2018 (4) TMI 433 - AT - Income Tax

Depreciation on electric installations - to be classified as Furniture or Plant & Machinery - Held that - As seen from Appendix-I which given the depreciation schedule that furniture including electrical fittings is considered as a separate block of asset. Therefore it is necessary that the assessee should show that electrical installations which are claimed to be falling within the block of assets Plant and Machinery are integral part of the plant and machinery and falls within the block of plant and machinery and not within the block of furniture and fittings and electrical installations. The AO has clearly brought out in the assessment order that each item had independent functions and was not an integral part of the plant and machinery. In the given circumstances we are of the view that order of the revenue authorities on this aspect does not require any reconsideration. Disallowance u/s 14A - Held that - The assessee had not earned or received any dividend income during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act. Accordingly the addition made u/s 14A of the Act is directed to be deleted. Addition of interest on fixed deposit - Held that - Before us the ld. Counsel for the assessee submitted that submissions were made before CIT(A) on this issue. We are of the view that it would be just and appropriate to direct the CIT(A) to decide this issue afresh Unexplained cash credit - no credit entry in the books of accounts - Held that - It is clear from the ledger account of Flower Trading & Investment Co.Ltd. as appearing in the books of accounts of the assessee that there was a debit of ₹ 20,00,000/- on 22.06.2011 towards refund of loan and a corresponding credit entry on 25.06.2011 reversing the debit entry. These entries are contra entries and do not represent any transaction. Flower Trading & Investment Co.Ltd in their books of accounts have not recognized these transactions at all. It is only because of this that there is a difference between the assessee s books of accounts and the books of accounts of Flower Trading & Investment Co. Ltd. In our opinion the assessee has rightly reconciled the difference and the addition made by the AO is purely on surmises and ignoring the fact that loan confirmation from Flower Trading & Investment Co.Ltd does not reflect the sum of ₹ 20 lakhs either as loan given to the assessee or loan repaid by the assessee. - Appeal decided partly in favour of assessee

Summary

Issues Involved:
1. Disallowance of depreciation and additional depreciation on electrical installations.
2. Disallowance under Section 14A read with Rule 8D.
3. Addition of interest on fixed deposit.
4. Addition of unexplained cash credit.

Detailed Analysis:

Issue 1: Disallowance of Depreciation and Additional Depreciation on Electrical Installations

The assessee claimed depreciation and additional depreciation on electrical installations, considering them as part of "plant and machinery." The Assessing Officer (AO) reclassified these installations under "furniture and fittings including electrical fittings," allowing only 10% depreciation and disallowing additional depreciation. The AO analyzed each item (electrical connection, aluminium armoured cable, control panel, connection job work, transformer and VCB switch, various electrical items, and fire extinguisher) and concluded that they were not integral to the plant and machinery but were distinct electrical fittings. The CIT(A) upheld the AO's decision. The Tribunal also agreed with the revenue authorities, stating that the assessee failed to demonstrate that the electrical installations were integral to the plant and machinery. Therefore, the disallowance of ?13,40,961/- was confirmed, and ground no.2 was dismissed.

Issue 2: Disallowance under Section 14A read with Rule 8D

The assessee contested the disallowance of ?62,399/- under Section 14A, arguing that no exempt income was earned during the year. The Tribunal referred to the Hon'ble Delhi High Court's decision in Cheminvest Ltd. Vs CIT and the ITAT Kolkata's decision in REI Agro Ltd. Vs. DCIT, which held that no disallowance under Section 14A should be made if no exempt income is earned. Given the factual position that the assessee did not earn any exempt income during the relevant year, the Tribunal directed the deletion of the addition made under Section 14A. Thus, ground no.3 was allowed.

Issue 3: Addition of Interest on Fixed Deposit

The AO added ?2,52,615/- as undisclosed income, noting a discrepancy between the interest reported in the 26AS statement and the interest credited in the assessee's books. The CIT(A) dismissed the appeal on this ground, stating that the assessee did not press for adjudication. However, the Tribunal found that submissions were indeed made by the assessee and directed the CIT(A) to decide the issue afresh after providing an opportunity for hearing. Thus, the matter was remanded back for reconsideration.

Issue 4: Addition of Unexplained Cash Credit

The AO added ?20 lakhs as unexplained cash credit, observing a discrepancy between the loan transactions recorded by the assessee and the confirmations from M/s. Flower Trading & Investment Co. Ltd. The assessee explained that a cheque for ?20 lakhs was issued but not encashed, leading to a contra entry in the books. The Tribunal found that the entries were indeed contra entries and did not represent any actual transaction. Since the loan confirmation from Flower Trading & Investment Co. Ltd did not reflect this amount, the Tribunal concluded that the addition was baseless and allowed ground no.5.

Conclusion:

The appeal was partly allowed. The Tribunal dismissed the ground regarding depreciation on electrical installations, allowed the grounds related to Section 14A disallowance and unexplained cash credit, and remanded the issue of interest on fixed deposit back to the CIT(A) for fresh adjudication.