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Facts
The Revenue filed an appeal against the CIT(A)'s order, which deleted additions made by the Assessing Officer (AO) concerning depreciation and deemed dividend. The AO had disallowed depreciation for a machine for non-production of log book and treated an advance to a sister concern as deemed dividend.
Held
The Tribunal held that non-production of a log book alone is not sufficient to disallow depreciation, especially when other evidence like installation certificates and sales invoices were provided. The Tribunal also held that the advance to the sister concern was a trade advance, not a deemed dividend under Section 2(22)(e).
Key Issues
Whether the CIT(A) was correct in allowing depreciation without a log book and in deleting the addition made by the AO for deemed dividend on advances to a sister concern.
Sections Cited
143(3), 2(22)(e), 19
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2015-16 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 29.07.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) of the Income-tax Act,1961 (hereinafter “the Act”) dated 29.12.2017.
The ground of appeal raised by the Revenue are as under:
2. Ground No.1 is general in nature hence, no adjudication is required for the same.
3. Grounds No.2 & 3 are relating to the disallowance of depreciation made by the A.O.
1. 3.1 The assessee has claimed depreciation of Rs.50,16,305/- and additional depreciation of Rs.66,53,301/- totaling to Rs.1,16,69,606/- on the machinery of Rs.6,68,84,060/- installed during the year. The assessee has submitted the installation certificate and evidence for sale effected after installation in support of the claim that the machines were installed and production had started. However, the A.O disallowed the claim of deprecation and additional depreciation on the ground that the assessee had failed to produce log book of machinery and electricity bill. On appeal, the Ld. CIT(A) allowed the depreciation as assessee had submitted installation certificate, invoices transport details to substantiate the claim that production has been started.
3.2 The Ld. Departmental Representative (DR) relying on the order of A.O submitted that the assessee had only submitted evidence on machinery installed and few sales bills and ledger accounts of sales, but had not submitted log book and therefore, the A.O has correctly made disallowance.
3.3 The Ld. Authorized Representative (A.R) of the assessee, on the other hand supporting the order of Ld. CIT(A) has submitted a copy of installation certificate, electricity bill and sales made during the month of February in support of its contention that production has been started and therefore, assessee is eligible for depreciation as well as additional depreciation.
3.4 We have heard the rival submissions, and perused the materials available on record. The assessee before the A.O has submitted that evidence of machinery installed and the first sale made during February, 2015, but the A.O has disallowed the claim of depreciation and additional depreciation. The Ld. CIT(A) after calling the remand report has allowed the appeal as the assessee has submitted all the relevant documents to establish that machines have been installed and production has started. The assessee before us has also submitted the evidence of installation, electricity bill and sales bills in support of the claim the production has already been started. We therefore, do not find any infirmity in the order of Ld. CIT(A) and we uphold the same.
Grounds No.4 & 5 are relating to deleting the addition made by A.O u/s. 2(22)(e) of the Act on deemed dividend of Rs. 1,18,82,523/-.
4.1 The A.O has made the addition of trade advance of Rs.1,18,82,523/- made to its sister concern M/s. Chromaprint India Pvt. Ltd. as deemed dividend u/s. 2(22)(e) of the Act . The AO has made the addition for the reason that M/s. Chromaprint India Pvt. Ltd. is not appearing in the list of trade creditor and the said advance is appearing under the head unsecured loan and advances. On appeal, the Ld. CIT(A) has deleted the addition after examining the ledger account and invoices depicting the nature of the services provided by the assessee to its sister concern M/s. Chromaprint India Pvt. Ltd. The Ld. CIT(A) also relied on CBDT Circular No.19 of 2017, wherein it was held that trade advance received from sister concern do not fall under the category of advance u/s. 2(22)(e) of the Act.
4.2 The Ld. DR relying on the order of A.O has submitted that the assessee-company has shown advance received from M/s.
Chromaprint India Pvt. Ltd. under unsecured loans and advances and therefore, A.O rightly treated the same as deemed dividend u/s. 2(22)(e) of the Act.
4.3 The Ld A.R, on the other hand, relying on the order of A.O, drew our attention to the ledger account of M/s. Chromaprint India Pvt. Ltd., wherein there is regular transactions with M/s. Chromaprint India Pvt. Ltd. The Ld AR, therefore argued that the advance given is trade advance, not amenable to section 2(22)(2) as has been clarified in CBDT circular No 19 of 2017.
4.4 We have heard the rival submissions, and perused the materials available on record. The A.O has made the addition of advance given to its sister concern as deemed dividend u/s 2(22)(e) as the assessee in the balance sheet has shown the advance under the head “unsecured loan and advance”. However, the Ld. CIT(A) after examining the nature of advances and ledger account found them trade advances and therefore, deleted the addition relying on CBDT Circular No.19 of 2017. We have perused the ledger accounts and agree with the finding of the Ld. CIT(A) that the advances were in the nature of trade advances and therefore, section 2(22)(e) of the Act is not applicable. Accordingly, we do not find any infirmity in the order of Ld. CIT(A) and therefore, we uphold the same.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 22nd April, 2025.