2017 (12) TMI 535 - AT - Income Tax

Addition made on account of share application money u/s 68 - Held that - Assessee has all necessary evidence right from Foreign Inward Remittance certificate to application filed with Forex department of RBI to justify allotment of equity shares and receipt of share application money from M/s Great Value Company Ltd of Mauritius. Once the initial burden cast upon the assessee to prove the identity, genuineness of transactions and creditworthiness of the parties is established, then it is for the AO to prove otherwise with necessary evidences. In this case, the AO, without bringing any cogent material on record, simply made addition by doubting the transaction only on the basis of higher share premium charged by the assessee to conclude that transaction is not genuine. Therefore, we are of the considered view that there is no reason of whatsoever to make addition towards share application money received from M/s Great Value Company Ltd of Mauritius in the financial year 2006-07 relevant to AY 2007-08, in the impugned assessment year, that too, when the assessee has proved all the three ingredients of section 68. The Ld.AO, except for finding fault with the evidence filed by the assessee and disbelieving the same has not been able to add any evidence or information to come to the conclusion that the assessee has not received share application money from the subscriber. The CIT(A), after considering all the evidences filed by the assessee, has rightly deleted addition made by the AO - Decided against revenue Disallowance of depreciation - assets put to use for less than 180 days as evident as per the note credits for excise duty availed on capital goods purchased - Held that - On perusal of details filed by the assessee, we find that the assessee has rightly classified assets purchased and put to use for more than 180 days and assets purchased and put to use for less than 180 days. This is further supported by bills. The AO, without appreciating facts, only on the basis of input credits for excise duty claimed in the month of March has come to the conclusion that all assets are purchased and put to use for less than 180 days.. The assessee has filed depreciation chart as per which it has capitalised plant & machinery and other asses of ₹ 13,12,87,037 before 30th September, 2007. There is no evidence to the contrary in the AOs possession that plant & machinery was put to use after 30th September, 2007 except input credit availed in March, 2008 which is not relevant as per section 32 is concerned. The CIT(A), after considering relevant details has rightly deleted addition made by the AO Disallowance of interest u/s 36(1)(iii) and 37(1) - Held that - In this case, admittedly, the production activity of the assessee has been commenced in the previous year relevant to AY 2007-08. This fact has not been disputed by the revenue. Therefore, we are of the view that there is no reason for the AO to disallow interest paid on term loan by holding that it is in the nature of capital expenditure. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. Disallowance of interest paid on cash credit u/s 43B(e) - Held that - The provisions of section 43B(e) provides for disallowance of interest on loans or advances if such interest is not paid on or before the due date of furnishing return of income. Further Explantion 3D explains the position of law provided in section 43B(e) so as to clarify the position of interest actually paid or interest converted into loan or advances. In this case, admittedly, the assessee has paid interest on cash credit account which has been debited by the bank on regular intervals. We further notice that such interest has been paid by the assessee on or before due date of furnishing return u/s 139(1) of the Act. Therefore, we are of the considered view that the AO was completely erred in disallowing interest on CC account u/s 43B(e) of the Act. Addition made towards excise duty (PLA) shown as loans and advances - as per AO assessee has not made suitable adjustments towards unutilised Modvat credit for valuation of closing stock - Held that - No merit in the findings of the AO for the reason that there is nothing on record to indicate that the assessee has not considered unutilised input tax credit for valuation of closing stock. The assessee has furnished a certificate from the auditors to the effect that closing stock has been valued including excise duty. We further notice that amount shown in PLA account is nothing but advance payment of excise duty which has been kept in the loans and advances in the asset side of the balance-sheet. The AO without appreciating the facts made addition to PLA balance on suspicion and surmise without bringing any material on record to show that this represents unutilised Modvat credit which has not been considered for valuation of closing stock. The CIT(A), after considering submissions of the assessee has rightly deleted addition made by the AO. Addition towards excise duty credits in the P&L Account within the meaning of section 145(3) - AO, on the basis of notes to accounts came to the conclusion that excise duty collected is in the nature of receipt accrued to the assessee, but the assessee has failed to recognise it as income - Held that - We do not find any merit in the findings of the AO for the reason that the assessee has collected excise duty on sales and paid the same to the excise department which is evident from the fact that the assessee has routed its excise duty collected on sales and payment of excise duty through balance-sheet. The assessee, for the purpose of disclosure of accounts in accordance with provisions of section 145(1) shown sales net of excise duty in the P&L Account. The AO misconstrued the facts to make addition towards excise duty collected. Therefore, we are of the considered view that the CIT(A) was right in deleting addition made towards excise duty. TDS u/s 194C - Non deduction of tds on transportation charges paid - addition u/section 40(a)(ia) - Held that - We find that the CIT(A) has recorded a categorical finding to the effect that the impugned payment is covered by the certificate furnished by the assessee u/s 197 of the Act, for non deduction of tax at source u/s 194C. The AO, without appreciating the facts, simply disallowed transportation charges u/s 40(a)(ia) even though the assessee has furnished valid certificate issued u/s 197 of the Act. We do not find any error in the findings of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and reject ground raised by the revenue Addition on reduction in production of pig iron - rejection of books of accounts - Held that - AO has also overlooked the basic fact that the finished products of the assessee are excisable and no finished goods are removed without payment of excise duty. There is nothing on record to suggest that excise authorities have contemplated any action on so-called suppressed production and there is not an iota of evidence to suggest that the assessee has sold produce of finished goods, outside books of account. In the absence of any incorrectness as to books of account and stock registers, merely on the basis of comparison of production percentage of finished goods addition cannot be made for production loss, despite, the assessee explains the reasons for such production and also filed reconciliation explaining the shortfall. Therefore, we are of the view that the AO was incorrect in making addition towards estimated production loss. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. Disallowance of repairs and maintenance to plant and machinery being capital in nature - expenditure giving enduring benefit to the assessee - Held that - We are of the considered view that the assessee has not derived any enduring benefit by repairing damaged refractory lines of blast furnace. The assessee only regained its lost production capacity by repairing refractory lines. Therefore, the lower authorities were completely erred in treating the repairs and maintenance to plant and machinery being capital in nature. Hence, we direct the AO to delete addition made towards repairs and maintenance to plant & machinery.

Summary

Issues Involved:
1. Addition made on account of share application money under Section 68 of the Income-tax Act.
2. Disallowance of depreciation on assets under Section 32 of the Act.
3. Disallowance of interest under Sections 36(1)(iii) and 37(1) of the Act.
4. Disallowance of interest under Section 43B(e) of the Act.
5. Addition made on account of excise duty towards cost of stock under Section 145A of the Act.
6. Addition made on account of excise credits in the balance sheet under Section 145(3) of the Act.
7. Disallowance of expenses under Section 40(a)(ia) of the Act.
8. Addition made on account of reduction in production by rejecting books of account under Section 145 of the Act.
9. Disallowance of repairs and maintenance expenditure being capital in nature.

Detailed Analysis:

1. Addition on Account of Share Application Money under Section 68:
The revenue challenged the deletion of the addition of ?8,51,26,250 made by the AO under Section 68. The AO had questioned the genuineness and creditworthiness of the share application money received from M/s Great Value Company Ltd of Mauritius. The CIT(A) deleted the addition, observing that the assessee had provided sufficient evidence, including confirmations, bank details, and statutory approvals. The Tribunal upheld the CIT(A)’s decision, noting that the share application money was received in the previous financial year and the assessee had discharged its burden of proof.

2. Disallowance of Depreciation under Section 32:
The AO disallowed 50% of the depreciation claimed, arguing that the assets were used for less than 180 days. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, finding that the assessee had correctly classified assets used for more and less than 180 days, supported by bills and other evidence.

3. Disallowance of Interest under Sections 36(1)(iii) and 37(1):
The AO disallowed interest on term loans, treating it as capital expenditure. The CIT(A) deleted the disallowance, noting that the interest was paid after the commencement of production. The Tribunal upheld the CIT(A)’s decision, emphasizing that interest on loans for business purposes is deductible under Section 36(1)(iii), irrespective of whether the loan was for working capital or capital assets.

4. Disallowance of Interest under Section 43B(e):
The AO disallowed interest on the cash credit account, arguing that it was converted into a loan. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, finding that the interest was paid on or before the due date for filing the return, and thus Section 43B(e) was not applicable.

5. Addition on Account of Excise Duty under Section 145A:
The AO added ?42,30,010, alleging that the assessee failed to include excise duty in the valuation of closing stock. The CIT(A) deleted the addition, noting that the AO’s conclusions were without basis and the assessee had included excise duty in the valuation, supported by an auditor’s certificate. The Tribunal upheld the CIT(A)’s decision.

6. Addition on Account of Excise Credits under Section 145(3):
The AO added ?12,91,55,890, arguing that the assessee did not route excise duty through the P&L account. The CIT(A) deleted the addition, noting that the assessee had correctly presented accounts in accordance with Section 145(1). The Tribunal upheld the CIT(A)’s decision.

7. Disallowance of Expenses under Section 40(a)(ia):
The AO disallowed ?33,00,944 for transportation charges, arguing that the assessee failed to deduct TDS under Section 194C. The CIT(A) deleted the disallowance, noting that the assessee had a valid certificate under Section 197 for non-deduction of TDS. The Tribunal upheld the CIT(A)’s decision.

8. Addition on Account of Reduction in Production under Section 145:
The AO added ?21,65,77,838, alleging a reduction in production. The CIT(A) deleted the addition, noting that the assessee had justified the reduction with evidence of by-products and quality issues with raw materials. The Tribunal upheld the CIT(A)’s decision, emphasizing that the AO had no evidence of unaccounted sales or excess stock.

9. Disallowance of Repairs and Maintenance Expenditure:
The AO disallowed ?2,24,08,100, treating it as capital expenditure. The CIT(A) allowed partial relief, confirming ?2,08,21,467 as capital expenditure. The Tribunal found that the repairs were necessary to restore the existing blast furnace and did not create a new asset, thus treating the expenditure as revenue in nature and directing the AO to delete the addition.

Conclusion:
The Tribunal upheld the CIT(A)’s decisions on all issues, providing detailed reasoning and referring to relevant case laws. The appeal filed by the assessee was allowed, and the appeal filed by the revenue was dismissed.