COMMISSIONER OF INCOME TAX-I LUDHIANA vs. RAKESH GUPTA C/O M/S EASTMAN INTERNATIONAL

PDF · subscribers
ITA/37/2014HC Punjab & HaryanaPHHC01109518201402 July 2015Bench: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE A.B. CHAUDHARI3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that questions (ii), (iii), and (iv) were covered by a previous judgment of the Division Bench dated 18.12.2014 in Commissioner of Income Tax-I, Ludhiana Vs M/s Eastman Impex (ITA-350-2013). These questions were answered against the appellant/department, and the appeal concerning these issues was dismissed. Regarding question (i), the Court noted the assessee's contention that only about ` 2.14 crores was advanced to his son in assessment year 2008-2009, whereas the Revenue stated ` 8.89 crores. The Tribunal had upheld the CIT(A)'s order, which analyzed the assessee's cash availability, including opening and closing balances of capital, and interest-free unsecured loans. Crucially, the AO had accepted that no borrowed funds were diverted or advanced to the son, and there was no nexus between borrowed funds and the advance. The Court found that free reserves were available for the interest-free loan to the son and that the appreciation of facts by the ITAT was not perverse or absurd. Therefore, no question of law arose on this issue either. The appeal was accordingly dismissed.

What were the facts?

The Revenue, Commissioner of Income Tax-I, Ludhiana, appealed against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted disallowances made by the Assessing Officer (AO). The disallowances related to interest under Section 36(1)(iii) and higher depreciation on electrical lines for power transmission and metering treated as not part of a Wind Mill. The assessment year in question was 2008-2009. The dispute involved an amount advanced by the assessee, Rakesh Gupta, to his son. The AO had disallowed interest on funds advanced to the assessee's son and disallowed higher depreciation on power evacuation infrastructure. The ITAT had deleted these disallowances, leading to the present appeal by the Revenue.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the ITAT was right in upholding the CIT(A)'s deletion of disallowance under Section 36(1)(iii), ignoring the High Court's judgment in CIT Vs Abhishek Industries Ltd. (286 ITR 1), relied upon by the AO? 2. Whether the ITAT was justified in upholding the CIT(A)'s deletion of disallowance of higher depreciation on electrical lines for power transmission and metering, which the AO treated as not part of a Wind Mill? 3. Whether the ITAT was right in treating power evacuation infrastructure as part of a wind mill and a renewable energy device, despite the AO presenting material to prove it was not eligible for depreciation @ 80%? 4. Whether the ITAT was right in allowing depreciation on contribution for power evacuation facility when the assessee had no ownership, only contributing for availing the facility? Assessee's arguments: The assessee contended that during the assessment year 2008-2009, only about ` 2.14 crores was advanced by him to his son. The assessee also argued that there were sufficient free reserves and no nexus between borrowed funds and funds advanced to his son. Revenue's arguments: The Revenue's case was that an amount of ` 8.89 crores was advanced by the respondent/assessee to his son. The Revenue relied on the judgment of CIT Vs Abhishek Industries Ltd. for disallowance under Section 36(1)(iii). For depreciation issues, the Revenue argued that the power evacuation infrastructure was not part of the wind mill and not eligible for higher depreciation.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA-37-2014 Date of decision:- 02.07.2015

Commissioner of Income Tax-I, Ludhiana. ...Appellant Versus

Rakesh Gupta

...Respondent CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE

HON’BLE MR. JUSTICE G.S. SANDHAWALIA

Present: Mr. Rajesh Katoch, Advocate,

for the appellant.

Mr. S.K. Mukhi, Advocate,

for the respondent. * * * * S.J. VAZIFDAR, A.C.J. (ORAL)

The appellant has raised the following substantial questions of law:- “(i) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in upholding the order of the ld. CIT(A) wherein disallowance made under Section 36(1)(iii) was deleted ignoring the judgement of Hon’ble Punjab & Haryana High Court in the case of CIT Vs Abhishek Industries Ltd. reported 286 ITR 1, relied upon by the Assessing Officer?

(ii) Whether on the facts and circumstances of the case, the Hon’ble ITAT was justified in law in upholding the order of the ld. CIT(A) wherein disallowance of higher depreciation on account of expenditure on installation of electrical line for power transmission and metering treated as not part of Wind Mill by the A.O. was deleted by the CIT(A)?

(iii) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in treating the power evacuation infrastructure as part of wind mill and as renewable energy device whereas the AO has brought on record sufficient material to prove AMODH SHARMA 2015.07.06 14:20 I attest to the accuracy and authenticity of this document chandigarh

ITA-37-2014

that same was in fact not a renewable energy device and hence not eligible for depreciation @ 80%?

(iv) Whether on the facts and circumstances of the case, the Hon’ble ITAT was right in law in allowing depreciation on contribution for power evacuation facility even though the assessee has no ownership of the asset being only a contributor for availing the facility?”

2.

Questions (ii) (iii) and (iv) are admittedly covered by a judgement of the Division Bench of this Court dated 18.12.2014 titled as Commissioner of Income Tax-I, Ludhiana Vs M/s Eastman Impex (ITA-350-2013). The questions are answered against the appellant/department. The appeal as far as these questions are concerned is, therefore, dismissed. 3. As regards question (i), the appellant’s case is that an amount of ` 8.89 crores was advanced by the respondent/assessee to his son. The respondent/assessee on the other hand contends that during the assessment year in question 2008-2009, only about ` 2.14 crores was advanced by him to his son. It would make no difference. The Tribunal has rightly upheld the detailed and reasoned order of the CIT (Appeals). The CIT (Appeals) has analyzed the cash available with the respondent. For instance, the opening balance of capital as on 01.04.2007 was about ` 13.45 crores and the closing balance as on 31.03.2008 was about ` 10.40 crores. The opening balance as on 01.04.2007 was about ` 73.57 crores and the closing balance as on 31.03.2008 was about ` 86.60 crores. The opening balance of interest free unsecured loans from family and friends as on 01.04.2007 was about ` 55.95 crores and the closing balance of interest free unsecured loans from family and friends as on 31.03.2008 was about ` 51.46 crores. It was not the case of the AO that the assessee had diverted the funds borrowed on interest for the purpose of advancing the sum to his son for business. The Tribunal noted AMODH SHARMA 2015.07.06 14:20 I attest to the accuracy and authenticity of this document chandigarh

ITA-37-2014

that the AO had in fact accepted that no such borrowed funds had been diverted/advanced by the assessee to his son. There was no nexus between the funds borrowed by the assessee and the funds diverted/advanced to his son. There were free reserves available with the assessee to advance the interest free loan to his son.

It is not possible to hold that the appreciation of these facts was perverse or absurd. No question of law, therefore, arises in this regard either. 4. The appeal is accordingly dismissed.

(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

(G.S. SANDHAWALIA)

JUDGE 02.07.2015 Amodh AMODH SHARMA 2015.07.06 14:20 I attest to the accuracy and authenticity of this document chandigarh

More judgments on Section 36(1)(iii)

All 3,665 judgments and leading authorities on Section 36(1)(iii) →

Recent GST High Court judgments

Search GST case law →