2023 (1) TMI 1428 - AT - Income Tax

Addition of lease rental accrued - addition of lease rental accrued did not book - AR submitted that the assessee has stopped business during the year under consideration - HELD THAT - We noticed the auditor has given very same note in his report given for the year ending 2000 2001. Accordingly there may be merit in the submission of AR that the note given by auditor during the year under consideration may be a case of inadvertent error committed in inclusion of the note relating to earlier years. This view is further reinforced for the fact that the agreement with M/s. Datar Switchgear Ltd. has expired in August 2000 itself and the other agreement has expired in April 2001. When the agreement expires the assessee may not getting right to receive the income. It is the submission of the assessee that both the assets have been classified as non-performing assets. It is the submission of the assessee that these assets have been classified as non-performing assets due to default in receiving installments and as per accounting standard-7 income can be recognised only when its realisation is certain. In our view there is merit in this legal contention also. This addition could not have been made by the AO. Decided in favour of assessee. Disallowance of expenses - We noticed that the assessee does not have explanation for the expenses other than interest expenditure. Hence disallowance of other expenses made by the AO is required to be confirmed. With regard to interest expenditure we noticed that a sum is the interest payable to Scheduled banks. Admittedly the assessee has not made payment and hence the same is required to be disallowed under section 43B of the I.T. Act. On this count the interest expenditure payable to the bank is the liable to be disallowed. With regard to the remaining amount of interest of Rs. 10.05 lakhs the assessee does not have any detail. CIT (A) was justified in confirming disallowance of entire expenses and his decision does not call for any interference. Accordingly we confirm the order passed by the learned CIT (A) on this issue. Disallowance of depreciation - addition it related to sale and leased back transaction - HELD THAT - The proposition expounded by the Coordinate Bench in assessee s own case 2018 (10) TMI 130 - ITAT MUMBAI relating to A.Y. 1997-98 is that the disallowance of depreciation on assets where seller of the assets and lessee are different is not required to be made. It is not discernible from the record that the assets on which depreciation was disallowed fall under the above said category. Accordingly we set aside this issue to the file of the AO with the direction to examine the nature of asset. If he finds that the seller of the asset and lessee are two different persons then no disallowance of the depreciation is called for. Addition of liability made u/s 68 - We noticed that the increase in secured loan and the increase in outstanding expenses are on account of the above said expenses only. Since we have confirmed the disallowance of expenses in our view making addition of increase in liability would result in double disallowance since there was no fresh flow of funds. Accordingly we direct deletion relating to interest and expenses respectively. Fresh loan taken from M/s. Akash Farms Pvt. Ltd. and Akash Enterprises we noticed that the assessee has only furnished confirmation letters. In our view mere filing of confirmation letters would not discharge the assessee from the burden placed on its shoulder u/s 68. Accordingly we confirm the addition made under section 68 of the Act in respect of the above said two loans. Non-granting of set off of brought forward losses - It is the duty of the AO to grant set off of brought forward losses while computing total income of the assessee. Without allowing set off of brought forward losses the total income could not have been computed correctly. Hence the direction sought by the assessee is for implementation of provisions of the Act only. In any case the CIT(A) has already directed the AO to allow set off of brought forward losses after verifying the record. We do not find any reason for not implementing the said order of the learned CIT(A). Accordingly we direct the AO to implement the order of the learned CIT (A) granting set off of brought forward losses after verifying record.

Summary

Issues:
1. Addition of lease rental accrued
2. Disallowance of expenses
3. Disallowance of depreciation
4. Addition of increase in liability
5. Non-granting of set off of brought forward losses

1. Addition of lease rental accrued:
The appeal challenged an order related to the assessment year 2002-03. The first issue was the addition of lease rental accrued but not booked, amounting to Rs. 24.60 lakhs. The assessee argued that the auditor's note in the report was a typographical error from earlier years and that the rentals were not receivable due to expired agreements with parties classified as non-performing assets. The tribunal agreed, noting that income recognition was not certain, and directed the Assessing Officer to delete the addition.

2. Disallowance of expenses:
The second issue involved the disallowance of expenses amounting to Rs. 1.44 crore. The majority of the expenditure was interest-related, with the assessee unable to provide evidence for other expenses. The tribunal upheld the disallowance of expenses, especially interest payable to banks under section 43B of the IT Act, confirming the decision of the CIT (A) on this issue.

3. Disallowance of depreciation:
The third issue concerned the disallowance of depreciation of Rs. 4.26 lakhs related to a sale and leaseback transaction. The assessee argued that depreciation should not be disallowed if the seller and lessee were different entities. The tribunal remanded the issue to the Assessing Officer to verify the nature of the asset before making a decision.

4. Addition of increase in liability:
The fourth issue was the addition of liability of Rs. 1.16 crore under section 68 of the Act. The tribunal found that certain increases in bank loans and outstanding expenses did not involve fresh funds and would result in double disallowance. However, fresh loans from specific entities lacked sufficient documentation, leading to the confirmation of the addition under section 68.

5. Non-granting of set off of brought forward losses:
The final issue was the non-granting of set off of brought forward losses. The assessee sought to implement the CIT (A)'s order directing the AO to allow the set off. The tribunal held that the AO should comply with the CIT (A)'s order and grant the set off of brought forward losses, emphasizing the statutory entitlement of the assessee.

In conclusion, the tribunal partially allowed the appeal, addressing each issue comprehensively and providing detailed reasoning for its decisions.