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Facts
The appellant, Combined Foods (P) Limited, filed its income tax return for AY 2014-2015 declaring Rs.5,65,210. The AO completed assessment u/s.143(3) at Rs.30,70,400, making additions u/s.41(1) for distributor deposits, for write-off of moulds/tools/utensils, and u/s.14A. The CIT(A) partly allowed the appeal, deleting the u/s.41(1) addition but confirming others.
Held
The Tribunal directed the AO to allow depreciation on moulds and tools (Ground 2). It ruled that disallowance u/s.14A was not warranted as the assessee's own funds far exceeded investments yielding exempt income (Grounds 3 & 4). It also held that deposits from distributors were refundable and not a reimbursement, so they should not reduce the cost of freezers for depreciation under Section 43(1) (Ground 5).
Key Issues
1. Whether depreciation should be allowed on moulds and tools treated as capital by the AO. 2. Whether disallowance under Section 14A is warranted when own funds exceed investments yielding exempt income. 3. Whether refundable deposits received from distributors should reduce the cost of freezers for depreciation purposes under Section 43(1).
Sections Cited
143(3), 41(1), 14A, 36(1)(iii), 43(1)
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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2014-2015 Combined Foods (P) Limited The Income Tax Officer 28/2485, Elamkulam Village v. Corporate Ward 1(1) Cheruparampath Road Kochi. Kadavanthra Ernakulam – 682 020. PAN : AAACC9366N. (Appellant) (Respondent) Appellant by : Sri.P.M.Veeramani, CA Respondent by : Smt.Leena Lal, Senior AR Date of Date of Hearing : 13.03.2025 Pronouncement : 08.04.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 28.11.2023 for the assessment year 2014-2015.
Briefly the facts of the case are that the appellant is a company, registered under the Companies Act, 1956. It is engaged in the business of manufacture of ice and frozen food. The return of income for the assessment year 2014-2015 was filed on 20.01.2015 declaring total income of Rs.5,65,210. Against the said return of income, the assessment was completed by the Assessing Officer (“the AO”) vide order dated 20.12.2016 passed u/s.143(3) of the Act at a total income of Rs.30,70,400. While doing so, the AO made addition of Rs.9,73,497 . Combined Foods (P) Limited. u/s.41(1) of the Income-tax Act, 1961 (“the Act”), treating the deposits received from the distributors holding that there was no liability of refund to deposit. The AO also made addition on account of write off of moulds, tools and utensils of Rs.2,11,123. The AO also made addition u/s.14A of the Act amounting to Rs.47870 etc.
Being aggrieved an appeal was filed before the CIT(A), who vide the impugned order had partly allowed the appeal deleting the addition made u/s.41(1) of the Act amounting to Rs.9,73,497 by following the Tribunal order in assessee’s own case for assessment year 2007-2008. The CIT(A) however confirmed the addition made on account of write off of tools and moulds and addition u/s.14A of the Act. The CIT(A) also confirmed the addition on account of freezer.
Being aggrieved, an appeal was filed before the Tribunal in the present appeal. Grounds of appeal
No.1 is general in nature, which does not require any specific adjudication. Ground No.2 challenges the disallowance of depreciation on moulds and tools. It is submitted that the CIT(A) had wrongly confirmed the addition under the mistaken impression that the depreciation was already allowed by the AO. However, it is submitted that the appellant made the claim for depreciation in respect of the assets which are capitalized in the books of account, whereas, the cost of tools and moulds were claimed as revenue expenditure. However, the AO held the same to be of capital in nature. The appellant is only seeking depreciation on the amounts allowed on the cost of tools and moulds which are held to be capital by the AO. The claim made by the appellant is correct, and accordingly, I . Combined Foods (P) Limited. direct the AO to allow the depreciation on the cost of moulds and tools amounting to Rs.2,11,123. Ground Nos.3 and 4 challenges addition u/s.14A of the Act. It is the contention of the appellant that the own funds are far exceeds of investment made yielding the tax free income. Therefore, no disallowance of interest is called for. It is further argued that the amounts which are already disallowed u/s.36(1)(iii) cannot be again added u/s.14A of the Act and he also placed reliance on the judgment of the Hon’ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (2021) 438 ITR
1. (SC). It is further submitted that for the purpose of calculating disallowance under clause (iii) of Rule 8D of the Income Tax Rules, the only investment which yielded exempt income alone should be considered.
5. Having heard the rival submissions, I am of the considered opinion that it is now settled position of law that when own funds of the assessee far exceeds cost of investment, the disallowance u/s.14A is not warranted. Reference in this connection can be made in the judgment of the Hon’ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC). In this case, undisputedly, own funds of the assessee are far exceeds the investment made, therefore, no disallowance u/s.14A of the Act is warranted. Thus, ground Nos.2, 3 and 4 are allowed.
6. Ground No.5 challenges the disallowance of depreciation on the cost of freezer as reduced by the deposits received from the distributors. The material on record clearly indicates that the deposit received from the distributors is refundable deposits, which is not in the nature of . Combined Foods (P) Limited. reimbursement towards cost of freezers nor is it a subsidy. Therefore, explanation to section 43(1) of the Act has no application therein. Thus, the lower authorities were not justified in reducing the amount of deposits received from the customers from the cost of freezers while allowing the depreciation. Thus, ground No.5 stands allowed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 08th day of April, 2025.