TMI Blog2013 (9) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee - The finding of the CIT(A) remained uncontroverted that the Assessing Officer failed to prove the nexus between borrowings and subsequent advancing of loan to subsidiary company – Therefore relying upon the decision in the case of S.A.Builders [2006 (12) TMI 82 - SUPREME COURT ], the expenditure of interest has not been allowed – Decided against the Assessee. Depreciation on leased assets u/s 32(1) of the Income Tax Act – Held that:- Relying upon the decision of Supreme Court of India in the case of Shaan Finance (P) Ltd. v. CIT [1998 (3) TMI 8 - SUPREME Court], it was held that the ownership of the machines remained with the assessee and there is no scope for transferring the machines to the parties - Assessee-company fulfilled all the conditions laid down u/s 32 of the Act, therefore, the claim for depreciation is to be allowed – Decided in favor of Assessee. Interest income against bank guarantee or letter of credit – Held that:- Interests had been directly linked with the commercial activity of the assessee. When there is a commercial activity established, then, earning of interest or incurring of expenditure for earning the interest is to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income of the year being excess provision made in earlier years. This means the assessee had written back provisions made in earlier years of certain expenses claimed by it amounting to Rs. 58,541. The Assessing Officer after examining the issue and perusing other relevant material found that the amount of Rs. 58,541 is liable to be assessed u/s 28(iv). Accordingly he added the amount to the income of the assessee. Remaining amount of Rs. 13,52,374, the A.O. invoked provisions of section 41(1)(a) and added the same to the income of the assessee. Detailed submissions were filed before the CIT(A). Reliance was also placed on various case laws. Accordingly it was submitted that if the disallowance of Rs. 13,52,374 is not considered as doubtful debts then they should be treated as expenditure u/s 37. Brief submission of the assessee are mentioned in the order of the CIT(A) in para 3.2 at pages 9 and 10. After considering the submissions and perusing the relevant material on record, the CIT(A) noted that the assessee has claimed deduction on account of doubtful debts and advances as under:- Sr. No. Name of the party Amount Rs. Remarks 1. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The trade advances only amounts to Rs. 8,28,650 as is evident from the details submitted by the appellant to Ld.AO. The appellant had given remarks in respect of the other two parties as stated supra that these have become sick. Therefore, the appellant made a honest judgement that the debt has become bad and written off the same in the books of account by squaring the individual debtors accounts. It is also a matter of fact that earlier the provisions for bad debts though claimed but was not allowed as the individual debtors account were not written off. In this assessment year, the appellant has written off the individual debtors' account and claimed debts by debiting to the profit and loss account. All these facts are evident from the details submitted by the appellant during the course of assessment proceedings. Further, I find that the ld.AO has also not properly appreciated the entries recorded in respect of provision written back by the appellant. The fact that it was not the trading liability that ceases to exist that can be taxed u/s 41(1)(a) or u/s 28(iv) as observed by the ld.AO. It Is not the money received by the appellant but actually a provision for liability made e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en off as they are in consonance with the decision of the Hon'ble Supreme Court in the case of T.R.F. Limited Vs. CIT [(2010) 323 ITR 397 (SC)]. Accordingly, we confirm the action of the CIT(A) on this issue as the finding of the CIT(A) remained uncontroverted. 10. However regarding the issue involved in appeal of assessee, which is in respect of addition confirmed at Rs. 8,28,620, we noted that the CIT(A) has admitted that they are allowable as business loss. However he confirmed that no evidences are adduced by the assessee. The detail of deduction claimed by the assessee are tabulated in the order of the CIT(A) at page 11 which are also reproduced somewhere above in this order. From this detail it is seen that the assessee has claimed deduction of Rs. 1,61,250 on account of doubtful debts / loans and advances and deduction of Rs. 6,14,900 on account of advances given for material supply and Rs. 52,500 which is again given for supply of material. From this detail it is clearly seen that no further details are required, as the advances given by the assessee is not in doubt which is recorded in the books of account which were produced before the A.O. Therefore, in our view these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that these moneys were given in earlier year and no disallowance has been made in earlier year. It was explained that the subsidiary company of GTC could not allot the shares in view of the restriction imposed by the Income-tax department. A copy of the prohibitory order was also enclosed. Accordingly it was submitted that no disallowance was warranted. In respect of M/s.Luster Print Media and M/s.Dalmia Fresenius Media, it was explained that all the amount of share application money given to group concerns is for business purposes. It was submitted that the Assessing Officer failed to appreciate that additions made are not of borrowed funds as the advances were given in earlier year when the assessee has sufficient interest free funds. It was further explained that the interest has been disallowed by the A.O. on the pretext of interest bearing borrowed funds which has been used for making loans and advances to these two concerns. Adhoc disallowance of interest at 20% on full amount was also not justified. Reliance was placed on various case laws as mentioned in page 55 of the appellate order. After considering the submissions and taking into consideration various case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of depreciation on leased assets. The Assessing Officer disallowed depreciation by observing that the assessee has not used this asset itself but has given on lease, therefore, the depreciation is not allowable to the assessee. The contention of the assessee was not accepted by the A.O. that one of its business activities was to give assets on lease. The assessee is owner of the machines and ownership remained with the company and there is no scope for transferring these machines to the parties. This rent has been shown by the assessee as income, therefore, depreciation is allowable. However as stated above the A.O. has not accepted this contention of the assessee and disallowed the depreciation claimed by the assessee. Detailed submissions were filed before the CIT(A). Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Shaan Finance (P) Ltd. v. CIT 231 ITR 308. After considering the submissions the CIT(A) found that the assessee-company had given assets on lease. The ownership of the machines remained with the assessee and there is no scope for transferring the machines to the parties. The leasing of plant and machinery has been one of the reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d made addition of Rs. 69,17,652. Fuirther the A.O. observed that an addition of Rs. 96,32,471 made to the closing stock in the immediately previous year i.e. assessment year 2006-2007 hence net addition of Rs. 26,94,819 was made to the total income. Detailed submission was made before the CIT(A), which has been recorded in page 4 of his order. Thereafter the CIT(A) considering the case of the assessee and the decision of the Mumbai Bench of the Tribunal in the case of Pfizer Ltd. v. JCIT in ITA No.1825 2977/Mum/2003 vide order dated 07.08.2006 found that the additions were not made properly by the A.O. The CIT(A) noted that in view of the decision of the Tribunal mentioned above, the value of opening stock, purchases, sales, closing stock are required to be adjusted in terms of the provisions of the said section in regard to the excise duty etc. attributable to it. The CIT(A) further noted that apart from these adjustments, the adjustment in regard to the excise duty benefit availed under the Modvat Scheme by the assessee-company in regard to raw material consumed is required to be made. If after such adjustment there is a balance amount, that is required to be brought to tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various banks as margin money for executing various Government contracts, letter of credit to the supplier etc. The assessee has earned this interest income on the said deposits in the normal course of business and hence the same is treated as business income. This explanation was not accepted by the A.O., and accordingly, he treated interest income as income from other sources. Similar contentions were raised before the CIT(A). The CIT(A) after considering the submissions and taking into consideration various decisions of various Courts i.e. in the case of (i) Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT 227 ITR 172 (SC), (ii) CIT v. Bokaro Steel 236 ITR 315 (SC), (iii) CIT v. Karnal Co-operative Sugar Mills Ltd. 243 ITR 2 (SC), (iv) CIT v. Sterling Food 237 ITR 579 (SC) and (v) Pandian Chemicals Ltd. v. CIT 262 ITR 278 (SC) held that A.O. was correct in treating the interest income as income from other sources. The learned Counsel for the assessee stated that the interest earned on margin money has to be netted off against the interest paid by the assessee. The margin money was given to various banks for availing various loan facilities for the purpose of business, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure or interest income is treated for the purpose of business. Accordingly, we direct the A.O. to do the needful as per our above observations. This ground is of the assessee is allowed as stated above. 26. The remaining grounds in the appeal of the assessee is disallowance of depreciation of Rs. 43,22,245 in respect of Time Sharing Unit made by the A.O. 27. This issue was also involved in assessee appeal, which was heard on the same date when this appeal was taken up for hearing. That appeal of the assessee was directed against the revisionary order of CIT passed u/s 263, which was listed as ITA No.3106/Mum/2009. While disposing the appeal of the assessee we have upheld the initiation of proceedings u/s 263, however, direction of CIT is modified to consider the issue afresh that time sharing unit is intangible asset or an asset which make the assessee entitled for deduction on account of depreciation. If it is found that this is a capital asset then of course depreciation is allowable u/s 32. Accordingly, we set aside this issue to the file of A.O. to examine the issue afresh after offering a reasonable opportunity of being heard to the assessee. We order accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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