2023 (4) TMI 623 - AT - Income Tax

Disallowance of electricity charges - electricity charges are not related to the business of the assessee as standing against the directors of the assessee compan y - electricity bills produced by the assessee are not in the name of the firm, therefore, AO made the disallowance - CIT(A) allowed the electricity charges, stating that this is due to technical mistake - HELD THAT - The electricity bills clearly establish the name of the directors of the assessee company, inspite of the name of the assessee company. Therefore, the AO has rightly disallowed the electricity expenditure. Assessee has not given any reason to establish that the assessee company shares this expenditure. Hence, we set aside the order passed by the CIT(A) and allow the appeal of the revenue on this ground. Nature of expenses - restricting depreciation on the ponds @15% and treating the expenditure on ponds as revenue expenditure - HELD THAT - In the instant case, the prawn ponds are tools to the business of the assessee and hence constitute plant . There are specialized machinery for pumping the water, oxygen etc. and various processes for cleaning and treatment of water in the ponds. As such water plays the role of a machine, ponds also constitute part of the machinery and hence, eligible for depreciation at the rates applicable to the plant and machinery. The AO has rightly allowed depreciation under Depreciation Schedule Plant and Machinery @15%. Hence, we do not find any infirmity in the order passed by the Ld.AO and uphold the order passed by the Ld.AO. Decided in favour of revenue. Disallowance u/s 14A r.w.r.8D (1)(b) - CIT(A) deleted the addition made by the AO, saying that the assessee has not received any dividend income during the year under consideration - HELD THAT - It is an admitted fact that the assessee had received Rs.12.5 lakhs as against his investment of Rs.2.5 crores. AO has invoked the provisions of section 14A r.w.r.8D (1)(b) by disallowing 0.5% as expenditure. But the Ld.CIT(A) mentioned that there is no dividend income, however, in his order itself, CIT(A) mentioned that the assessee has received Rs.12.5 lakhs as divided income, but he deleted the addition, saying that the assessee has not received dividend income, which is factually incorrect. Therefore, we set aside the order passed by the Ld.CIT(A) and allow the appeal of the revenue on this ground.

Summary

Issues involved: Appeal against order of Commissioner of Income Tax (Appeals) regarding depreciation claim on ponds, disallowance of electricity charges, and disallowance under section 14A r.w.r. 8D(1)(b).

Depreciation claim on ponds:
The assessee, a company engaged in aquaculture, claimed depreciation on ponds @100%, but the Assessing Officer (AO) disallowed a significant amount. The AO relied on a Supreme Court decision stating that ponds are 'plant' eligible for depreciation. The CIT(A) allowed the appeal of the assessee. The Tribunal upheld the AO's decision, citing the functional test and the nature of ponds as tools of the business, eligible for depreciation at 15%.

Disallowance of electricity charges:
The AO disallowed electricity charges paid by the assessee against directors, stating they were not related to the business. The CIT(A) allowed the charges, but the Tribunal set aside this decision, as the bills clearly showed the directors' names and lacked proof of business-related expenditure.

Disallowance under section 14A r.w.r. 8D(1)(b):
The AO disallowed 0.5% of the investment amount as expenditure under section 14A r.w.r. 8D(1)(b) due to dividend income received. The CIT(A) erroneously stated no dividend income was received, leading to the Tribunal setting aside this decision based on factual inaccuracies.

Cross objections and final decision:
The assessee's cross objections were dismissed due to a delay in filing without a petition for condonation. Ultimately, the appeal of the revenue was allowed, and the cross objections were dismissed, pronouncing the order on 8th March, 2023.