2019 (9) TMI 301 - AT - Income Tax

Disallowance u/s 40(a)(ia) - non deduction of tds on discount as interest u/s 2(28) - HELD THAT - We are of the considered opinion that since the CIT(A) has allowed part of the said discount in A.Y 2007-08, the same should be allowed in full. We, accordingly, dismiss the claim in A.Y 2006-07 and allow the cross objection in A.Y 2007-08. The Assessing Officer is directed to allow the cash discount in A.Y 2007- 08. Disallowance of depreciation on plant and machinery purchased out of surrendered amount - HELD THAT - We find that the lower authorities have dismissed the claim of depreciation on the ground that there is no evidence and it is not possible to ascertain the value of plant and machinery claimed to be installed during the year under consideration. The surrendered amount of ₹ 3.50 crores on this account has been accepted by the department. Therefore, the revenue cannot blow hot and cold in the same breath. The decision of the co-ordinate bench in the case of Sheth Sura Engineering P Ltd 2007 (7) TMI 373 - ITAT PUNE relied upon by the revenue authorities is misplaced because in that case the assessee had specifically stated that he is unable to furnish inventories in respect of plant and machinery and furniture and fixtures declared at the time of search action u/s 132 of the Act. Whereas, the facts of the case in hand show that the inventories of plant and machinery have been prepared by the Income tax department itself and has accepted the surrendered amount of ₹ 3.50 crores- the assessee has satisfactorily established its claim of depreciation Additional income disclosed over a period of six years on account of capital expenditure debited to the repairs and maintenance - no error or infirmity in the directions of the CIT(A). We, accordingly direct the Assessing Officer to compute the depreciation as per the rates applicable on the WDV of the block of assets as directed by the CIT(A). Ground No. 2 is, accordingly, allowed. Low tax effect - Monetary limit - retrospective effect of the CBDT circular - HELD THAT - Tax effect involves in the appeal of the Revenue is below ₹ 50 lakhs. Circular No. 17/2019 dated 08/08/2019 will apply to all pending appeals. Therefore the precedent, it is held that the appeal is not maintainable in the instant case as the tax effect is less than ₹ 50 lakhs. Accordingly, it is held that appeal filed by the revenue is not maintainable. - Decided against revenue.

Summary

Issues Involved:
1. Allowing of depreciation on the surrendered income of ?75 lakhs for A.Y 2006-07.
2. Deletion of disallowance of ?1,20,52,213/- made by the Assessing Officer u/s 40(a)(ia) of the Income-tax Act, 1961 for A.Y 2007-08.
3. Claim of expenditure of ?77,44,651/- as business expenditure for A.Y 2006-07.
4. Allowance of entire shipment discount of ?2,25,93,901/- for A.Y 2007-08.
5. Disallowance of depreciation on plant and machinery purchased out of surrendered amount of ?3.5 crores for A.Y 2006-07.

Detailed Analysis:

1. Allowing of Depreciation on Surrendered Income of ?75 Lakhs for A.Y 2006-07:
The Revenue contended against the allowance of depreciation on surrendered income. The Tribunal noted that the tax effect was less than ?50 lakhs and, in light of CBDT Circular No. 17/2019, dismissed the appeal. The Circular enhanced monetary limits for filing appeals to reduce litigation and applied retrospectively to pending appeals.

2. Deletion of Disallowance of ?1,20,52,213/- for A.Y 2007-08:
The Revenue's appeal was dismissed based on the same CBDT Circular No. 17/2019, as the tax effect was below the specified monetary limit.

3. Claim of Expenditure of ?77,44,651/- as Business Expenditure for A.Y 2006-07:
The assessee explained that the expenditure was a trade discount as per a trade agreement with M/s Cargill International Trading Pte Ltd. The Assessing Officer treated the discount as finance charges/interest and disallowed it under section 40(a)(ia) due to non-deduction of tax at source. However, the Tribunal found no merit in treating the discount as interest and upheld that it was a trade discount integral to sales/purchases, thus not subject to TDS provisions.

4. Allowance of Entire Shipment Discount of ?2,25,93,901/- for A.Y 2007-08:
The Tribunal agreed with the assessee's cross objection that the entire shipment discount should be allowed in A.Y 2007-08, as the transaction was completed in that year. The CIT(A)'s partial allowance was thus extended to the full amount.

5. Disallowance of Depreciation on Plant and Machinery Purchased Out of Surrendered Amount of ?3.5 Crores for A.Y 2006-07:
The Tribunal reviewed the facts and found that the plant and machinery were indeed installed at the assessee's premises, as evidenced by inventories prepared by both the Income Tax and Central Excise Departments. The Tribunal directed the Assessing Officer to allow the claim of depreciation on ?3.5 crores. For the additional ?75 lakhs, the Tribunal upheld the CIT(A)'s direction to compute depreciation based on the WDV of the block of assets.

Conclusion:
The Tribunal dismissed the Revenue's appeals due to the application of CBDT Circular No. 17/2019. It allowed the assessee's claims regarding the shipment discount and depreciation on plant and machinery, directing the Assessing Officer to allow the claims as per the detailed findings. The order was pronounced in the open court on 28.08.2019.