2014 (8) TMI 838 - AT - Income Tax

Depreciation of wagons Assets leased to Western Railways - Held that - Lease deed that the equipments leased will be returned back to the lessor after the expiry of the lease - Following the decision in Gujarat Narmada Valley Fertilizers Co. Ltd. Versus The ACIT Bharuch Range, Bharuch 2013 (8) TMI 628 - ITAT AHMEDABAD - Nothing has been brought to disapprove the said clauses of the lease deed by any of the authorities below - It is not proved that assessee is only a financer and is not interested in the assets and therefore, it cannot be said as full payout lease - the Assessee is eligible for claim of depreciation Decided in favour of assessee. Admission of additional ground - Depreciation on goodwill u/s 32(1)(iii) Held that - The ground of depreciation on goodwill was not raised before AO or CIT(A) but is raised before Tribunal for the first time - the matter needs to be decided at the end of CIT(A) thus, the matter is remitted back to the CIT(A) Decided in favour of Assessee. Interest u/s 36(1)(iii) disallowed - Borrowings utilized for non-business purpose or not Held that - As decided in assessee s own case for the earlier assessment year, it has been held that Revenue could not controvert by bringing any contrary material on record CIT(A) rightly was of the view that the manufacturing units of the assesses company are situated at a distance from nearest urban area and therefore adequate educational facilities are not available - The interest free advance given to the trust i.e. NE&SRS is to support the college - the financial support to the trust and thereby to college is motivated out of the commercial expediency - there was no reason to interfere with the order of CIT(A) Decided against Revenue. Expenses on maintenance on assets of Gujarat Narmda Auto Ltd. Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the AO made a disallowance being the expenditure incurred on protecting the assets of wholly owned subsidiary i.e. M/s Gujarat Narmada Auto Ltd. - CIT(A) has rightly allowed the claim of the assessee Decided against Revenue. Repairs and maintenance expenses Held that - Following the decision in Gujarat Narmada Valley Fertilizers Co. Ltd. Versus The ACIT Bharuch Range, Bharuch 2013 (8) TMI 628 - ITAT AHMEDABAD the replacement of stores and spares can be sued independently and its of replacement of plant and machinery - it has endorsing benefit to the assessee - The matter is required to re-examine with reference to addition confirmed by the CIT(A) thus, the matter is remitted back to the AO for fresh consideration Decided in favour of Revenue.

Summary

Issues Involved:
1. Depreciation on leased assets (wagons).
2. Depreciation on goodwill.
3. Deletion of disallowance of interest.
4. Expenses incurred on maintenance of assets of a subsidiary.
5. Deletion of addition of repairs and maintenance expenses.
6. Deletion of addition for Information Technology related services.

Issue-wise Detailed Analysis:

1. Depreciation on Leased Assets (Wagons):
The Assessee claimed depreciation on assets leased to Western Railways, which the A.O. disallowed, considering it a finance lease. The CIT(A) upheld this disallowance. Upon appeal, the Tribunal referred to previous decisions in the Assessee's favor, including a Gujarat High Court decision, and allowed the depreciation claim, emphasizing consistency with past rulings.

2. Depreciation on Goodwill:
The Assessee raised an additional ground for depreciation on goodwill acquired through a merger, citing a Delhi High Court decision for clarity on its allowability. The Tribunal admitted this legal ground and remitted the issue to the CIT(A) for a decision, ensuring adequate opportunity for both parties to present their case.

3. Deletion of Disallowance of Interest:
The A.O. disallowed interest on borrowed funds, alleging they were diverted to subsidiaries. The CIT(A) deleted this disallowance, noting the Assessee had adequate non-interest-bearing funds and the advances were commercially expedient. The Tribunal upheld this decision, referencing consistent rulings in the Assessee's favor in previous years.

4. Expenses Incurred on Maintenance of Assets of a Subsidiary:
The A.O. disallowed expenses incurred on maintaining a subsidiary's assets, arguing the subsidiary was a separate entity. The CIT(A) deleted this disallowance, referencing similar decisions in previous years. The Tribunal upheld this deletion, citing consistent rulings in the Assessee's favor.

5. Deletion of Addition of Repairs and Maintenance Expenses:
The A.O. treated certain repairs and maintenance expenses as capital expenditure. The CIT(A) deleted this addition, considering the items as part of machinery and not independent assets. The Tribunal remitted the issue back to the A.O. for a detailed item-wise examination, following a similar approach taken in the previous year.

6. Deletion of Addition for Information Technology Related Services:
The A.O. disallowed a portion of IT-related expenses, arguing they were not recovered from a partner as per a verbal agreement. The CIT(A) deleted this disallowance, relying on consistent decisions in previous years. The Tribunal upheld this deletion, noting the absence of contradictory evidence from the A.O. and consistent favorable rulings in earlier years.

Conclusion:
The Tribunal allowed the Assessee's appeal for statistical purposes and partly allowed the Revenue's appeal for statistical purposes, maintaining consistency with prior decisions and remitting specific issues for further examination.