LAULS LIMITED ,FARIDABAD vs. DCIT, CIRCLE-1, FARIDABAD

आदेश /O R D E R PER C.N. PRASAD, J.M.

These three appeals are filed by the assessee against different orders of Ld. Commissioner of Income Tax (Appeals), Faridabad for the assessment years 2013-14, 2014-15 and 2015-16.

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

ITA No. 473/Del/2017 (AY 2013-14):

The assessee has raised the following effective grounds for AY 2013-14:

2.1 Ground no. 1 of grounds of appeal relates to disallowance of

depreciation on crane purchased by the assessee which was disallowed by

the Assessing Officer holding that purchase of crane is not genuine.

depreciation on crane purchased by the assessee during the AY 2013-14

holding that purchase of crane is not genuine. The Ld. Counsel submits

that depreciation on crane was also disallowed by the AO for the

assessment years 2014-15 and 2015-16. The Ld. Counsel for the assessee

submits that assessment for the AY 2017-18 was selected for compulsory

scrutiny on the basis of the disallowance of depreciation on crane made in

the AY 2013-14 and sustained by the Ld. CIT(A). The Ld. Counsel referring

to page 19 of the Paper Book submits that the order sheet noting clearly

shows that assessment for AY 2017-18 was selected for compulsory scrutiny

to disallow depreciation on crane as was done for the assessment years

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

2013-14 to 2015-16. The Ld. Counsel for the assessee submits that in the

course of assessment proceedings for the AY 2017-18 it was submitted

before Assessing Officer that the assessee could not furnish confirmation

from supplier of the crane as the assessee bought this crane through

broker and the missionary imported not directly connected with the

supplier of the missionary and the payment has been made on the advice

of broker through RTGS and, therefore, the assessee could not get the

confirmation directly from the supplier. The Ld. Counsel submits that it

was requested before the Assessing Officer to physically verify the

existence of the crane in the factory premises which is working since AY

2013-14. The Ld. Counsel submits that in fact the AO deputed Inspector to

verify the existence of the crane and the Inspector on field enquiry

submitted a report that crane is in existence at the premises of the

assessee and used for the operations of the company. The Ld. Counsel

submits that based on the report of the Inspector the AO allowed

depreciation on the crane and no addition/disallowance made towards

depreciation while completing the assessment for AY 2017-18 on

04.12.2019 u/s 143(3) of the Act. The Ld. Counsel submits that

assessment order passed u/s 143(3) for the AY 2017-18 is placed at page

nos. 31 & 32 of the Paper Book. Therefore, the Ld. Counsel for the

assessee submits that since the crane is in existence and used in business

operations of the assessee. There is no justification in disallowing

depreciation simply because the assessee could not furnish the

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

confirmation letter from the supplier. Therefore, he pleads that the

disallowance made towards depreciation on crane for the assessment years

2013-14, 2014-15 and 2015-16 be deleted.

below. On perusal of the assessment order, we noticed that the

Assessing Officer disallowed depreciation on crane observing that

assessee could not justify the purchase of crane and no material

evidence in this regard was furnished. It is observed by the AO that

neither any installation proof nor any agreement of guarantee/warrantee

of such costly crane was furnished. Therefore, in the absence of any

material evidence the AO disbelieved purchase of crane and denied claim

for depreciation of Rs.7,05,000/-. However, it is observed from the

order sheet noting for the AY 2017-18 which is placed at page 19 of the

Paper Book that the AO on due field verification allowed depreciation on

crane and the observations are as under: -

“Notings/Remarks: Office Note: - The case was selected for compulsory scrutiny on the basis of addition made in the AY 2013-14 and sustained by the CIT(A) on the issue of disallowance of depreciation on crane purchased for want of confirmation from the supplier of machinery. During the course of assessment proceedings the assessee submitted that depreciation on the crane cannot be denied just because the confirmation could not be done at the time of original assessment for the AY 2013-14. The assessee further submitted that the company bought this crane through broker which is second hand imported machinery and it is not directly

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

connected with the supplier of the machinery and as the payment has been made on the advice of broker at Bombay through RTGS therefore the confirmation is not in its hand. The assessee also requested to get it physically verified that crane is in existence in the factory premises and working for TATA Steel Ltd. as the assessee company is the handling agent of TATA Steel. In view of the request of the assessee the Inspector of this office was deputed to make field enquiry and submit report on the issue. The Inspector vide this report dated 28.11.2019 submitted that crane bearing no. NL-02-K- 6510, Model No. 650, Serial No. 47022, Chasis – 9809, CARR No. 853900, Upper AY 853800 exists at the premises of the assessee company and used for the operations of the company. The report of the Inspector along with the pictures of crane taken at the site of Assessee Company is placed on record. The assessment in this case has been completed keeping in view the report of the Inspector and the reply of the assessee company.” 6. As could be seen from the above, the AO deputed Inspector to

verify as to whether the crane is in existence as contended by the

assessee that the crane is used in the business operations of the assessee

and works in factory and the Assessing Officer based on inspectors report

found that the crane is in existence and working for Companies

operations allowed depreciation on crane while completing the

assessment for the AY 2017-18. Since the assessee proved that the crane

is in existence and used for its business operations which fact was also

accepted by the AO that the said crane is used for business operations of

the assessee the AO should not have disallowed depreciation for the

assessment years 2013-14, 2014-15 & 2015-16 for want of confirmation

from the supplier and other documents especially when the crane was

purchased through broker and there is no dispute on payment of purchase

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

consideration by the assessee. Thus, the disallowance of depreciation on

crane made by AO is deleted. Ground no. 1 is allowed.

contribution of Rs.1,20,067/- to Provident Fund, the Ld. Counsel submits

that the assessee remitted the employees contribution to PF with delay

of one day as after the due date as specified in the Provident Fund Act

i.e. the due date for remittance under the said Act was 20.08.2012 and

whereas the assessee has remitted the said contribution on 21.08.2012.

The Ld. Counsel submits that as the assessee remitted the Provident

Fund Contribution before due date for filing return of income there is no

justification in disallowing the said contribution. Reliance was placed on

the decision of Delhi Bench SMC in the case of Chaturamal Garg Vs. ACIT

ITA No. 850/Del/2021 dated 29.10.2021.

7.1 On hearing both the parties and perusing the orders of the

authorities below, we observe that the assessee deposited Employees

Contribution to Provident Fund before due date for filing return of

income. We find that the Hon’ble Delhi High Court in the case of CIT Vs.

AIMIL Limited (321 ITR 508) has held that no disallowance of PF/ESI

contribution is called for when the amounts are deposited before filing

the return of income. Thus, respectfully following the said decision, we

delete the disallowance made towards employees contribution of

Rs.1,20,067/- towards Provident Fund.

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

Coming to AY 2014-15 the assessee has raised the following effective

grounds:

depreciation on crane. We have already decided this issue in favour of

the assessee deleting the disallowance of depreciation on crane for the

AY 2013-14 and for the reasons given therein, we hold that the decision

taken in the appeal for the AY 2013-14 applies mutatis mutandis for the

appeal for AY 2014-15. Accordingly, we direct the AO to delete the

disallowance made towards depreciation on crane for the assessment

year 2014-15.

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

purchased on 31.03.2014 by the assessee on the ground that the trucks

were not put to use. The Ld. Counsel for the assessee submits that

assessee purchased trucks on 31.03.2014 and claimed depreciation as the

asset was ready to put to use. The AO denied depreciation on the ground

that trucks are not complete and they cannot be put to use.

authorities below, we find that the assessee purchased two trucks on

31.03.2014. The invoices revealed that the assessee purchased these two

trucks from Magma Enterprises and what was sold by Magma Enterprises

was only chasis of trucks and not completed trucks with body. In other

words, the assessee purchased only chasis without body. Unless the

trucks are complete with body it cannot be said that the trucks are ready

to put to use. Therefore, we hold that the assessee is not entitled for

depreciation on trucks and the lower authorities have rightly denied the

claim for depreciation on these trucks.

allowed on trucks for the AY 2013-14 the AO be directed to consider for

allowing depreciation on entire cost of trucks i.e. chasis as well as body

in AY 2014-15, as the AO computed the depreciation for AY 2014-15 on

WDV as reduced by the claim for depreciation by the assessee in AY 2013-

14.

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

consider the entire cost of trucks including body for the purpose of

allowing depreciation in the AY 2014-15 and not on the reduced WDV as

furnished by the assessee after assessee claiming the depreciation in the

AY 2013-14.

interest payment on the ground that advance given to Kamal Steel

Fabricators and Aggarwal Enterprises is not for commercial expediency.

The Ld. Counsel for the assessee referring to pages 43 & 44 of the Paper

Book submits that assessee has advanced 2.45 crores to its sister concern

and it is a running account between assessee and its sister concern. The

ld. Counsel submits that sister concern makes purchases from the

assessee and also sales to the assessee and, therefore, there is

commercial expediency in advancing monies to sister concern. The Ld.

Counsel submits that as a matter of fact at the end of the year assessee

took more money then it advanced to its sister concern.

crores to Aggarwal Enterprises in the month of March, 2014 and the said

advance was re-paid by Aggarwal Enterprises on 25.04.2014 and the

advance was given only for a month.

from out of reserve and surplus and not out of borrowed funds and,

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

therefore, no notional interest can be disallowed. The Ld. Counsel

further referring to page 48 of the Paper Book submits that borrowed

funds are utilized for acquiring fixed assets and the value of fixed assets

as on 31.03.2014 have gone up to 52.16 crores as against 24.61 crores as

on 31.03.2013. The Ld. Counsel submits that the assessee has sufficient

interest free funds by way of share capital and reserve and surplus of

Rs.17.19 crores to provide such interest free advances. Ld. Counsel

submits that the borrowed funds taken from banks and financial

institutions have been used for the purpose for which it has been

borrowed and there is no nexus that borrowed funds have been used for

giving advance. Further when assessee is having both interest bearing

funds and interest free funds, then it has to be presumed that

advances/loans were given out of interest free funds. For this purpose

reliance was placed on the following cases: -

commercial expediency in advancing the monies to sister concern and

also Aggarwal Enterprises. She strongly supported the orders of the

authorities below.

In so far as the commercial expediency is concerned the assessee except

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

stating that it has transactions with sister concern and made purchases and

sales and is maintaining current account the assessee could not substantiate

the commercial expediency by providing the necessary details as to how

there is commercial expediency in advancing the monies. The assessee

could not explain for what purpose the funds were advanced to its sister

concern and similarly for what purpose the funds were taken from its sister

concern. Simply because the assessee is maintaining current account with

its sister concern it does not lead to any commercial expediency. However,

we find force in the submissions of the assessee that when the assessee is

having interest free funds and they are sufficient to meet its

investments/advances it can be presumed that funds were given to

subsidiaries/sister concerns are out of interest free funds and no notional

interest can be disallowed. On perusal of the balance sheet of the assessee,

we find that the assessee has share capital, reserve and surplus to the

extent of 17.19 crores and the outstanding balance as on 31.03.2014 in the

case of Kamal Steel Fabricators stood at 2,45,36,627/- and in the case of

Aggarwal Enterprises at Rs.3,93,40,000/-. Therefore, since the share

capital and reserves and surplus are much more than the advances given by

the assessee to Kamal Steel Fabricator and Aggarwal Enterprises there is a

presumption that the advances were given out of share capital, reserve and

surplus. Thus, the ratio of the decisions relied on supports the assessee’s

contention. Thus, respectfully following the said decisions the disallowance

made by the AO towards interest is deleted.

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

The only issue in this appeal relates to disallowance of depreciation on

crane. We have decided this issue in favour of the assessee deleting the

disallowance of depreciation on crane for the AY 2013-14 for the reasons

given therein, we hold that the decision taken for the appeal for AY 2013-14

applies mutatis mutandis for the appeal for AY 2015-16. Accordingly, we

direct the AO to delete the disallowance made towards depreciation on

crane for the AY 2015-16.

are allowed and the appeal for the AY 2014-15 is partly allowed.

Order pronounced in the open court on 28/06/2022

Sd/- Sd/- (G.S. PANNU) (C.N. PRASAD) PRESIDENT JUDICIAL MEMBER Dated: 28.06.2022 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.

By order

Assistant Registrar, ITAT: Delhi Benches-Delhi

I.T.A.Nos.473/Del/2017, 3284 & 5485/Del/2018

Date of dictation 10.06.2022/15.06.2022 Date on which the typed draft is placed before the dictating 14.06.2022/15.06.2022 Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order