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TMI Blog2015 (3) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... We notice that both tax authorities have given a finding that the assets, on which the higher rate of depreciation has been claimed by the assessee, do not fall in the category of assets listed out in the depreciation table given Appendix I of the Income- tax Rules. Before us, the assessee could not controvert the said finding of the tax authorities. Hence, we do not find any infirmity in the decision taken by the learned Commissioner of Income-tax (Appeals) on this issue and accordingly confirm his order on this issue - Decided against assessee. Assessment of loan receipt as cash credit under section 68 - Held that:- It is a well settled proposition of law that the initial burden of proof to prove the cash credits is placed upon the assessee under section 68 of the Act, i.e., the assessee is required to prove cumulatively the three main ingredients, viz., the identity of the creditors, the creditworthiness of the creditor and the genuineness of transactions. As held by the learned Commissioner of Income-tax (Appeals), the receipt of money through the banking channels may prove the genuineness of the transaction, but the assessee has failed to establish the identity of the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the "nature and source" of any sum found credited in the books of account. In the instant case, the assessee has failed to prove about the "nature of credit". Hence we are of the view that the Assessing Officer has rightly assessed the same as cash credit under section 68 of the Act. - Decided against assessee. Assessment of cash credits and profit from commodity trading as income not falling under any of the heads and consequently rejection of claim of set off of business loss and carry forward business loss/depreciation against them - Held that:- In the instant case, the contention of the assessee is that it has no other source of income other than business income. The said contention was not controverted by the tax authorities. The assessee has credited the loan amount of ₹ 18 lakhs and the profit from commodity trading of ₹ 5.13 crores in its books of account. In fact the profit from commodity trading was credited in the profit and loss account and offered as business income. Since the assessee could not explain to the satisfaction of the Assessing Officer the nature and source of loan amount as well as the profit from commodity trading, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his appeal before us. 4. The first issue relates to the disallowance of claim of higher rate of depreciation on assets classified by the assessee as pollution control equipment . The assessee constructed/acquired certain assets in accordance with the conditions stipulated by the Kerala Pollution Control Board. The assessee treated those assets as pollution control equipment and claimed deprecation in the return of income at higher rate of depreciation, i.e., at 80 per cent. Since the rate of depreciation prescribed for pollution control equipment under the Act is 100 per cent., the assessee claimed depreciation at 100 per cent. on those assets during the course of the assessment proceedings. The Assessing Officer took the view that the assets claimed by the assessee as pollution control equipment did not fall in the category of pollution control equipment prescribed in Appendix I to the Income-tax Rules. Accordingly, the Assessing Officer restricted the depreciation to the normal rate of depreciation. The Commissioner of Income-tax (Appeals) also confirmed the same. 4.1. We have heard the parties on this issue. We notice that the Assessing Officer has made a detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest/finance charges incurred during the construction period. You may further note under section 36(1)(iii) of the Income-tax Act, interest on capital borrowed for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was put to use shall not be allowed as a deduction. Accordingly, we have capitalised on a pro-rata-basis of the pre-operative expenses incurred till the date of commencement of operation. 5 Recuberator 34,48,296.00 Recuberator is being used for cooling the waster gas coming out of ESP chimney. A recuperator is a special purpose counter-flow energy recovery heat exchanger positioned with the supply and exhaust air streams of an air handling system, or in the exhaust gases of an industrial process, in order to recover the waste heat. 6 Road development 15,00,000.00 Refer point No. 4-letter dated September 12, 2007, of Kerala State Pollution Control Board attached herewith. The amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rain water harvesting 12,00,000.00 It may be true that the pollution control board might have stipulated a condition. But this does not automatically entitle and qualify the rain water harvesting as a pollution control equipment. A rain water harvesting is made to make available water from natural sources without burdening the resources available from outside. 3 Drainage/silt for rain water harvesting 21,00,000.00 Same as above. This expenses is incurred is incidental to rain harvesting and is not forming part of any pollution control equipment by any stretch of imagination. 4 Allocation of pre-operative expenses 79,67,209.95 This has no relevance with pollution control equipment as these form part of the infrastructure and construction expenses in the pre-operative period. This does not in any way qualify into the equipment for pollution control specified in Appendix I of the Income-tax Rules mentioning the rate of deprecation. 5 Recuberator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-filter systems, (c) Dust collector systems, (d) Scrubber-counter current/Venturi/packed-ed/cyclonic scrubbers, (e) Ash handling system and evacuation system. 3.6 None of the above said assets on which the assessee has claimed deprecation as a pollution control equipment qualifies to be a part of the system as mentioned in Appendix I of the Income-tax Rules 1962. For the purpose of air pollution control equipment, if any civil construction is needed, then of course, it should be a part specifically erected or constructed for housing the air pollution equipment. It cannot be a generalised expense that can be made to be a part of the pollution control equipment. 3.7 I therefore, in view of the facts brought out above, disallow deprecation on the assets mentioned above as pollution control equipment. However, depreciation at normal rates as prescribed is allowed to the assessee. The deprecation claimed in this year is on the written down value of the assets purchased earlier. The assessments for the assessment years 2008-09 and 2009-10 require to be reopened for disallowing the claim of excess deprecation made in that year. 4.2. Before us, the learned authorised rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the statement of accounts, which is equivalent to the confirmation letter. However, the learned Commissioner of Income-tax (Appeals) confirmed the assessment with the following observations : 3.3 The appellant relies upon the only fact that the amount of loans were received by way of cheque. However, the Assessing Officer has observed that the assessee has not discharged the onus of submitting loan confirmation. Even during the course of appeal proceedings the appellant failed to come forward to furnish the identity of the creditor as well as his creditworthiness. The appellant has failed to produce either the permanent account number of the lender or the copy of his bank account or copy of his Income-tax return. The same have not been made available as of now. Only by saying that the amount has been given through cheque does not fulfil the requisite criteria to establish the identity and the creditworthiness of the parties. As a matter of fact, the creditworthiness and the identity are the two essential ingredients other than the genuineness of the transaction and ; in order to discharge the onus for a loan to be a genuine one ; all three ingredients need to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s interest expenditure. 6.1. Before the Assessing Officer, the assessee claimed that it was constrained to give advances in order to ensure uninterrupted supply of materials. The said explanation was not convincing to the Assessing Officer. Hence, the Assessing Officer disallowed a sum of ₹ 1.06 crores from out of the interest expenditure claimed as relatable to the interest-free advances given out of interest-bearing funds. 6.2. Before the learned Commissioner of Income-tax (Appeals), the assessee submitted an analysis of balance-sheet (described as cash flow statement ) to show that the interest bearing funds were not diverted for giving advances, cited above. It was submitted that the advance given for purchase of materials was met out of own funds without touching upon the loan funds. But the learned Commissioner of Income-tax (Appeals) noticed that the assessee has considered the interest-free sundry creditors amounting to ₹ 6.50 crores also as its own funds. The learned Commissioner of Income-tax (Appeals) took the view that the amount of interest-free sundry creditors should not be taken as own funds . Accordingly, the learned Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake appropriate decision in accordance with the law. The assessee is also directed to furnish all the details to the Assessing Officer. 7. The next issue relates to the assessment of profit from commodity trading as cash credit under section 68 of the Act. The Assessing Officer noticed that the assessee has credited a sum of ₹ 5.13 crores as profit earned from commodity trading. The assessee considered the same as its business income and accordingly adjusted the loss suffered from its main business activity against the same. The Assessing Officer examined the nature of commodity trading transactions and came to the conclusion that they were a sham and bogus transactions. Accordingly, the Assessing Officer treated the income of ₹ 5.13 crores declared by the assessee as cash credits under section 68 of the Act. The learned Commissioner of Income-tax (Appeals) also confirmed the same. 7.1. We have heard the rival contentions on this issue. We feel it pertinent to extract the observations made by the Assessing Officer in the assessment order with regard to this issue : 6.1 It is seen from the profit and loss account that a sum of ₹ 5,13,55,093 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee itself has offered the profit from commodity trading as its income and hence there was no requirement to treat the same as deemed income under section 68 of the Act. He further submitted that the assessee has received a sum of ₹ 1.49 crores only during the year under consideration and the remaining amount out of the profit of ₹ 5.13 crores was received in the succeeding years. Accordingly he submitted that the Assessing Officer was not right in treating the entire amount of ₹ 5.13 crores as having been received during the year under consideration. The learned authorised representative further submitted that the Assessing Officer has taken adverse view without confronting the letter received from national multi commodity exchange to the assessee. 7.3. However, we notice that the assessee has not furnished any material to controvert the finding reached by the Assessing Officer that the profit from commodity trading declared by the assessee was a sham or bogus transaction. We notice that the Assessing Officer has given the above said finding after making necessary enquiries with the commodity exchange. Hence, we do not find any reason to interfere with his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 69A of the Act. The assessee claimed before the tax authorities that the confiscated sum should be allowed as trading loss and the said claim was rejected. The Tribunal also held that it was not the case of the assessee that he had derived any income from any business of smuggling and, therefore, it could not be said that confiscation of gold represented a trading loss in his hands and as such no deduction could be allowed. In the appeal filed before the High Court, the hon'ble Gujarat High Court held as under(page 293) : 6.1. The scheme of sections 69, 69A, 69B and 69C of the Income-tax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such assessee. It follows that the moment a satisfactory explanation is given about such nature a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Gujarat High Court held that the deductions prescribed under the respective heads of income cannot be allowed to the income assessed under sections 69, 69A, 69B and 69C of the Act. 8.3. However, the issue before us relates to set off of loss incurred from one head against the income assessed under other heads and also claim of set off of brought forward losses and unabsorbed depreciation in terms of sections 70 to 72 of the Act. A perusal of the decision rendered by the hon'ble Gujarat High Court in the case of Fakir Mohmed Haji Hassan [2001] 247 ITR 290 (Guj) would show that the hon'ble High Court did not deal with the claim of set off of loss. On that count also, we are of the view that the said decision is not applicable to the facts of the instant case. We have already noticed that the Chandigarh Bench of the Income-tax Appellate Tribunal has placed reliance on the decision rendered by the hon'ble Gujarat High Court to conclude that the income assessed under section 68 is not eligible for set off of losses incurred under other heads of income. We notice that the abovesaid distinct points were not brought to the notice of the Chandigarh Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit from commodity trading was credited in the profit and loss account and offered as business income. Since the assessee could not explain to the satisfaction of the Assessing Officer the nature and source of loan amount as well as the profit from commodity trading, the Assessing Officer has treated them as deemed income, i.e., as unexplained cash credits under section 68 of the Act. While dealing with the issue relating to the disallowance of interest, the Assessing Officer has pointed out that the assessee has a loan liability of ₹ 21.56 crores and claimed interest expenditure of ₹ 3.33 crores. The Assessing Officer has allowed depreciation of ₹ 2.63 crores. All these figures throw light on the magnitude of operations of the company. Under these set of facts, we are of the view that it may not be unreasonable to treat the loan receipts and profit from commodity trading assessed under section 68 of the Act as receipts from the business activity of the assessee. Accordingly, we are of the view that the assessee is entitled to claim set off current year's loss and also brought forward loss/unabsorbed depreciation against the same in accordance with the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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