2017 (3) TMI 812 - AT - Income Tax

Violation of the provision of Section 43B - Held that - On examination of the order of the lower authorities and other records available before us we find that the amount disallowed by the AO pertains to the A.Y. 2007-08 and 2008-09, as evident from the assessment order which are placed on pages 207 to 209 and 214 to 217. As the impugned amount does not pertain to the year under consideration, therefore, the same cannot be disallowed under the provisions of Section 43B of the Act. In view of the above we find no infirmity in the order of the Ld. CIT(A) and we uphold the same. Non-payment of interest within the stipulated time as envisaged u/s 43B - whether the LIC mutual fund in the instant case is the public financial institution or not - Held that - The interest expenses claimed by the assessee to the LIC Mutual Fund are covered under the provisions of section 43B of the Act. Accordingly the assessee was required to make the payment of the interest before the due date of filing income tax returns as specified under section 139(1) of the Act. Hence we have no hesitation to reverse the order of ld CIT(A). Hence, this ground of appeal raised by the Revenue is allowed. Additional depreciation - AO has disallowed the additional depreciation on the ground that the assessee failed to provide the requisite documents in support of his claim of additional deposition - Held that - It is nowhere clear what was the manufacturing activity of the assessee and whether it was actually engaged in some manufacturing activity or not as required under the Act. It is because on perusal of Tax Audit Report of the assessee in form number 3CD we find that the assessee has mentioned its nature of the business as under - Chain of retail showrooms dealing in wide variety of retail merchandise etc. In view of above, we find that the issue of additional deposition has not been examined by the AO and therefore the same needs to be examined again in the light of above stated facts. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication in accordance with the law. Hence, this ground of appeal of the assessee is allowed for the statistical purposes.

Summary

Issues Involved:
1. Deletion of addition made under Section 43B for non-payment of ESI, PF, and VAT.
2. Deletion of addition made under Section 43B for non-payment of interest on unsecured debentures.
3. Restriction of additional depreciation on plant and machinery.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 43B for Non-payment of ESI, PF, and VAT:
The first issue raised by the Revenue was regarding the deletion of an addition of ?13,54,945/- made by the AO under Section 43B of the Income Tax Act for non-payment of ESI, PF, and VAT within the stipulated time. The AO observed from the Tax Audit Report that the assessee had not made these payments within the required time frame and thus disallowed the amount, adding it to the total income. The assessee argued before the Ld. CIT(A) that the amount pertained to previous assessment years (2007-08 and 2008-09) and had already been disallowed and added to the total income of those years. The Ld. CIT(A) found that the AO had misinterpreted the facts and that the amount was not debited in the accounts for the current year. Therefore, the Ld. CIT(A) deleted the addition, and this decision was upheld by the Tribunal, dismissing the Revenue's appeal on this ground.

2. Deletion of Addition Made Under Section 43B for Non-payment of Interest on Unsecured Debentures:
The second issue involved the deletion of an addition of ?9,75,16,996/- made by the AO under Section 43B for non-payment of interest on unsecured debentures within the stipulated time. The AO disallowed the interest expense claimed by the assessee, as no evidence for deferment of payment was provided. The assessee contended before the Ld. CIT(A) that the interest on unsecured debentures from LIC Mutual Funds was not covered under Section 43B clauses (d) and (e). The Ld. CIT(A) agreed, stating that LIC Mutual Fund is not a "public financial institution" as per Section 4A of the Companies Act. However, the Tribunal found that LIC Mutual Fund, being an arm of LIC, should be considered a public financial institution. Consequently, the interest expenses claimed by the assessee were covered under Section 43B, and the Tribunal reversed the Ld. CIT(A)'s order, allowing the Revenue's appeal on this ground.

3. Restriction of Additional Depreciation on Plant and Machinery:
The third issue was about the restriction of additional depreciation from ?2,89,58,125/- to ?24,934,785/- by the Ld. CIT(A), thereby giving relief to the assessee for ?40,23,440/-. The AO disallowed the additional depreciation claimed by the assessee, as no documentary evidence was provided for the utilization of plant and machinery in manufacturing. The Ld. CIT(A) partially allowed the claim, restricting the disallowance to assets installed at showrooms, which are not eligible for additional depreciation under Section 32(iia). The Tribunal found that the issue needed further examination to determine if the assessee was engaged in manufacturing activities and if the plant and machinery were used accordingly. Therefore, the Tribunal restored this issue to the AO for fresh adjudication, allowing the Revenue's appeal for statistical purposes.

Conclusion:
The Tribunal upheld the deletion of the addition for non-payment of ESI, PF, and VAT, reversed the deletion of the addition for non-payment of interest on unsecured debentures, and remanded the issue of additional depreciation back to the AO for further examination. The appeal filed by the Revenue was partly allowed for statistical purposes.