2018 (6) TMI 1180 - AT - Income Tax

Sale of scrap generated while repairing building - to be taxed as separate income or to be adjusted against the written down value of the block of asset - Held that - Sale of scrap is related to the building, which is accepted by AO therefore, there is no reason in absence of any other evidence not to grant the same as credit against the returned down value of the assets. Even otherwise, the assessee has been granted less depreciation with respect to the above addition. DR could not controvert the fact that during the year the major repairs and renovation work was going on in the hotel of which the scrap is stated to be by the assessee. No infirmity in the order of the CIT A in considering that the scrap sale to be adjusted against the written down value of the assets. Addition on account of payment of loan processing fees - Held that - The revenue did not show it at any time that this sum of ₹ 90 crores has not been used for the purposes of the business by the assessee. The assessee produced the enough evidence before AO about the claim of the above expenditure. AO further enquired under section 133 (6) with the bankers who also confirmed the payment of the above sum. The bank has also confirmed that the loan has been paid to the assessee as term loan. In view of this we do not find any infirmity in the order of the Ld. CIT A in deleting the disallowance. Disallowance under section 14A - non recording of satisfaction - Held that - AO did not recorded any satisfaction with respect to the correctness of the claim of the assessee after examining the books of accounts but straightway proceeded to disallow 2% of the other expenditure without any basis - In absence of any satisfaction recorded by the AO, we do not find any infirmity in the order of the Ld. CIT A in deleting the disallowance - Revenue appeal dismissed.

Summary

Issues Involved:
1. Direction to adjust the sale of scrap against the written down value (WDV) of the block of assets.
2. Deletion of disallowance of loan processing fees.
3. Deletion of disallowance under Section 14A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Adjustment of Sale of Scrap Against WDV of Block of Assets:
The revenue challenged the CIT(A)'s decision directing the AO to adjust the sale of scrap against the WDV of the block of assets. The assessee argued that the scrap sale of ?1.50 crore was related to ongoing repairs in a hotel and should be deducted from the WDV of the respective block of assets, thereby reducing the depreciation claim. The AO contended that there was no correlation between the assets and the sale of scrap, treating it as miscellaneous income. The CIT(A) accepted the assessee's claim, noting the absence of evidence from the revenue to prove otherwise. The tribunal upheld the CIT(A)'s decision, finding no infirmity in adjusting the scrap sale against the WDV of the assets.

2. Deletion of Disallowance of Loan Processing Fees:
The revenue disputed the deletion of ?1.12 crores disallowed by the AO on account of loan processing fees. The assessee had taken a loan of ?90 crores for business purposes, confirmed by the State Bank of India. The AO disallowed the fee, citing a lack of correlation between the loan and its business use. The CIT(A) deleted the disallowance, noting that the assessee provided sufficient evidence of the loan's business use. The tribunal supported the CIT(A)'s decision, emphasizing that the revenue failed to prove the loan was not used for business purposes.

3. Deletion of Disallowance Under Section 14A of the Income Tax Act:
The AO disallowed ?10,55,863 under Section 14A, estimating 2% of other expenses related to exempt income without recording satisfaction regarding the correctness of the assessee's claim. The CIT(A) deleted this disallowance, highlighting the AO's failure to record satisfaction as required by law. The tribunal upheld the CIT(A)'s decision, noting the absence of any basis for the AO's estimate and the lack of recorded satisfaction.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The adjustments and deletions made by the CIT(A) were found to be justified and in accordance with the law. The order was pronounced in the open court on 20/06/2018.