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Facts
The assessee, an individual running a hotel and cinema theaters, filed a return of income for AY 2015-16. The Assessing Officer (AO) completed the assessment with several disallowances, including electricity charges paid to KSEB under Section 40A(3), depreciation on plant and machinery, and interest on loans for the construction of a Multiplex and Mall, primarily on the ground that the assets were not yet put to use or construction was incomplete. The CIT(A) confirmed these disallowances.
Held
The Tribunal allowed the appeal regarding the disallowance of electricity charges paid to KSEB under Section 40A(3), holding that KSEB, being a government company, falls outside the purview of the section, citing relevant precedents and CBDT circulars. For the disallowances of depreciation and interest (grounds 2, 3 & 4), the matter was remanded to the CIT(A) for de novo adjudication, as the CIT(A) had failed to consider additional evidence presented by the appellant demonstrating that the construction was complete and assets were ready for use.
Key Issues
1. Whether electricity payments to Kerala State Electricity Board (KSEB) are subject to disallowance under Section 40A(3) of the Income Tax Act. 2. Whether the disallowance of depreciation and interest on loans for construction of Multiplex and Mall was justified when the assets were claimed to be ready for use, and if additional evidence was properly considered by the CIT(A).
Sections Cited
40A(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI GEORGE GEORGE K., VP & SHRI INTURI RAMA RAO, AM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 22.05.2024 for Assessment Year (AY) 2015-16.
Brief facts of the case are that the appellant is an individual engaged in the business of running a hotel in the name and style of M/s. Hotel land Mark. He is also running cinema theaters. The return of income for AY 2015-16 was filed on 30.09.2016 declaring income of Rs. 1,80,22,070/-. Against the said return of income, the
The disallowances, inter alia, with which we are concerned include the disallowance of Rs. 16,40,710/- being the payment made to Kerala State Electricity Board (KSEB) invoking provisions of section 40A(3) of the Income Tax Act, 1961 (the Act). disallowance of depreciation of plant and machinery of Rs. 10,64,649/-, disallowance of interest on loan availed for construction of Multiplex of Rs. 7,88,919/- and interest on loan credited to Kerala Finance Corporation (KFC) for construction of Mall of Rs. 30,99,044/-. The AO disallowed electricity charges paid to KSEB in cash by invoking provisions of section 40A(3) of the Act. While making the disallowance the AO observed that genuineness of transaction is not sufficient. The AO also disallowed the claim of depreciation on Multiplex and shopping Mall by holding that construction is not complete. Similarly the AO also disallowed interest on of Rs. 7,88,919/- availed from KFC for construction of Multiplex, as the asset was not put to use. Similarly the AO disallowed interest paid on loan availed for construction of Mall of Rs. 30,99,044/- by observing that shopping mall was not ready to put to use.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the above disallowance.
It is submitted that disallowance of electricity charges paid to KSEB is covered by the decisions of: (i) Samna Sanjay Raisoni v ITS [2916] 70 taxmann.com 7/159 ITD 1 (Pune Trib), (ii) CIT vs. Devendrappa M. Kalal [2013] 39 taxmann.com 16/ 2019 Taxman 122 (Kar) and (iii) Circular No. 34 (F. No. 13A/92/69-IT (A-II, dated 05.03.1970 issued by CBDT. Since the payment was made to a government company, which is wholly owned by the State of Kerala, it can be treated as payment to government concern in view of the decision of CIT vs. Devendrappa M. Kalal [2013] 39 taxmann.com 16/ 2019 Taxman 122 (Kar). Thus, this ground of appeal stands allowed.
With regard to ground Nos. 2, 3 & 4 it is submitted that the appellant filed additional evidence in support of construction of Mall and Theatre to show that that construction is complete and was in a position to ready to use. The CIT(A), without adverting to the additional evidence, simply dismissed the claim. It is further brought to our notice in subsequent year this Tribunal passed an order remanding the matter to the CIT(A). We find that the issue is dealt with by the coordinate bench of this Tribunal to which the Accountant Member is party to the order in dated 20.03.2024 holding as under: - Panichikandy Mohandasan “8. We have heard the rival contentions of both the parties and perused the material available on record. The first ground of appeal
relates to the disallowance of loss under house property income. The AO merely disallowed the loss claimed under the head ‘house property’ by holding that the building was still under construction. During the course of proceedings before the CIT(A), the appellant filed evidence in the form of completion certificate, occupancy certificate, etc. The CIT(A), without adverting to these evidences concluded that the appellant is not entitled to claim loss under the head ‘house property’. In the circumstance, we are of the considered opinion that in the interest of justice the matter should be remanded to the file of the CIT(A) for de novo adjudication in accordance with law after affording reasonable opportunity of hearing to the appellant. All the contentions raised before us are kept open before the CIT(A). Thus, ground of appeal No. 1 stands allowed.”
8. Respectfully following the above decision, this ground of appeal is set aside to the file of the CIT(A) for de novo adjudication in accordance with law after affording reasonable opportunity of bearing heard to the appellant.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 9th April, 2025.
Sd/- Sd/- GEORGE GEORGE K. (INTURI RAMA RAO) VICE PRESIDENT ACCOUNTANT MEMBER Cochin, Dated: 9th April, 2025 n.p.