2020 (1) TMI 500 - AT - Income Tax

Depreciation claim on its commercial vehicle - @ 30% on hire and other vehicles which stood restricted to 15% only during the course of assessment - HELD THAT - As decided in own case 2019 (3) TMI 1702 - ITAT KOLKATA A.O. could not bring any material on record to dispute the assessee s claim that the vehicles and other equipments were deployed in difficult areas and therefore entitle to higher rate of depreciation. A.O s contention that the explanation given by the assessee is an afterthought and that no hiring charges have been received is not supported by facts. The tippers used by the assessee in its business are registered under the Motor Vehicles Act 1988. They met the functional test as the basis for grant of 30% depreciation and also on the ground that the higher depreciation is on account of rigorous and hard use of commercial vehicles in comparison to the stationery and permanently installed machinery. These views find support in the decision of the Punjab Haryana High Court in the case of CIT vs. Rakesh Jain 2012 (5) TMI 7 - PUNJAB HARYANA HIGH COURT . Therefore taking into account the submission of the Counsel and relevant assessment records the addition made by AO on account of additional depreciation claim on higher rate should be deleted. - Decided in favour of assessee Deemed dividend u/s.2(22)(e) - appellant company has received the loan of 29977000/- from Capital Tours India Pvt. Ltd. wherein also holds more than 25% of the shares in Capital Tours India Pvt. Ltd. - HELD THAT - DR ails to rebut the clinching fact that the assessee has paid interest @ 9% to M/s Capital Tours India Pvt. Ltd. in commercial terms. This tribunal s co-ordinate bench s order in Smt. Sangita Jain vs. Income Tax Officer Ward-36(3) Kolkata 2016 (3) TMI 1202 - ITAT KOLKATA holds that such an instance of commercial loans does not attract sec. 2(22)(e) - Decided against revenue Sundry balances written off / puja expenses addition - HELD THAT - Assessee had originally claimed puja expenses only which stood treated as sundry balances written off. Be that as it may there can hardly be any dispute that puja expense as incurred wholly and exclusively for the purpose of business since they relate to assessee s business sites in civil construction business. We further notice that the CIT(A) has rightly placed reliance on hon ble apex court s decision in T.R.F. Ltd. vs. Commissioner of Income Tax 2010 (2) TMI 211 - SUPREME COURT to hold that it is no more necessary as per the amended statutory provision w.e.f 01.04.1989 to prove that the corresponding sums have become actually irrecoverable. We thus conclude that the CIT(A) has rightly reversed the assessment findings on these twin counts of puja as well as sundry balance. The Revenue fails in its third substantive grievance as well. Disallowance u/s 14A qua exempt dividend income - HELD THAT - We notice that the Assessing Officer had invoked Rule 8D (2)(ii) disallowance of IT Rules 1962 to disallow the impugned proportionate interest expenditure which stand restricted to the extent of dividend income only in lower appellate proceedings. Hon ble Delhi high court s decision in Joint Investment Ltd. vs. Commissioner of Income Tax 2015 (3) TMI 155 - DELHI HIGH COURT holds that such a disallowance cannot exceed the exempt income amount itself. We thus uphold the CIT(A) a findings qua this last issue as well

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Depreciation disallowance on commercial vehicles.
3. Deemed dividend addition under Section 2(22)(e).
4. Sundry balances written off and puja expenses.
5. Section 14A disallowance related to exempt dividend income.

Issue-wise Detailed Analysis:

1. Condonation of Delay:
The Revenue's petition dated 21.05.2017 sought condonation for a thirteen-day delay in filing the appeal. The assessee raised no objection to this request. The delay was attributed to various procedural formalities and compilation of records. Consequently, the delay was condoned, and the case was taken up for adjudication on merits.

2. Depreciation Disallowance on Commercial Vehicles:
The Revenue contested the CIT(A)'s decision to delete the depreciation disallowance of ?84,86,809/- made by the Assessing Officer (AO). The AO had restricted the depreciation rate to 15% instead of the 30% claimed by the assessee for vehicles used in civil construction and hire. The CIT(A) referenced previous orders from AY 2007-08 and AY 2010-11, which allowed higher depreciation rates for similar claims. The Tribunal upheld the CIT(A)'s decision, emphasizing judicial consistency and noting that the AO failed to provide new evidence to dispute the claim. The principle of consistency was reinforced by referencing the Supreme Court's decision in Radhasoami Satsang vs. CIT.

3. Deemed Dividend Addition under Section 2(22)(e):
The AO had added ?1,22,47,571/- as deemed dividend under Section 2(22)(e) for loans received from Capital Tours India Pvt. Ltd., where the assessee held more than 25% shares. The CIT(A) deleted the addition, citing that the loan was not gratuitous but carried an interest rate of 9%. This aligned with the jurisdictional High Court's decision in Pradip Kumar Malhotra, which stated that loans given in return for an advantage to the company do not qualify as deemed dividends. The Tribunal upheld this view, referencing similar cases and emphasizing that commercial loans do not attract Section 2(22)(e).

4. Sundry Balances Written Off and Puja Expenses:
The AO had disallowed ?3,14,923/- treating puja expenses as sundry balances written off. The CIT(A) allowed the puja expenses, recognizing them as customary business expenses for maintaining a harmonious business environment. Additionally, the CIT(A) allowed the sundry balances written off, referencing the Supreme Court's decision in TRF Ltd., which clarified that post-amendment to Section 36(1)(vii), it is not necessary to prove that debts have become irrecoverable. The Tribunal affirmed the CIT(A)'s decision, recognizing the legitimacy of both puja expenses and sundry balances written off.

5. Section 14A Disallowance Related to Exempt Dividend Income:
The AO had invoked Rule 8D(2)(ii) to disallow ?2,99,698/- as proportionate interest expenditure related to exempt dividend income of ?17,060/-. The CIT(A) restricted the disallowance to the extent of the dividend income. The Tribunal upheld this decision, referencing the Delhi High Court's ruling in Joint Investment Ltd. vs. CIT, which held that disallowance under Section 14A cannot exceed the exempt income.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all contested issues. The judgment emphasized the principles of judicial consistency, the legitimacy of business expenses, and the correct application of tax provisions related to depreciation, deemed dividends, and disallowances under Section 14A.