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2014 (12) TMI 677 - AT - Income TaxLease rentals claimed by the assessee disallowed – operating lease or financial lease - Held that:- There was a business arrangement between the assessee and M/s BD - the assessee agreed to purchase prescribed quantity of DMT from M/s BD - the assessee has sought assistance from M/s BD for expanding its capacity - M/s BD agreed to lease out the machinery to the assesse - the machinery was identified by the assessee and M/s BD purchased the same - M/s BD agreed to purchase the machinery and lease it out to the assessee only to provide financial assistance to the assessee to expand its production capacity, so that M/s BD would also be benefited from sale of DMT to the assessee - the intention of M/s BD was to provide financial assistance to the assessee and not leasing out of the assets - the AO has denied the benefit of depreciation also on the ground that the assessee is not the owner of the asset as per the lease agreement - There is a fallacy in the said decision - Once the AO has held that this was a case of finance transaction by ignoring the lease agreement, he should not refer to the very same lease agreement to decide about the ownership – thus, the assessee should be allowed depreciation benefit – thus, the order of the CIT(A) is set aside and the disallowance of lease rentals is upheld and the AO is directed to allow the depreciation - Decided in favour of assessee. Computation of book profits u/s 115JB – Held that:- The view of the CIT(A) that the unabsorbed depreciation should be taken as NIL does not appear to be correct view, since the unabsorbed depreciation as well as unabsorbed business loss shall be described as negative figures only - as per the provisions of sec. 115JB, lower of the both is required to be deducted from the book profit – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for examination of claim of assessee - Decided in favour of assessee. Interest pertaining to earlier years disallowed – Held that:- The assessee claimed interest on SBI loans relating to FY 2001-02 and 2002-03 as deduction –assessee rightly contended that if the loan account is categorised as “Non-Performing Asset”, nothing prevented the assessee to make provision for payment of interest - Though the assessee has not paid the interest amount either by way of cash or cheque, yet the fact remains that the bank has recovered the interest by enhancing the Cash credit limit - There should not be any dispute that the enhancement of Cash Credit limit places funds at the disposal of the assessee - recovery of interest from out of the enhanced limit is nothing but payment of interest by the assessee - the provisions of sec. 43B do not provide anything about the source from which the payment should be made - the claim of the assessee is admissible u/s 43B – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Depreciation on leased premises disallowed - Held that:- The assessee has not established that it was a case of letting out for a temporary period due to adverse situation prevailing in the business, which means that the building has ceased to remain as a business asset- thus, the CIT(A) was justified in confirming the disallowance of depreciation – Decided against assessee. Depreciation claimed on electrical fittings disallowed – Held that:- Under the Depreciation Schedule “electrical fittings” is clubbed along with “Furniture & fixures - the expression “Electrical fittings” should mean only those items which can be considered as “Fixtures” of general nature - the heavy electrical items, which are attached to plant and machinery should be considered as part of Plant and Machinery and it cannot be classified as fixtures of general nature – in Madhu Industries Ltd V/s ITO [2010 (7) TMI 953 - ITAT AHMEDABAD] it has been held that the electrical installation attached to plant and machinery should be considered as plant and machinery only – thus, the electrical fittings in the instant case should be considered as plant and machinery and the depreciation should be allowed at the rate of 25% to plant and machinery. Disallowance made u/s 40A(2)(b) – Held that:- The AO has compared the rates of M/s Arya Industries with that of M/s Excel Tubes and Cones. The AO has tabulated the said comparison in a Tabular form - there is a variation in the price - the AO has noted down the description of the product, quality, size and quantity - the AO has adopted the average rate of 12% for making the disallowance, with the observation that the variation ranges from 10 to 15% - on three occasions, the purchase rate of products purchased from M/s Arya Industries was lower than the rate of M/s Excel Tubes and Cones - the purchase rate was dependent upon various factors - the disallowance of 12% made out of purchases made from M/s Arya Industries is on higher side – thus, the AO is directed to compute the disallowance at the rate of 6% of the aggregate purchase value of purchases made from M/s Arya Industries – the order of the CIT(A) is modified – Decided partly in favour of assessee.
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