2013 (10) TMI 975 - AT - Income Tax

Allowability of rate of interest in case of loan from related party Held that - There is no thumb rule of allowability of interest rate. It depends upon case to case and business expediency. Therefore, 20% rate reasonable for A.Y 09-10 for the related parties - Decided the issue in the light of peculiar facts and circumstances of the case and it shall not became Precedent for all cases. In this case, since company and the depositors were assessed at highest tax rate and no loss of revenue. Deposit from outside parties is very meager as compared to related party and also business turn over and profit have increased substantially and there is no finding of lower authorities that the amount of loan received from loan creditors were not used for business purposes Decided in favor of Assessee. Addition on account of late payment of Provident fund account Held that - assessee had paid this amount on 25.06.2007 relevant to month of May, 2007 before due date of return file on 30.09.2008. As various Courts held if the payment is made before due date of return filed, is allowable expenditure Decided in favor of Assessee. CENVAT Credit to be included in the closing stock u/s 145A of the Act Held that - As per Apex Court judgment in the case of ACIT vs. Torrent Cables Ltd. 2012 (11) TMI 190 - SUPREME COURT , wherein it was held that assessee had been following the net method of valuing the closing stock Following the judgment, CENVAT not to be included in the closing stock. Allowability of excise duty as deduction u/s 43B of the Act in the year under consideration Held that - Assessee had paid excise duty on closing stock at the time of removal of goods from the factory before due date of filing of return. Accordingly, such excise duty is allowable as deduction u/s. 43B of the IT Act.

Issues Involved:
1. Reopening of assessment under Section 148 of the IT Act.
2. Disallowance of interest expenses under Section 40A(2)(b) of the IT Act.
3. Disallowance of expenses due to late payment of PF.
4. Disallowance of excess depreciation on storage tank.
5. Addition of unutilized CENVAT credit not included in closing stock.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148 of the IT Act:
The assessee challenged the reopening of assessments for the years 2003-04 and 2005-06. The Tribunal noted that for the year 2003-04, the reopening was beyond four years, and the assessee had disclosed all material facts during the original assessment. Therefore, the reopening was deemed invalid. For the year 2005-06, reopening was within four years, and the assessee failed to disclose material facts fully and truly. Thus, the reopening for 2005-06 was justified.

2. Disallowance of Interest Expenses under Section 40A(2)(b) of the IT Act:
The Tribunal examined the disallowance of interest expenses paid to related parties at higher rates than those paid to unrelated parties. For the year 2003-04, the Tribunal did not decide on the merit due to the invalid reopening. For other years, the Tribunal found the interest rates reasonable at 18% for 2005-06 and 2008-09 but reduced the rate to 20% for 2009-10, directing the AO to recalculate the difference.

3. Disallowance of Expenses due to Late Payment of PF:
For the year 2008-09, the Tribunal addressed the issue of disallowance of Rs. 6775 due to late payment of PF. The Tribunal noted that the payment was made before the due date for filing the return, and various courts have held that such payments are allowable. Therefore, the addition was deleted.

4. Disallowance of Excess Depreciation on Storage Tank:
For the year 2009-10, the Tribunal addressed the disallowance of Rs. 6,77,828 on account of excess depreciation claimed on a storage tank. The Tribunal found that the storage tank was part of the pollution plant and essential for its operation. Thus, it allowed 100% depreciation, reversing the CIT(A)'s order.

5. Addition of Unutilized CENVAT Credit Not Included in Closing Stock:
For the years 2005-06 and 2009-10, the Tribunal addressed the addition of unutilized CENVAT credit not included in the closing stock. The Tribunal upheld the CIT(A)'s decision, noting that the assessee paid excise duty on closing stock before the due date of filing the return, making it allowable under Section 43B. The Tribunal relied on the Supreme Court's decision in ACIT vs. Torrent Cables Ltd., confirming the CIT(A)'s order and dismissing the Revenue's appeals.

Conclusion:
The Tribunal allowed the assessee's appeals for the years 2003-04 and 2008-09, partly allowed the appeals for 2005-06 and 2009-10, and dismissed the Revenue's appeals for 2005-06 and 2009-10. The Tribunal's decisions were based on the specific facts of each case and relevant legal precedents.

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