2016 (8) TMI 256 - AT - Income Tax

Additional depreciation u/s 32(1) (iia) on items of electric installation, tools, dyes and moulds - Held that - The finding of the ld Assessing Officer that they are not installed is a contradictory statement as normal depreciation of such assets is already allowed. The normal depreciation is allowable when the assets are put to use, we failed to understand that while allowing the normal depreciation the assets have been accepted as being used and in allowing additional depreciation it is stated that they are not installed. Further, the plant itself exists for the manufacturing of the products and the items purchased by the assessee are also not falling in the negative list such as office equipments etc. we are of the view that the claim of the assessee of additional depreciation is in accordance with the law. Hence, we confirm the order of the ld CIT (A) in allowing the additional depreciation on electrical installation, tools, dies and moulds. Disallowance of wages payment - revenue or capital expenditure - Held that - CIT (A) correctly deleted the disallowance relying on the order of the ld CIT (A) for AY 2009-10 wherein held that the payment was made for supplying the unskilled and semiskilled labour, which was used for lodging, un-lodging, cleaning of factory and in production process of the appellant. Hence, the amount has to be allowed as revenue expenditure to the appellant and same cannot be capitalized Allowance of deduction on account of order processing charges - Held that - According to schedule-XV if the audited account of the assessee a sum of ₹ 281827/- was received on account of processing charges. There is no dispute on the amount of total turnover as well as the export turnover. However the only dispute is with respect to profit eligible for deduction shall include the processing charges of ₹ 281827/- or not. According to the provisions of section 10B (4) the profit derived from export of goods is amount which bears to the profit of the business of the undertaking in the same proportion as the export turnover bears to the total turnover. Therefore if the amount of processing charges is the business income of the assessee same is eligible for deduction in ratio of export turnover to total turnover. As ld Assessing Officer himself has taxed the processing charges under the head business income of the assessee the amount of deduction is allowable to the assessee Allowability of insurance claim and discount from suppliers - Held that - As there is no dispute on the export turnover and total turnover amounts and when both these receipts are taxed with business income the ld CIT (A) has correctly allowed deduction on these two sums u/s 10B of the Act. Disallowance of Swap Charges and Loan processing charges - Held that - . The brief facts are that earlier the assessee took loan from Oriental Bank of Commerce against foreign currency (FCNRB), which was later on converted into Rupee loan and for this transaction the assessee has incurred financial charges which are in the nature of interest expenditure which are in the nature of interest in view of the provision of section 2(28A) of the Income Tax Act. Such expenditure is allowable in terms of section 36(1) (iii) of the Income Tax Act. It is not the case of the revenue that the assets for which the loan was taken is not put to use. In view of this we find no infirmity in the order of the ld CIT (A) in allowing swapping charges holding them as revenue expenditure and allowing the claim of the assessee. Regarding the loan processing charges it is from shifting of loan from Oriental Bank of Commerce to Axis Bank. This is also allowable to assessee as revenue expenditure as it is an interest and allowability of the same is to be considered u/s 36(1) (iii) of the Act. For the similar reasons as we have explain for swapping charges we also confirmed the order of the ld CIT(A) in deleting the above disallowance. Revenue appeal dismissed.

Summary

Issues Involved:

1. Allowance of additional depreciation under Section 32(1)(iia).
2. Deletion of disallowance of wages payment as revenue expenditure.
3. Allowance of deduction under Section 10B for order processing charges.
4. Allowance of deduction under Section 10B for insurance claims and discounts received.
5. Deletion of disallowance of swap charges and loan processing charges as revenue expenditure.

Detailed Analysis:

1. Allowance of Additional Depreciation under Section 32(1)(iia):

The revenue challenged the allowance of additional depreciation on items such as electric installations, tools, dyes, and moulds. The Assessing Officer disallowed the depreciation on the grounds that the machinery was not installed and was not directly engaged in manufacturing. However, the CIT(A) allowed the depreciation, holding that these items were integral to the plant and machinery. The Tribunal upheld the CIT(A)'s decision, noting that the assets were used in manufacturing, and the normal depreciation had already been allowed, indicating their use. The Tribunal confirmed the allowance of additional depreciation, dismissing the revenue's appeal on this ground.

2. Deletion of Disallowance of Wages Payment as Revenue Expenditure:

The Assessing Officer disallowed a portion of wages paid to M/s Ganpati Enterprises, suspecting that the wages were used for building construction rather than manufacturing. The CIT(A) deleted the disallowance, noting the lack of evidence supporting the Assessing Officer's doubt. The Tribunal upheld the CIT(A)'s decision, emphasizing that the wages were indeed for manufacturing purposes and not for construction. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal on this ground.

3. Allowance of Deduction under Section 10B for Order Processing Charges:

The revenue contested the deduction under Section 10B for order processing charges received from customers. The Assessing Officer argued that these charges were not derived from the export of articles. The CIT(A) allowed the deduction, stating that the charges were part of the export turnover. The Tribunal agreed, noting that the processing charges were business income and eligible for deduction under Section 10B. The Tribunal confirmed the CIT(A)'s decision and dismissed the revenue's appeal on this ground.

4. Allowance of Deduction under Section 10B for Insurance Claims and Discounts Received:

The Assessing Officer disallowed deductions for insurance claims and discounts received, arguing they were not derived from export activities. The CIT(A) allowed the deductions, treating them as part of the business income. The Tribunal upheld the CIT(A)'s decision, noting that these receipts were taxed as business income and thus eligible for deduction under Section 10B. The Tribunal dismissed the revenue's appeal on this ground.

5. Deletion of Disallowance of Swap Charges and Loan Processing Charges as Revenue Expenditure:

The revenue challenged the deletion of disallowance of swap charges and loan processing charges, arguing they were capital in nature. The CIT(A) allowed these expenses as revenue expenditure, noting that they were incurred for business purposes and not for acquiring capital assets. The Tribunal upheld the CIT(A)'s decision, confirming that the swap charges and loan processing charges were revenue expenditures allowable under Section 36(1)(iii). The Tribunal dismissed the revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s decisions on all grounds. The Tribunal confirmed that the additional depreciation, wages payment, order processing charges, insurance claims, discounts received, swap charges, and loan processing charges were correctly allowed as per the provisions of the Income Tax Act.