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Income Tax Appellate Tribunal, BANGALORE BENCHES “ C ” BENCH: BANGALORE
Before: SHRI B.R. BASKARAN & SHRI PAVAN KUMAR GADALE
PER SHRI PAVAN KUMAR GADALE, JM :
The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals)-14, Bangalore passed under Section 143(3) and 250 of the Income Tax Act, 1961 (the Act).
The assessee has raised the following grounds of appeal :
3. The Brief facts of the case are that the assessee company is engaged in the manufacture of AC Generators, motors and trading in goods for power generation and other electric equipments and filed the Return of Income for the Assessment Year 2013-14 on 27.09.2013 and subsequently filed Revised Return of Income on 12.11.2014 with total income of Rs.10,38,82,550. The case was selected for scrutiny and Notice under Section 143(2) and 142(1) of the Act were issued. In response the learned Authorised Representative of the assessee and the CFO of the company appeared and furnished the details and explained the claim of deduction under Section 35(2AB) of the Act. The Assessing Officer on perusal of the Rs.32,01,83,434 under Section 35(2AB) of the Act and in the course of hearing proceedings the assessee has filed the supporting evidence for claim along with copy of Form No.3CL dt.14.5.2015 issued by DSIR where the deduction is allowable to the assessee Rs.31,52,30,000 (being Weighted Deduction of 200% of Rs.1,576.15 lakhs). The Assessing Officer observed that the assessee has made excess claim ofRs.49,53,434 and disallowed whereas the assessee's alternative contention that the depreciation should be allowed on capital expenditure which was not considered by DSIR and disallowed by the Assessing Officer. But the Assessing Officer is of the opinion that the assessee is not entitled for alternate relief of claim of depreciation under Section 32 and disallowed.
4. On the second disputed issue, A.O. on perusal of the Balance Sheet, found that an amount of Rs.10,56,48,529 advanced to Sri N. Radhakrishna and Assessing Officer issued show cause notice for disallowance of interest as the funds were not utilized for the business purpose. The assessee filed letter dt.3.2.2016 explaining that the amount, advanced is utilized out of internal accrual for purchase of land and no borrowed funds are used. Whereas the Assessing Officer found from the Profit and Loss Account that the assessee has claimed interest of Rs.3.13 Crores and there is no clarity with respect to amount advanced of Rs.10.56 Crores. Further as on 1.4.2012, the assessee has balance of Rs.202.55 Crores which also consisted of borrowed funds. The Assessing Officer find that the assessee as per Balance Sheet as on 31.03.2013 has Rs.461 Crores as own funds. Hence 1/3 rd of amount advanced of Rs.10.56 Crores is treated as Borrowed funds utilized for the purpose of advance and proportionate interest 18% of Rs.63,38,912 is disallowed under Section 37 of the Act.
On third disputed issue, the assessee has paid royalty under Section 40(a) and out of the total claim the Assessing Officer has disallowed Rs.20,86,499 and assessed the total income of Rs.11,72,61,395 and passed order under Section 143(3) of the Act Dt.25.02.2016. Aggrieved by the order, the assessee has filed an appeal with the CIT(Appeals). The CIT(Appeals) in the appellate proceedings considered the grounds of appeal
, statements of the assessee and findings of the Assessing Officer but granted partial relief in respect of royalty payment and confirmed the other disallowances and partly allowed the appeal. Aggrieved by the order of CIT(Appeals), the assessee has filed an appeal with the Tribunal.
6. At the time of hearing, the learned Authorised Representative submitted that the CIT(Appeals) has erred in confirming addition by not allowing the claim of depreciation under Section 32 of the Act and also confirming the disallowance of interest observing that borrowed funds were utilized for the purpose of land advance. The learned Authorised Representative further emphasized on the alternate claim of grant of depreciation on capital expenditure and supported with material papers and Paper Book. Whereas on the disallowance of interest the learned Authorised Representative submitted that the assessee has surplus funds and advance has been made out of internal accruals and supported with judicial decisions and prayed for allowing the appeal. Contra, the learned Departmental Representative supported the orders of learned CIT(Appeals).
We heard the rival contentions and perused the material on record. The learned Authorised Representative submissions in respect of first disputed issue is in the nature of alternate claim where the assessee has claimed deduction under Section 32(2AB) of the Act of Rs.32,01,83,434 but as per the Form No.3CL dt.14.05.2015 issued by the DSIR, the deduction is restricted to Rs.31,52,30,000. Therefore the assessee claimed that the depreciation on the capital expenditure which was not considered by the DSIR of Rs.49,53,434 has to be allowed. The learned Authorised Representative referred to the Paper Book Page 25 where addition in plant and machinery as on 31.3.2013 a statement was filed and as per the statement at Sl.No.17 the assessee has made addition of Oven 198 KW the value is Rs.8,35,150 and similarly at page 27 Sl.No.82 addition on Oven 168 KW the value ofRs.16,41,169 and the total addition during the year is Rs.24,76,319 whereas the DSIR in Form No.3CL report has not considered the Weighted Deduction of 200% under Section 34(2AB) of the Act on these assets which is not disputed by the revenue. The assessee has made the claim of depreciation on assets and was denied. We found that the assessee has made addition as per the statement filed to plant and machinery and under provisions of Section 32 of the Act the assessee is owner and eligible for depreciation on assets and the assessee is Companies Act, 1956 and further the assets have been considered in the Block of Assets. We found the assessee has purchased the plant and machinery since the plant and machinery were not eligible for Weighted Deduction under Section 35(2AB) of the Act. But rationally in the normal course, the assessee should be entitled for depreciation on purchase value. Hence considering the submissions and the provisions and the claim made by the assessee. The Assessing Officer declined the claim of depreciation on these plant and machinery but in the normal and ordinary course of business, depreciation has to be allowed under Section 32 of the Act. We are of the substantive opinion that the assets are purchased for usage; which are wholly and exclusively used for the purpose of business and has been utilised for the business operations. We are of the opinion that the Assessing Officer has not made out a case that the plant and machinery was not utilized for the purpose of business. Hence we are of the substantive view that though the plant and machinery which are not eligible for Weighted Deduction under Section 32(2AB) of the Act, the assessee is entitled to the depreciation on the plant and machinery used for the purpose of business. Accordingly, we direct the Assessing Officer to grant depreciation on the plant and machinery claimed by the same and allow the grounds of appeal
of the assessee.
8. On the second disputed issue, the learned Authorised Representative’s contention that the assessee has adequate surplus fund and no borrowed funds have been utilized for advance for land purchase and the amounts are accrued out of the internal revenues and not out of the borrowed funds. The learned Authorised Representative substantiated his stand explaining that the assessee company has adequate funds and referred to the Balance Sheet at Note 17 of cash and Bank balance where the assessee has parked the funds in Bank deposits. The contention of the learned Authorised Representative that the advance of Rs.10,56,48,529 for purchase of land is made out of the revenues and the shareholders funds available as on 31.03.2013 is Rs.461 Crores. The contention of the learned Authorised Representative that the opening balance of shareholders funds as on 31.3.2012 are more than amount advanced for the land. The learned Authorised Representative relied on catena of decisions on the claim allowable under Section 36(1)(iii) of the Act. We perused the financial statements, Balance Sheet and Schedules, and considered the learned Authorised Representative submissions which are realistic in explaining the net worth of the assessee company. We found that the assessee has interest free funds which are sufficient to meet its advances but the fact that as per the observations of the Assessing Officer the assessee could not give clarity of balance on 1.4.2012 of Rs.202.55 Crores which include borrowed funds. We support the view on the assessee's surplus funds available for investments or advances but the fact remains whether the Rs.10.56 Crores is advanced out of the borrowed funds or not. We rely on the judicial decisions and the decision of the Hon'ble Apex Court in the case of CIT Vs. Reliance Industries Ltd Civil Appeal No.10/2019 dt.2.1.2019. The Hon'ble Supreme Court has observed at page 3 para as under :