2019 (2) TMI 1060 - AT - Income Tax

Disallowance of additional depreciation on new plant & machinery - disallowance of normal depreciation - Held that - If the AO doubted the installation, he could have obtained the information from the suppliers, details of which were available with him. CIT(A), therefore, held that no evidence has been brought on record to prove that the machines were not installed and put to use. The Order of the A.O. was accordingly set aside and depreciation and additional depreciation was allowed as per Law. No merit in these grounds of departmental appeal. By nature of the assets mentioned above, it clearly shows that these are of such a nature that these can be used even after the purchase. There is no need to get a certification of installation from third party particularly when Plant Manager of the assessee certified that installation have been done of the above assets in manufacturing plant. It, therefore, appears that A.O. without any justification denied depreciation and additional depreciation to the assessee. CIT(A), therefore, rightly allowed the same in favour of the assessee. Disallowance of applying the provisions of Section 40A(2)(a) - charging of interest on the unsecured loans taken from the specified persons u/s 40A(2)(b) - Held that - No merit in this ground of appeal of Revenue. There is difference between loan taken from Banks and unsecured loans taken from the relatives. In the case of unsecured loans from the relatives, no formalities and bank guarantee shall have to be given. 15% interest paid is highly reasonable. CIT(A) rightly appreciated that the Tribunal in other cases have allowed even much higher rate of interest paid to the relatives. This ground of appeal of Revenue has no merit and the same is accordingly dismissed. Addition on account of payments in violation of provisions of Section 40A(3) - Held that - Expenses which have been disallowed by the A.O. under section 40A(3). It was found that except two payments others were not in violation of Section 40A(3). The details clearly shows that the amount paid on various accounts were less than limit provided under section 40A(3). CIT(A), therefore, correctly deleted the addition. In the absence of any material contrary to the findings of the CIT(A) on record, no interference is required in the matter. This ground of appeal of Revenue is dismissed.

Summary

Issues:
1. Disallowance of additional depreciation on new plant & machinery.
2. Disallowance of normal depreciation.
3. Disallowance of interest on unsecured loans under Section 40A(2)(a) and charging of interest under Section 40A(2)(b).
4. Payments in violation of Section 40A(3) of the Income-tax Act, 1961.

Analysis:
1. The appeal by Revenue challenged the deletion of additions made by the Assessing Officer (AO) on account of disallowance of additional depreciation and normal depreciation. The assessee claimed additional depreciation on assets purchased during the relevant year. The AO disallowed the claim based on doubts regarding installation certificates issued by the Plant Manager. However, the CIT(A) found the assets were of a nature that did not require extensive installation and allowed the depreciation. The ITAT upheld the CIT(A)'s decision, emphasizing that the AO unreasonably denied the depreciation without proper justification. The appeal on depreciation issues was dismissed.

2. The second issue involved disallowance of interest on unsecured loans under Section 40A(2)(a) and charging of interest under Section 40A(2)(b). The CIT(A) held that the interest paid at 15% to specified persons was reasonable, citing precedents where higher rates were accepted. The ITAT agreed with the CIT(A), noting the lack of formalities in unsecured loans compared to bank loans. The Tribunal found the interest rate justified and in line with previous decisions, leading to the dismissal of the Revenue's appeal on this ground.

3. The third issue concerned payments in violation of Section 40A(3) of the Income-tax Act. The CIT(A) examined the expenses disallowed by the AO and found that most payments were within the prescribed limits, except for two. As the disallowed amounts were below the statutory limit, the CIT(A) deleted the addition. The ITAT upheld the CIT(A)'s decision, stating that no contrary material was presented to warrant interference. Consequently, the Revenue's appeal on this ground was dismissed.

In conclusion, the ITAT upheld the CIT(A)'s orders on all issues, dismissing the Revenue's appeal in its entirety.