2012 (11) TMI 159 - AT - Income Tax

Depreciation on electrical installation - excess claim - CIT (A) allowed the claim - Held that - The items on which the assessee has claimed depreciation at 25% have been attached to plant and machinery and not building and therefore it formed part of plant and machinery, thus depreciation @ 15% will not be applicable. Further, in earlier years depreciation has been allowed at 25% to the assessee & could not controvert these facts, thus no reason to interfere to the order of CIT (A) - against revenue. Cessation of liability - Addition u/s.41(1) - CIT(A) deleted the addition - Held that - As decided in CIT vs. Nitin Garg 2012 (5) TMI 30 - GUJARAT HIGH COURT the assessee had continued to show the amounts as liabilities in its balance sheet the same cannot be treated as cessation of liabilities and merely because the liabilities are outstanding for last many years, it cannot be inferred that the said liabilities have ceased to exist - in the present case also the assessee has made payments in subsequent years and in cases where the amounts are still outstanding, the provisions of section 41(1) cannot be applied. The assessee acknowledges its liability to pay. The Revenue has not been in a position to controvert the findings of CIT (A). Further the Revenue has not brought anything on record to prove the creditors to be non existent or the creditors appearing in Balance Sheet to be of bogus in nature - in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation on electrical installation.
2. Addition of trading liabilities under section 41(1) of the Act.

Issue 1: Disallowance of Depreciation on Electrical Installation

The appellant, a company engaged in manufacturing and selling chemicals, filed a return declaring a loss for the assessment year 2004-05. The Revenue challenged the deletion of disallowance of Rs.23,351 made on account of depreciation on electrical installation by the CIT (A). The Assessing Officer (A.O.) disallowed the excess claim of depreciation at 25% made by the appellant, stating it should have been at 15%. The CIT (A) allowed the depreciation at 25%, considering the electrical fittings as part of plant and machinery. The Revenue contended that the depreciation should be at 15%. However, the ITAT upheld the CIT (A)'s decision, noting that the items claimed for depreciation were attached to plant and machinery, not building, and had been allowed at 25% in earlier years. The ITAT found no reason to interfere with the CIT (A)'s order, dismissing the Revenue's ground.

Issue 2: Addition of Trading Liabilities under Section 41(1) of the Act

The A.O. observed outstanding creditors of Rs.1,23,68,527, and added this amount as income under section 41(1) due to the absence of confirmation letters or documentary evidence from the appellant. The CIT (A) ruled in favor of the appellant, stating that there had been no remission of liability except for a minor amount. The Revenue contended that the liabilities had ceased to exist, emphasizing a specific transaction. The appellant argued that the outstanding amounts were still payable, citing payments made in subsequent years and relying on a decision of the Gujarat High Court. The ITAT found that the A.O. considered the liabilities as ceased due to lack of evidence, while the CIT (A) acknowledged the appellant's liability to pay. Referring to the Gujarat High Court decision, the ITAT upheld the CIT (A)'s order, stating that the liabilities could not be treated as ceased merely because they were outstanding for several years. Consequently, the ITAT dismissed the Revenue's appeal.

In conclusion, the ITAT dismissed the Revenue's appeal concerning the disallowance of depreciation on electrical installation and the addition of trading liabilities under section 41(1) of the Act, upholding the decisions of the CIT (A) in both instances.