2018 (1) TMI 592 - AT - Income Tax

Disallowance of depreciation on electrical equipments - Held that - AO has erred in not granting depreciation at 15% by not considering the electrical installation as plant 20, 00, 000/- is an opening balance which is being carried forward for F.Y.2007-08 and there is no new amount has been taken during the year under consideration and an addition u/s.68 is not legal and assessee cited a judgment CIT vs. Usha Stud Agricultural Famrs Ltd. (2008 (3) TMI 91 - DELHI HIGH COURT) in the appeal it has been held that no addition u/s.68 with respect to opening balance. In our considered opinion in such circumstances this ground of appeal cannot sustain. Addition toward the late payment of employees contribution to PF and ESIC - Held that - The issue is squarely covered against the assessee by Hon ble jurisdictional High Court s judgment in the case of CIT vs. Gujarat State Road Transport Corporation (2014 (1) TMI 502 - GUJARAT HIGH COURT) wherein it is categorically held that in the case of delayed deposit of employees contribution to PF the same will not be deductable in computing income under section 28 of the Act.The law so laid down by the Hon ble jurisdictional High Court is binding on us. The mere fact that an appeal against the said decision is pending before the Hon ble Supreme Court does not dilute binding nature of this judicial precedent. - Decided against assessee.

Summary

Issues:
1. Disallowance of Depreciation
2. Disallowance of Unapproved Gratuity
3. Disallowance of Interest Expenses and Finance Charges
4. Disallowance of Unexplained/Unsecured Loan
5. Disallowance of Late Payment of Employees Contribution to PF & ESIC

Analysis:

Issue 1: Disallowance of Depreciation
The Assessing Officer (AO) disallowed depreciation claimed at 15% on electrical equipment, insisting it should be at 10%. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the disallowance. However, the ITAT Ahmedabad Bench in previous cases ruled that electrical installations are part of plant and machinery, justifying depreciation at 15%. Following this precedent, the ITAT allowed the appeal and held the depreciation claim at 15% to be valid.

Issue 2: Disallowance of Unapproved Gratuity
The AO disallowed unapproved gratuity deposited into LIC - Gratuity Fund. The CIT(A) confirmed the disallowance, but the ITAT considered the pending approval application and cited relevant court decisions to allow the appeal, stating that disallowance under section 40A(7) cannot be made without a provision claim.

Issue 3: Disallowance of Interest Expenses and Finance Charges
The AO disallowed interest expenses of ?16,75,605, claiming funds were borrowed instead of utilizing reserves. The ITAT found the AO's reasoning flawed, as the appellant demonstrated fund utilization and highlighted the company's prerogative in managing funds. The ITAT dismissed the appeal, upholding the CIT(A)'s decision.

Issue 4: Disallowance of Unexplained/Unsecured Loan
The AO made an addition of ?20,00,000 as an unexplained/unsecured loan due to lack of source verification for one party. The CIT(A) deleted the addition, noting it was an opening balance carried forward. Citing precedents, the ITAT dismissed the appeal, stating no addition under section 68 is warranted for an opening balance.

Issue 5: Disallowance of Late Payment of Employees Contribution to PF & ESIC
The AO disallowed ?95,274 for late payment of employees' PF & ESI contributions. The CIT(A) allowed the claim, but the ITAT, following a Gujarat High Court ruling, upheld the disallowance, emphasizing that the deduction is not permissible if the payment was not made by the due date.

In conclusion, the ITAT Ahmedabad allowed the assessee's appeal on depreciation and unapproved gratuity issues, while partly allowing the revenue's appeal on interest expenses and disallowance of late payments towards PF & ESIC. The disallowance of unexplained/unsecured loan was dismissed.