2023 (4) TMI 616 - AT - Income Tax

Disallowance of interest expenditure claimed by the assessee - DR submitted that the assessee has not proved from the books of accounts that it has availed loan from M/s Adarsh Credit Co-operative Society Ltd.- HELD THAT - This issue could be resolved by examining the books of accounts. It is also the submission of the AR that the loan taken from above society has been duly recorded in the books of accounts and the same has been grouped under the head loan from banks while preparing balance-sheet. Further the assessee seeks an opportunity to prove its claim. Accordingly this issue may be restored to the file of the Assessing Officer in both the years for an examining the books of accounts of the assessee in order to satisfy himself that the assessee has actually availed loan from said aforesaid society - We also direct the assessee to produce the books of accounts and also furnish any other information and explanations that may be called for by the AO in this regard. Decided in favour of assessee for statistical purposes. Disallowance of depreciation claim - assessee has not carried out any business activity during the year relevant - AR submitted that assets were put to use in the earlier years and the depreciation was also allowed in those years - HELD THAT - In the instant case though the tax authorities have stated that the assessee has not started business activities in the subsequent years also it was not shown that the assessee has completely abandoned the business of generation of electricity. The case of the assessee that the assets are kept ready for use and it was expecting only favourable market situation. It is also submitted that the assessee has maintained its business establishment and was generating other types of income besides servicing loan taken for business purposes. We are of the view that there is no reason to disallow the depreciation claimed by the assessee. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest expenditure claimed by the assessee.
2. Disallowance of depreciation claim for the Assessment Year 2014-15.

Detailed Analysis:

1. Disallowance of Interest Expenditure:
Facts and Arguments:
- The assessee, engaged in the business of generation and sale of electricity, claimed interest expenses of Rs. 11.35 crores for AY 2013-14 and Rs. 11.94 crores for AY 2014-15.
- The AO disallowed these claims, arguing that M/s Adarsh Credit Co-operative Society Ltd had not given any loan to the assessee but had transferred share application money.
- The CIT(A) confirmed the AO's disallowance for both years.
- The assessee contended that the loans were indeed taken from M/s Adarsh Credit Co-operative Society Ltd and were reflected under "Loan from banks" in the balance sheet. The assessee requested an opportunity to provide detailed break-ups and prove the claim.

Tribunal's Decision:
- The Tribunal noted that the tax authorities had not examined the books of accounts to verify the loan entries.
- The Tribunal opined that the issue could be resolved by examining the books of accounts to confirm if the loans were recorded.
- The Tribunal restored the matter to the AO for fresh examination, directing the assessee to produce the books of accounts and any other required information.
- If the AO verifies that the loans were indeed taken, the disallowance of interest expenditure would not arise.

2. Disallowance of Depreciation Claim for AY 2014-15:
Facts and Arguments:
- The AO disallowed the depreciation claim of Rs. 52.48 lakhs, stating that the assessee had not carried out any business activity during the year and had no intention to continue the business.
- The CIT(A) upheld this disallowance, noting that the assessee had not resumed production in subsequent years.
- The assessee argued that the assets were ready for use and the business activity was halted due to unviable production costs. The assessee maintained that it had not completely shut down its business and was generating other types of income.

Tribunal's Decision:
- The Tribunal considered the assessee's contentions and various case laws, including CIT vs. Swarup Vegetable Products India Ltd and National Thermal Power Corporation Ltd vs. CIT, which supported the allowance of depreciation even if the assets were not actively used but were kept ready for use.
- The Tribunal found that the assessee had not abandoned the business and was maintaining its establishment, generating other income, and servicing loans.
- The Tribunal concluded that there was no reason to disallow the depreciation claim and directed the AO to delete the disallowance.

Conclusion:
- The Tribunal allowed both appeals for statistical purposes, restoring the issue of interest expenditure disallowance to the AO for fresh examination and directing the deletion of the depreciation disallowance for AY 2014-15.