). The CIT(A) reviewed the assessee's submissions, including the Profit & Loss Account, details of depreciation claimed, and additions to fixed assets. The A.O. had disallowed the depreciation without independent reasoning, relying on another case. The Tribunal found that the assessee had justified the claim with proper records and computations, supporting CIT(A)'s decision to allow the depreciation.

Issue No.3 & 4: Deletion of disallowance of interest on investment in shares and interest expenditure on acquisition of fixed assets
These interconnected issues involved the deletion of disallowances under section 36(1)(iii) of the Act. The CIT(A) deleted the disallowance of ?7,21,834/- interest on investment in shares, citing the case of CIT Vs. Tulip Star Hotel, where interest on borrowed funds for business purposes was allowed. The investment in shares was for business purposes, making the interest allowable under section 37. The CIT(A) also deleted the disallowance of ?64,77,802/- interest on borrowed funds for acquiring assets, which were for business purposes. The Tribunal upheld CIT(A)'s decision, agreeing that the borrowed funds were used for business purposes and the interest was rightly allowed.

Issue No.5: Deletion of addition related to other disallowances
The revenue raised additional grounds, including the deletion of ?2,15,372/- without sufficient evidence. The Tribunal found that these issues were similar to those already adjudicated in the previous appeal (ITA No.6233/Mum/2012) and dismissed the revenue's appeal on the same terms.

Conclusion:
The appeals filed by the revenue were dismissed, upholding the CIT(A)'s decisions on all contested issues. The Tribunal found the CIT(A)'s judgments to be judicious and correct, requiring no interference at the appellate stage. The order was pronounced in the open court on 29th December, 2016.

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