THE ITO, WARD-1(2),, AHMEDABAD vs. CREST COMPOSITES & PLASTICS PVT. LTD.,, AHMEDABAD

The brief facts of the case are that the AO noticed that appellant had claimed depreciation at 15% on electrical equipments instead of 10% so that the difference of 5% i.e. Rs.1,36,878/- and further the additional deprecation of Rs.77,178/- was inadmissible. Ld. CIT(A) held that AO has failed to appreciate that the appellant company has claimed the depreciation at 15% because the electrical installations were installed at the plant of the factory. The electrical installation includes items like Control penal board cooling and temperature control in plant, HP motor, Utility penal, gland KCE for plat etc. which are being used in the plant of the assessee company as a part of plant and machinery. Hence it cannot be construed as Furniture and Fixtures. The appellant explained theses facts. As per CIT(A), ld. AO has erred in not granting depreciation at 15% by not considering the electrical installation as plant & machinery and requested to allow the depreciation at 15% as electrical installations are part of plant and machinery and not Furniture and fixtures. Ld. CIT(A) also not convinced with the plea of the

We have gone through the relevant record and impugned order. Ld. AR cited an order of co-ordinate bench in ITA No.4172/Ahd/2007. Co- ordinate bench has held as under: “We find from the arguments of both the sides as well as the orders of the lower authorities that the nature of assets i.e. electrical installation that consists of electrical wires, switches, plugs, cables, MCB box and electrical items, which cannot function independently, rather, this is a part of plant and machinery and it cannot be classified under furniture and fittings. Accordingly, we are of the view that assessee is eligible for depreciation under the block of plant & machinery @25%. We allow the claim of the assessee and this issue of the assessee’s appeal is allowed.”

Similarly co-ordinate bench in ITA No.3175/Ahd/2010 has held as under: “We have heard the rival contentions and perused the material on record, it is undisputed that electrical items are fitted with projector and other film exhibition systems. Without electrical items, the projector as well exhibition systems cannot be run. Therefore, it is a part and parcel of the plant and machinery. Thus, the assessee is entitled to higher rate @25%. We confirm the order of the CIT(A) and dismiss the Revenue’s appeal on this ground.”

Respectfully following the aforesaid decision of coordinate bench, we hold that assessee has rightly claimed depreciation at 15% on electrical equipments. Therefore, this ground of appeal is allowed.

So far as ground related to disallowance of unapproved gratuity of Rs.2,83,300/- is concerned. During the course of assessment proceedings, the AO observed that appellant has deposited the gratuity amount into LIC - Gratuity Fund and hence made disallowance of Rs.2,83,300/-. In this appeal Ld. CIT(A) also confirmed the same. We have gone through the relevant record and impugned order, in this case, appellant has filed an application for approval of Gratuity Fund under Part-C of the 4th Schedule

Respectfully following the aforesaid decisions, we allow this ground of appeal.

In the result, appeal of the assessee is allowed.

Now, we come to Revenue’s appeal in ITA No.1456/Ahd/15. So far as deleting of disallowance of interest expenses and finance charges of Rs.16,75,605/- is concerned. During the course of assessment proceeding AO observed that the appellant had paid interest to the tune of

We have gone through the relevant record and impugned order. In this case, AO has failed to appreciate that vide reply No.3 dtd.10/03/2014 utilization of borrowings taken during the year under consideration. The appellant had demonstrated the utilization of borrowed funds by way of producing the relevant extract of Bank Statement and AO has failed to appreciate that disallowance of interest expenses cannot be made even though fund are utilized for business purposes. So far as utilization of reserve and surplus is concerned. The AO failed in calculating that appellant had utilized reserve and surplus and AO has failed to appreciate that it goes to prudence of the appellant company to utilize the reserve and surplus. AO has no right to suggest as to how the funds, reserves and surplus, share capital etc. should be utilized. It is the company who decides the time of utilization of reserve and surplus funds. During the year under consideration appellant has taken fresh loans from (i) Ranjit Sen, (ii) Aditya Sen, (iii) Supriya Sen, (iv) Suparna Sen, (v) R. R. Gopal. All other balances are opening balances. Thus without prejudice to the above and in the alternative, the appellant stated that the proposition that when advance have been made in the past for which no disallowance has been made in the year of advance, there could be no disallowance in the subsequent year and now it is settled by the decision in case of Shridev Enterprise [189 ITR 165] (Kar.) and CIT vs. Sushma Kapoor [230 CTR 262] (Del.).

So far as disallowance of 20,00,000/- made by AO as unexplained/unsecured loan is concerned. During the year of assessment proceeding, the AO had asked for the confirmation of parties to the Unsecured Loan. Assessee filed confirmations of 11 parties to the unsecured loans alongwith their PAN. But in absence of source, credit worthiness, identity etc. one of the parties to the Unsecured loans i.e. Standard Cal Chem, the Ld. AO made addition of Rs.20,00,000/- as Unsecured loan. In appeal ld. CIT(A) deleted the addition.

We have gone through the relevant record, the amount of Rs.20,00,000/- is an opening balance which is being carried forward for F.Y.2007-08 and there is no new amount has been taken during the year under consideration and an addition u/s.68 is not legal and assessee cited a judgment CIT vs. Usha Stud Agricultural Famrs Ltd. (301 ITR 384)(Delhi HC) in the appeal, it has been held that no addition u/s.68 with respect to opening balance. In our considered opinion, in such circumstances this ground of appeal cannot sustain. In the result, this ground of appeal is dismissed.

So far as ground related to deleing the addition of Rs.95,274/- made by AO toward the late payment of employees contribution to PF and ESIC, even though same was not paid within due date. The ld. AO made disallowance of contribution of the employee towards PF & ESI of Rs.95,274/- observing that the same were paid after due date. In appeal ld. CIT(A) allowed the claim of Rs.95,274/-.

Respectfully following the order of the Hon’ble Gujarat High Court in the aforesaid matter, we allow this ground of appeal in favour of department.

In the result, appeal filed by the Revenue is partly allowed.

In the result, the appeal filed by the assessee is allowed and the by Revenue is partly allowed.