2014 (9) TMI 279 - AT - Income Tax

Reconsideration of addition of depreciation of windmills Rate of depreciation to be 10% or not Held that - Following the decision in DCIT Vs. Aminity Developers and Builders 2014 (9) TMI 211 - ITAT PUNE - cost on the foundation of the wind mill is eligible for the depreciation at the rate 180% or the rate which is applicable to the wind mill as it is integral part of cost of wind mill erection - Same way, the cost for commission and erection cannot be said to be separate from the wind mill as it is directly related to the functioning of wind mill - CIT(A) has rightly allowed the depreciation on the pro rata basis on the cost of foundation to the extent of the civil work the order of the CIT(A) is upheld Decided against assessee. Addition u/s 40A(2)(b) deleted Failure to justify and establish the expenses Held that - The assessee has claimed payment of commission to the Directors on the basis of a resolution passed in the Extraordinary General Body Meeting - CIT(A) deleted the addition on the ground that the provisions of section 40A(2) are not attracted when both payer and payee fall in the same tax bracket - the Directors have rendered services and the commission has been paid on the basis of resolution passed at the EGM - the Assessee as well as the Directors fall under the same tax rate and there is no attempt to evade tax thus, the order of the CIT(A) is upheld Decided against Revenue. Addition u/s 40A(2)(b) deleted - Admission of new evidences but AO did not get the opportunity to examine as provided under Sub-Rule (3) of Rule 46A Held that - The Breakup of the expenses includes payment of Excise Duty, Education cess, Secondary education cess and VAT of which are paid to Govt. Departments - it is highly improbable that any person will make any tax planning to convert an amount by paying tax and various other duties to Govt. amounting to more than ₹ 10 lakhs - evasion of tax is ruled out thus, the order of the CIT(A) is upheld Decided against revenue. Addition u/s 43B Payment of sale tax made Admission of additional evidence - Held that - CIT(A) has given ample opportunity to the AO to comment on the admissibility or otherwise of the additional ground before him - the AO had not availed of that opportunity - raising this ground that AO was not given any opportunity is not justified - CIT(A) while allowing the claim of deduction u/s.43B has also decided the issue on merit and the Revenue has no grievance about the allowability of the same as no ground for that has been taken - The grievance was only for admission of the additional ground - In view of the detailed reasoning given by the CIT(A) for admission of the additional ground as well as the decision on merit, it was found that there was no infirmity Decided against revenue.

Summary

Issues Involved:
1. Depreciation on Windmills
2. Disallowance under Section 40A(2)(b) for Directors' Commission
3. Disallowance under Section 40A(2)(a) for Purchases from Sister Concern
4. Disallowance under Section 43B for Sales Tax Payment

Issue-wise Detailed Analysis:

1. Depreciation on Windmills:
The Revenue challenged the CIT(A)'s direction to reconsider the addition made on account of depreciation of windmills. The CIT(A) had directed the Assessing Officer (AO) to re-compute the depreciation by including various components such as the cost of the wind turbine generator, electrical items, foundation work, and other related costs. The CIT(A) followed the decision of the ITAT Pune in the case of Poonawalla Finvest (I) Pvt. Ltd., which allowed depreciation at 80% for certain components integral to the windmill. The Tribunal found no infirmity in the CIT(A)'s order, noting it was in line with the precedent and dismissed the Revenue's grounds.

2. Disallowance under Section 40A(2)(b) for Directors' Commission:
The AO disallowed the commission paid to directors amounting to Rs. 57,82,634/- under Section 40A(2)(a), arguing the payment was not justified as the directors had not rendered new services. The CIT(A) deleted this addition, citing that both the payer and payee were in the same tax bracket, making the transaction revenue-neutral. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in CIT Vs. Indo Saudi Services (Travel) P. Ltd. that no disallowance is required where there is no attempt to evade tax.

3. Disallowance under Section 40A(2)(a) for Purchases from Sister Concern:
The AO disallowed Rs. 23,67,789/- paid to M/s. Saroj Castings Pvt. Ltd., a sister concern, under Section 40A(2)(a), citing a lack of justification for rate differences. The CIT(A) deleted the disallowance, accepting the assessee's explanation that the rate difference was due to increased raw material prices approved by Cummins India Ltd. The Tribunal found the CIT(A)'s reasoning sound and dismissed the Revenue's appeal, noting that the payment included statutory dues like Excise Duty and VAT, which ruled out tax evasion.

4. Disallowance under Section 43B for Sales Tax Payment:
The AO disallowed a claim of Rs. 13,00,408/- for sales tax paid in earlier years, as it was not claimed through a revised return. The CIT(A) admitted the additional ground, noting the AO did not respond to the opportunity given to comment on the admissibility. The CIT(A) allowed the deduction under Section 43B, stating the sales tax payment was genuine and allowable. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the reasoning and dismissed the Revenue's ground.

Conclusion:
The Tribunal dismissed all grounds raised by the Revenue in both appeals, affirming the CIT(A)'s decisions on all issues. The judgments were pronounced in the open court on 27-08-2014.