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2017 (12) TMI 1220 - AT - Income TaxInterest on purchase tax - Outstanding amount - AO held that the interest on purchase tax is covered by the provisions of section 43B of IT Act and allowable on actual payment basis - Held that - The interest liability on unpaid purchase tax would fall within the purview of any sum payable by way of tax, duty fee or cess, etc. and the same cannot be treated as interest within the meaning of section 2(28A) of IT Act. The assessee has not paid the interest on monies borrowed for the purpose of business. The purpose of introducing the Section 43B to allow the deduction on actual payment is to ensure the compliance. In the instant case the assessee failed to make the payment of purchase tax and paid the interest thereon which takes the character of tax but not the interest. Therefore, the interest payable on purchase tax is hit by section 43B of I.T.Act and required to be allowed on actual payment basis. - Decided against assessee Depreciation on co-generation plant - AO disallowed the depreciation claimed by the assessee @80% and reworked the depreciation at 15% except in the case of 12.35 KVA turbine as per the details given - Held that - The assessee is entitled for a higher rate of depreciation in the case of RCC Chimney, Bagasee Drier, DC Drier, Steam piping, Coal and gas feeding system and coal handling systems. In the case of sub station tower line, the expenditure required to be treated as revenue expenditure. Accordingly we direct the AO to allow higher rate of depreciation on the items mentioned above and in the case of substation tower line to allow the same as revenue expenditure. The appeal of the assessee in Ground Nos. 3 and 4 are allowed.
Issues Involved:
1. Interest on purchase tax. 2. Depreciation on co-generation plant. Issue-wise Detailed Analysis: 1. Interest on Purchase Tax: - The assessing officer (AO) identified that the assessee had debited ?9,51,162/- as interest payable on purchase tax. The AO concluded that this interest falls under the provisions of section 43B of the Income Tax Act, which allows deductions on an actual payment basis. The AO referenced the Supreme Court decision in Mahalakshmi Sugar Mills Co. Vs. CIT (123 ITR 429) to support the disallowance and added the amount back to the income. - The assessee appealed to the Commissioner of Income-Tax (Appeals) [CIT(A)], who upheld the AO's decision. The CIT(A) reasoned that the interest liability on unpaid purchase tax is akin to a tax and must be allowed as a deduction only upon actual payment, as per section 43B. The CIT(A) emphasized that allowing the deduction without payment would defeat the legislative purpose of section 43B. - During the tribunal hearing, the assessee's representative did not present any contrary decisions. The tribunal agreed with the CIT(A) that the interest on unpaid purchase tax is not interest under section 2(28A) of the IT Act but takes the character of tax. Therefore, it is subject to section 43B and is deductible only on actual payment. The tribunal upheld the CIT(A)'s order and dismissed the assessee's appeal on this ground. 2. Depreciation on Co-generation Plant: - The AO found that the assessee claimed 80% depreciation on various components of the co-generation power plant, except for the turbine, which was allowed at the same rate. The AO reworked the depreciation at 15% for other assets, reducing the claimed depreciation. - The assessee appealed to the CIT(A), who dismissed the appeal. The assessee then appealed to the tribunal, arguing that the issue was covered by a previous tribunal decision in the assessee's favor for the assessment year 2009-10. - The tribunal reviewed the previous decision, which allowed higher depreciation for components integral to the co-generation system, such as RCC Chimney, Bagasse Drier, DC Drier, Steam Piping, Coal & Gas Feeding System, and Coal Handling System. The tribunal noted that these items are essential for the co-generation system's operation and thus qualify for higher depreciation. - The tribunal also addressed the sub-station tower line, which was treated as revenue expenditure in the previous decision. The tribunal directed the AO to allow higher depreciation for the specified items and treat the sub-station tower line expenditure as revenue expenditure. - The tribunal concluded by allowing the assessee's appeal on these grounds, directing the AO to follow the previous tribunal decision. Conclusion: - The appeal concerning the interest on purchase tax was dismissed, affirming that such interest is deductible only on actual payment under section 43B. - The appeal regarding depreciation on the co-generation plant was allowed, directing the AO to grant higher depreciation on specified components and treat sub-station tower line expenditure as revenue expenditure. Final Judgment: - The appeal of the assessee is partly allowed, with specific directions to the AO regarding depreciation and treatment of expenditures. The order was pronounced in the open court on 20th December 2017.
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