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2018 (1) TMI 978 - AT - Income TaxDisallowance on account of depreciation - assessee has ceased to carry on its business - Held that - It is not the case of the revenue that the assessee has ceased to carry on its business permanently. It is only a case of temporary lull in the business against which the machineries were not put to use. On introduction of concept of block assets the provisions of section 32 of the Act by the Tax Laws (Amendment) Act 1986 which came into force w.e.f 1-4-1980 the concept of usage of asset(s) for the purpose of claiming of depreciation has become redundant. Several decisions cited by the assessee before the CIT-A clearly permits the allowance of depreciation when the machineries are kept for ready to use. On perusal of the case laws relied on by the assessee before the CIT-A in our opinion that the CIT-A has rightly appreciated the facts and has rightly come to the conclusion that the assessee is entitled to claim the deprecation and accordingly directed the AO to delete the impugned addition - Decided against revenue Disallowance on account of interest - loan for non business purpose - Held that - As clear from the findings of the CIT-A that the term loan and working capital loan both were availed by the assessee. The assessee used only interest bearing loan for the purpose of business i.e term loan used for acquiring plant & machinery and working capital loan used for working capital which has been demonstrated by the assessee. Therefore the disallowance on interest for non business purpose is totally erroneous and unjustified. This disallowance cannot be sustained. The existence of own fund of the assessee is far better than the advances given by the assessee. The decisions as relied on by the CIT-A clearly supports the case of the assessee. Therefore the CIT-A was justified in directing the AO to delete the addition - Decided against revenue
Issues Involved:
1. Deletion of disallowance of ? 89,41,080/- on account of depreciation. 2. Deletion of disallowance of ? 4,46,817/- on account of interest. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of ? 89,41,080/- on Account of Depreciation: The first issue concerns the deletion of disallowance of ? 89,41,080/- on account of depreciation by the CIT-A. The AO found that the assessee was not engaged in manufacturing activities during the previous year and disallowed the depreciation claimed on plant & machinery, factory building, and electric installation, arguing that the assets were not used for business purposes. The assessee contended that the machinery was put to use in earlier years and kept ready for use, despite the temporary suspension of production due to unfavorable market conditions. The assessee relied on various judicial precedents, including CIT Vs. Norplex Oak India and CIT Vs. Union Carbide (I) Ltd, which held that depreciation should be allowed if the machinery is kept ready for use. The CIT-A accepted the assessee's contention, stating that it is a settled principle of law that depreciation during the suspension of activity due to unfavorable market conditions is allowable. The CIT-A directed the AO to delete the addition of ? 89,41,080/- on account of depreciation. Upon appeal by the Revenue, the Tribunal upheld the CIT-A's order, agreeing that the concept of usage of assets for claiming depreciation has become redundant with the introduction of block assets. The Tribunal found no infirmity in the CIT-A's decision and dismissed the Revenue's ground on this issue. 2. Deletion of Disallowance of ? 4,46,817/- on Account of Interest: The second issue pertains to the deletion of disallowance of ? 4,46,817/- on account of interest by the CIT-A. The AO observed that the assessee had given short-term loans and advances amounting to ? 6,67,61,785/- without charging interest, while it paid interest on term loans. The AO disallowed ? 4,46,817/- as interest, assuming that the interest-bearing loans were used to give interest-free advances. The assessee clarified that the term loan was used for acquiring plant & machinery, and no interest was paid on unsecured loans. The assessee also demonstrated that its net worth and interest-free unsecured loans exceeded the interest-free advances given. The CIT-A accepted the assessee's explanation and directed the AO to delete the addition of ? 4,46,817/-, relying on various judicial precedents that support the allowance of interest if the interest-free funds exceed the interest-free advances. The Tribunal, upon hearing the rival submissions, upheld the CIT-A's decision, noting that the term loan and working capital loan were used for business purposes. The Tribunal found the AO's disallowance to be erroneous and unjustified and confirmed that no disallowance of interest can be made if the assessee's interest-free funds exceed the interest-free loans given. The Tribunal dismissed the Revenue's ground on this issue. Other Grounds: Ground nos. 2 and 3 raised by the Revenue were deemed argumentative and required no adjudication. Ground no. 4 was general in nature and also required no adjudication. Consequently, these grounds were dismissed. Conclusion: In the result, the appeal of the Revenue for the assessment year 2012-13 was dismissed. The order was pronounced in the open court on 10-01-2018.
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