2018 (6) TMI 1168 - AT - Income Tax

Addition u/s 40A(2)(b) - loans from specified persons - whether payment of interest at the rate of 18% to such persons on the loans availed from them is excessive or not having regard to the fair market value of such loans? - Held that - No doubt AO took into consideration interest rate at 12%. This is the rate on which banks used to grant small time loans. This rate was also keeps on fluctuating from 12% to 14% but it is to be kept in mind that loans availed by the assessee were unsecured loans. It has avoided a large number of formalities such as giving securities pledging something etc. In such situation a little payment of higher rate of interest could not be termed as excessive. Therefore we are of the view that the ld.CIT(A)has rightly deleted the disallowance. Addition on purchase of car - as per AO since car was purchased in the name of Manager it was not owned by the assessee therefore expenditure incurred for acquiring car as well as depreciation is not admissible to the assessee - Held that - Car was used practically for the business purpose of the assessee. It has provided finance for purchasing the car. The only name of the Manager is being reflected in the registration certificate. Otherwise for all other practical purposes car was used by the assessee. CIT(A) has looked into supporting evidence and thereafter allowed incidental expenses as well as depreciation. After going through order of the ld.CIT(A) we do not find any reasons to interfere in it Addition u/s 40(a)(ia) - non deduction of tds - CIT-A deleted this addition on the ground that M/s.Narmada Chem has filed its return and included receipts from the assessee in its taxable income - Held that - The issue in dispute is covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of CIT Vs. Ansal Landmark Township P.Ltd. (2015 (9) TMI 79 - DELHI HIGH COURT) held that second proviso to section 40(a) of the Act is to be read as applicable with retrospective effect. According to this proviso if a payee has filed its return disclosing payment received then the assessee would not be considered in default. Additional depreciation on lab equipments and electrical installation - Held that - According to the assessee it is part of plant & machinery and additional depreciation is eligible as per proviso of section 32(1)(a). Since this electrical machine required additional power and it is inter-connected with its manufacturing activity it cannot be said that these cables etc. would not be part of manufacturing process. Similarly lab equipments are linked to manufacturing process and depreciation would be applicable. The ld.CIT(A) has rightly held that the assessee is entitled for additional depreciation on these items. - Revenue appeal dismissed.

Summary

Issues involved:
1. Disallowance of interest paid on loans under section 40A(2)(b) of the Income Tax Act.
2. Claim of expenses and depreciation related to a motor car purchased in the name of the Manager.
3. Disallowance of expenses due to failure to deduct TDS.
4. Disallowance of additional depreciation claimed on lab equipments and electrical items.

Issue 1: Disallowance of interest paid on loans under section 40A(2)(b) of the Income Tax Act:
The Revenue appealed against the deletion of additions made by the AO under section 40A(2)(b) for excessive interest paid by the assessee on loans. The AO disallowed interest paid over 12% per annum, adding significant amounts for the Assessment Years 2010-11 and 2011-12. The ld.CIT(A) deleted these disallowances, stating that the interest paid at 15% to 18% was not excessive and was commensurate with the fair market value of availing loans. The Tribunal upheld the ld.CIT(A)'s decision, emphasizing that the higher interest rate was justified due to the unsecured nature of the loans, rejecting the Revenue's appeal.

Issue 2: Claim of expenses and depreciation related to a motor car purchased in the name of the Manager:
The Revenue challenged the deletion of additions related to expenses and depreciation claimed on a motor car purchased in the Manager's name. The ld.CIT(A) allowed the expenses and depreciation, noting that the car was practically owned and used by the assessee for business purposes, even though registered in the Manager's name. The Tribunal upheld the ld.CIT(A)'s decision, finding no reason to interfere as the car was effectively utilized for the assessee's business.

Issue 3: Disallowance of expenses due to failure to deduct TDS:
The Revenue contested the deletion of an addition due to the assessee's failure to deduct TDS on a payment made to a party. The ld.CIT(A) deleted the addition, citing a decision by the Hon'ble Delhi High Court that favored the assessee. The Tribunal upheld the ld.CIT(A)'s decision, stating that the payee filing returns disclosing the payment received absolved the assessee from default, rejecting the Revenue's appeal.

Issue 4: Disallowance of additional depreciation claimed on lab equipments and electrical items:
The AO disallowed additional depreciation claimed on lab equipments and electrical items, arguing they did not qualify as plant & machinery for manufacturing purposes. The ld.CIT(A) allowed the additional depreciation, considering the items essential for manufacturing activities. The Tribunal upheld the ld.CIT(A)'s decision, emphasizing that the items were linked to the manufacturing process, making the assessee eligible for additional depreciation.

In conclusion, the Tribunal dismissed the Revenue's appeals and the Cross Objections filed by the assessee were also dismissed as they were in support of the ld.CIT(A)'s orders, which were upheld.