2018 (4) TMI 336 - AT - Income Tax

Depreciation on plant and machinery not put to use - Held that - AO has not pointed out any defect in the submission of the assessee in his remand report. Merely non filling up the relevant column of tax audit report i.e. put to use, cannot be the basis for making the disallowance of depreciation amount. Similarly all other evinces produced during the proceedings before the lower authorities cannot be disregarded without pointing out any defect. Thus, we cannot ignore the details as furnished by the assessee before Authorities Below during the appellate proceedings. - Decided against revenue Addition on account of interest expense attributable to the acquisition of plant and machinery - Held that - As we have already held that plant and machineries have been put to use during the year under consideration. Therefore, the expense incurred by assessee on account of LC charges and interest charges should be treated as revenue in nature. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. We hold accordingly. Addition on account of loss in transit - amount of sale was not realized, therefore, the same was written off as bad debt but under the wrong head loss in transit - Held that - In the claim made by assessee was within the provision of law as specified u/s.36(1)(vii) r.w.s. 36(2) of the Act. Thus, merely claiming the deduction under the wrong head i.e. loss in transit would not disentitled the assessee from claiming the benefit of the bad debt. It was also observed that copy of ledger was duly provided to AO at the time of assessment proceedings and in this regard, Ld. DR has not brought anything contrary to the finding of Ld. CIT(A). Thus, we have no alternative except to confirm the order of Ld. CIT(A). - Decided against revenue

Issues Involved:

1. Depreciation on plant and machinery.
2. Interest attributable to the acquisition of plant and machinery.
3. Loss in transit of goods.

Issue-wise Detailed Analysis:

1. Depreciation on Plant and Machinery:

The primary issue raised by the Revenue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] erred in deleting the addition made by the Assessing Officer (AO) for ?6,92,40,656/- on account of depreciation on plant and machinery purchased during the year for ?40,90,09,565/- when the machinery was allegedly not put to use. The AO disallowed the depreciation on the grounds that there was no evidence of installation, commissioning, or trial production, and the tax audit report did not specify the date of "put to use."

The CIT(A), however, accepted additional evidence provided by the assessee, including an installation certificate from G. Steelmet Pte Ltd., Singapore, which indicated that the machinery was commissioned and trial production commenced in April and May 2009. The CIT(A) also noted that the AO did not find any specific defects in the remand report and that the substantial increase in turnover and manufacturing expenses indicated that the machinery was indeed used during the year. The CIT(A) concluded that the omission in the tax audit report did not establish that the machinery was not put to use and deleted the disallowance of depreciation.

The Appellate Tribunal upheld the CIT(A)'s decision, noting that the AO had not pointed out any defects in the remand report and that the non-filling of the relevant column in the tax audit report could not be the sole basis for disallowing depreciation.

2. Interest Attributable to Acquisition of Plant and Machinery:

The second issue was whether the CIT(A) erred in deleting the addition made by the AO on account of interest expense of ?53,71,826/- attributable to the acquisition of plant and machinery. The AO had disallowed this expense on the grounds that the plant and machinery were not put to use during the year, and thus, the interest and LC charges should be capitalized.

The CIT(A) observed that since the machinery had been put to use, the interest and bank charges incurred after the commissioning date (22.05.2009) should be treated as revenue expenditure. The CIT(A) allowed the interest and bank charges incurred after this date as revenue expenditure and directed the AO to capitalize the pre-commissioning interest and bank charges of ?4,96,747/- and allow depreciation on the same.

The Appellate Tribunal upheld the CIT(A)'s decision, reiterating that the plant and machinery had been put to use during the year, and thus, the interest and LC charges should be treated as revenue expenditure.

3. Loss in Transit of Goods:

The third issue was whether the CIT(A) erred in deleting the addition made by the AO for ?19,57,500/- on account of loss in transit of goods. The AO disallowed the claim as the assessee failed to justify the loss with documentary evidence during the assessment proceedings.

The CIT(A) accepted the assessee's explanation that the amount represented a bad debt written off, as the goods exported in the financial year 2007-08 were not cleared by the customer, and thus, no payment was received. The CIT(A) noted that the amount satisfied the conditions prescribed under section 36(1)(vii) read with section 36(2) of the Income Tax Act, 1961, and deleted the disallowance.

The Appellate Tribunal upheld the CIT(A)'s decision, noting that the deduction of bad debt could not be denied merely because it was claimed under the wrong head (loss in transit) and that the ledger account provided sufficient evidence to support the claim.

Conclusion:

The Appellate Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The Tribunal found no infirmity in the CIT(A)'s orders and confirmed the deletion of the disallowances made by the AO.

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