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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R
PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the Revenue against the Order dated 30.09.2016 of Commissioner of Income Tax (Appeals)-8, Chennai, in for the AY 2012-13 and raised the following grounds:
ITA No.3309/Mds/2016 :- 2 -:
The order of the CIT(A) is contrary to law and facts of the case.
The CIT(A) erred in deleting the disallowance of the claim on depreciation of Rs.7,60,279/- u/s.32.
2.1 The CIT(A) erred in not appreciating the findings of the AO that the said machinery was not put into use by the assessee during the previous year relevant to assessment year under consideration.
2.2 The CIT(A) erred in not appreciating that by merely including an item in the block will not make it eligible for the depreciation if other conditions for allowability of the claim are not satisfied.
2.3 Having regard to the decision of Hon’ble Calcutta High Court in the case of CIT v. Oriental Coal Co. Ltd. (1994) 206 ITR 682, wherein it is held that where there was strike/lock-out in the factory for two years and the plant and machinery has not been actually used, then assessee would not be entitled for depreciation, the CIT(A) ought to have upheld the action of the AO.
The CIT(A) has erred in deleting the interest on advances to subsidiary companies to the extent of Rs.28,28,767/-u/s.36(1)(iii).
3.1 The CIT(A) failed to appreciate that the onus to prove that it is entitled to deduction u/s.36(1)(iii) in this regard was on the assessee. It was to be proved that a bona fide loan had been granted in favour of a sister concern. It was, therefore, its duty to place requisite materials on record. In the absence of the above, the AO has rightly made the impugned disallowance.
3.2 It is submitted that the assessee failed to substantiate that the advances given to subsidiaries / associate companies was made as a measure of commercial expediency as held in the case of CIT vs S.A.Builders (288 ITR 1).
3.3 Having regard to the decision of Hon’ble High Courts in the cases of CIT v. Abhishek Industries Ltd. (286 ITR 1)(P & H) and CIT v. V.I. Baby & Co. (254 ITR 248)(Ker.), the CIT(A) ought to have upheld the impugned disallowance made u/s.36(1)(iii).
For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
Delay:
The revenue has filed the appeal with delay of two days and the AO has filed the affidavit requesting for condonation of delay. We have considered the submissions of the revenue and condone the delay.
2.0 Ground Nos.1 & 2 are general in nature which do not require specific adjudication.
ITA No.3309/Mds/2016 :- 3 -:
3.0 Ground Nos.2 to 2.3 are related to the disallowance of depreciation amounting to Rs.7,60,279/- u/s.32 of Income Tax Act (in short ‘the Act’).
During the assessment proceedings, the Assessing Officer (in short ‘AO’) found that the assessee owned the asset but not used the machinery during the year under consideration for the purpose of business but claimed the depreciation of Rs.7,60,279/- @ 15% on Hopper Machine.
The AO proposed to disallow the depreciation and the assessee explained before the AO that the asset was put to use up to the earlier previous year and the same could not be used during the relevant previous year as there were no imports. The AO disallowed the depreciation since the machine was kept idle and it was not put to use for the purpose of business.
4.0 Aggrieved by the order of the AO, the assessee went on appeal before the Learned Commissioner of Income Tax(Appeals) (in short ‘Ld.CIT(A)’) and the Ld.CIT(A) allowed the assessee’s appeal holding that once the asset is brought in to the block of assets and the depreciation is allowed on the asset and due to certain reasons , if the assessee could not put to use during the period under consideration it is incumbent upon the AO to grant relief u/s.32 of the Act and it is not necessary to the assessee to use the asset year after year. The Ld.CIT(A) relied on the decision of CIT vs. Oswal Agro Mills Ltd 341 ITR 467(Delhi) and the decision of jurisdictional High Court in CIT v. Chennai Petroleum Corporation Ltd. (358 ITR 314) (Mad).
ITA No.3309/Mds/2016 :- 4 -:
5.0 Aggrieved by the Order of the Ld.CIT(A), the Revenue is on appeal before us.
Appearing for the Revenue, the Learned Departmental Representative (in short ‘Ld.DR’) argued that the machinery was kept idle during the previous year relevant to the Assessment Year and the assessee has not put to use for the purpose of business. Therefore, the assessee has not satisfied the conditions relating to grant of depreciation and accordingly, the AO has rightly disallowed the depreciation and the Ld.CIT(A) not correct in deleting the addition made by the AO. On the other hand, the Ld.AR argued that after the introduction of concept of block of assets, once the asset was included in the block of assets and used the asset, there is no case for disallowing the depreciation in the subsequent year. The assessee has used the machinery in the earlier years and during the year under consideration there were no imports and the machinery could not be used. Merely because of the machinery could not be used due to lack of business, does not disentitle the assessee for depreciation. In the immediately preceding Assessment Year, the assessee has offered the income of Rs.19,20,000/- on Hopper Machine which establishes that the machine was used for business purpose in the earlier years and ready for use in the year under consideration.
Therefore, the Learned Authorized Representative (in short ‘Ld.AR’) argued that the Ld.CIT(A) has rightly deleted the addition, no interference is called for.
ITA No.3309/Mds/2016 :- 5 -:
6.0 We heard the rival submissions and perused the material placed on record.
The assessee has purchased the Hopper Machine and used the machinery for the purpose of business and offered the income of Rs.19,20,000/- for the AY 2011-12 which establishes that the machine was put to use in the earlier years. In the year under consideration, the machinery could not be used since there was no business relating to imports. The assessee has not stopped the business and continued the business because of the passive usage of the machinery, the AO disallowed the depreciation. The Ld.CIT(A) deleted the addition holding that the passive usage is good enough for grant of depreciation. The Ld.CIT(A) also relied on the decision of the Hon’ble jurisdictional High Court in CIT v. Chennai Petroleum Corporation Ltd., reported in (358 ITR 314) (Mad) wherein it was held as under: jurisdictional High Court in CIT v. Chennai Petroleum Corporation Ltd. (358 ITR 314) (Mad) wherein it was declared as follows: Assessee had built up a plant in previous year relevant to assessment year 1997-98 - Assessing Officer had allowed depreciation on plant for assessment year 1997-98 - For subsequent assessment year 1998-99, assessee also claimed depreciation on plant - On account of non-availability of raw material, plant was not put to use during whole of pervious year - Assessing Officer rejected claim for depreciation on plea that when plant had never been put to use for purposes of business during whole of previous year, grant of relief could not be maintained - Whether so long as assessee’s business was a going concern and plant got ready for use but due to certain extraneous circumstances it could not be put to use, said fact could not stand in way of granting relief under section 32 - Held, yes.
6.1 During the appeal, the Ld.DR could not bring any other decision controverting the decision relied upon by the Ld.CIT(A). Therefore, we
ITA No.3309/Mds/2016 :- 6 -: agree with the view of the Ld.CIT(A) that once the assessee has put to use the asset for the purpose of business, lack of business in the subsequent year and passive usage of the asset does not disentitle the depreciation. Therefore, we do not find any infirmity in the orders of the Ld.CIT(A) and the same is upheld. The Revenue’s appeal on this ground is dismissed.
7.0 Ground Nos.3 to 3.3 are related to the disallowance of interest amount to Rs.28,28,767/- u/s.36(1)(iii) observing that in the immediately succeeding year the assessee has written off the advance and the assessee has no interest to collect the advance. The facts of the case available in Page No.2 of the order is extracted as under:
“3. The assessee company debited interest expenditure to the profit and loss account which constituted the interest paid to IL&FS Financial Services Limited. The Interest expenditure was claimed u/s.36(1)(iii) of the Income Tax Act, 1961. On examination of details, filed during the course of assessment proceedings, it is observed that the loan raised from the said IL&FS Financial services Limited on 01.10.2010 was utilized to the extent of Rs.2.50 Cr. given as advance/ICD to one of the group companies namely Thiru Arooran Sugars Ltd., on 06.10.2010. Though, it is stated that the said ICD advances carries an interest, it is observed that the interest is only accounted for during the relevant accounting period to the extent of Rs.25,86,301/- calculated, @16% in the books of accounts but not collected the said interest has been written off in the books of accounts during ‘the financial year ending on 31.03.2013. In a sense, the assessee does not have the intention to collect any interest from the ICD of Rs.2.50 Cr. advanced to ‘Thiru Arooran Sugars Ltd’ a related company. Therefore, the said expenditure of interest incurred by the assessee company on the advance taken from IL&FS Financial Services Limited on an amount of Rs.2.50 Cr. at a cost of 17% of interest for a period of 236 days amounting to Rs.28,28,767/- cannot be said to have incurred for the purpose of business and therefore, is not entitled to be allowed u/s.36(1)(iii) of the Income Tax Act, 1961. Therefore, the interest expenditure incurred by the assessee company to an extent of Rs.28,28,767/- is disallowed.”
8.0 The Ld,CIT(A) deleted the addition observing that once the interest income on the ICD extended to the sister concern is admitted to tax, the fact that the interest income was written off later would have no impact on ITA No.3309/Mds/2016 :- 7 -: the assessment year under consideration. For the sake of convenience we extract the relevant paragraph of the Ld.CIT(A) Order:
The Assessing Officer disallowed the proportionate interest from the interest expenditure claimed by the appellant in view of the fact that the interest amount was written off in the succeeding assessment year i.e. 2013-14. The appellant admitted interest income of Rs.1,87,05,783/ for the previous year relevant to the assessment year under consideration which includes an interest Rs.32,19,726/- on an ICD of Rs.2.5 Crores. Once the interest income on the ICD extended to the sister concern is admitted to tax, the fact that the interest income was written off later would have no impact on the assessment year under consideration. It was open for the Assessing Officer to consider this issue in the assessment year in which it was written off. In view of the above, the disallowance of interest expenditure to the tune of Rs.28,28,767/- is deleted. The appellant succeeds on this ground.
9.0 We heard the rival submissions and perused the material placed before us.
The assessee has borrowed the funds from IL&FS Financial Services Ltd. and advanced the sum of Rs.2.50 Cr as ICDs to one of the group companies namely Thiru Arooran Sugars Ltd. The assessee also charged the interest on the amounts advanced to ICDs. This is evident from the interest income for the previous year relevant to the AY under consideration and the Assessment Order. The AO has not given any finding that the assessee has charged the less interest. The Income Tax proceedings of each year is independent and the income has to be computed as per the system of accounting followed by the assessee.
Write off of the advances given to the sister concerns in the subsequent year required to be examined in the year in which it was written off but not in different previous year. Therefore, Ld.CIT(A) has rightly deleted the addition and the same is upheld. The Revenue’s appeal on this ground is dismissed.
ITA No.3309/Mds/2016 :- 8 -: 10.0 In the result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 12th April, 2017, at Chennai.