2024 (8) TMI 217 - AT - Income Tax

Disallowance of Interest and Financial Expenses - AR submitted that during the course of assessment proceedings copies of the ledgers, bank statement, and various details were furnished. The assessee could not produce other documents and records as asked by the AO due to the fact that factory was under the possession of the bank and other records were lost for which FIR was lodged in the police station - HELD THAT - From the attached details, it is clear that the Appellant paid interest, financial expenses to State Bank of India, Overseas Branch, Parliament Street, New Delhi. These details are available in the bank statement of State Bank of India for F.Y. 2006-07 which was available before the revenue authorities. Since, the payment pertain to interest and other financial expenditure as can be examined from the bank statement of SBI, we hold that the disallowance made by the AO is not justified and therefore, liable to be deleted. Disallowance of depreciation claimed - Depreciation is an allowance and not an expense - HELD THAT - Audited Balance Sheet and Tax Audit Report were furnished during the course of assessment proceedings. Tax audit report reveals claim of the depreciation as certified by the auditor. Even, the AO could have verified the claim of depreciation from the last year's records but he did not prefer do so. The depreciation which was allowed by the revenue authorities in the earlier years on the fixed assets has to be allowed in the current year. No depreciation is allowed on the additions made to the fixed assets, if any, during the year, owing to the absence of basic details. Thus, claim of depreciation of the assessee is justified. Non allowability of credit for brought forward losses/unabsorbed depreciation - HELD THAT - It is evident from the various returns filed by the assessee that the company shown brought forward losses/depreciation from year to year. While calculating tax demand, the AO is directed to allow credit of the same as per the provisions of Income tax Act. Appeal of the assessee is allowed.

Summary

Issues:
1. Disallowance of financial expenses
2. Disallowance of manufacturing, administrative, and selling expenses
3. Disallowance of expenses payable at year-end
4. Disallowance of commission and brokerage
5. Disallowance of professional charges
6. Disallowance of purchases made by the assessee
7. Disallowance of depreciation claimed by the assessee

Issue 1: Disallowance of Financial Expenses:
The appeal was against the disallowance of interest and financial charges paid to a bank. The assessee argued that relevant details were furnished during assessment proceedings, but some records were unavailable due to the bank's possession of the factory and lost records. The Tribunal found that the payment details were available in the bank statement submitted to the revenue authorities, justifying that the disallowance made by the Assessing Officer was not justified and should be deleted.

Issue 2: Disallowance of Depreciation:
The contention was regarding the disallowance of depreciation claimed by the assessee. The Tribunal noted that depreciation is an allowance, not an expense, and that audited balance sheets and tax audit reports were submitted during assessment. The claim of depreciation was certified by the auditor, and the Tribunal emphasized that depreciation allowed in previous years on fixed assets should also be allowed in the current year. Consequently, the claim of depreciation by the assessee was deemed justified.

Issue 3: Non-Allowability of Credit for Brought Forward Losses/Unabsorbed Depreciation:
The Tribunal observed that the company had shown brought forward losses/depreciation in various returns. It directed the Assessing Officer to allow credit for the same as per the provisions of the Income Tax Act.

Conclusion:
The Tribunal confirmed the disallowance of manufacturing, administrative, selling, and other expenses, expenses payable, commission and brokerage, professional charges, and purchases made by the assessee. However, it deleted the disallowance of financial expenses and depreciation claimed by the assessee. The appeal of the assessee was allowed, and the order was pronounced in the open court on 30/05/2024.