2023 (3) TMI 282 - AT - Income Tax

Disallowance of interest expenses - Addition on the ground that the same pertains to capital work in progress - whether assessee establishes that the interest free funds available with the assessee are far in excess of investments in CWIP, the presumption has to be that the investments are made out of interest free funds? - HELD THAT:- In the instant case, we observe that while the addition to CWIP but the assessee had own interest free and hence the interest-free funds available with the assessee are far in excess of addition to CWIP. Respectfully following the decision of ITAT in the assessee’s own case for assessment year 2004-05 [2019 (1) TMI 2005 - ITAT AHMEDABAD] we hereby allow the appeal of the assessee with respect to ground number.

Disallowance considering the same as prior period expenses - HELD THAT:- We are in agreement with the assessee that assessee has been following a consistent practice of offering both prior period income as well as claiming deduction of prior period expenses, which is a tax neutral exercise. Further, looking at the nature of expenses, the same are revenue in nature and incurred for the purpose of business of the assessee.

Again the Gujarat High Court in the case of Dishman Pharmaceuticals & Chemicals Ltd. [2019 (10) TMI 1195 - GUJARAT HIGH COURT] held that once prior period income was held to be taxable, prior period expenditure should also be allowed to be set off and assessee was not obliged in law to indicate any direct or indirect nexus between prior period income and prior period expenditure. Decided in favour of assessee.

Disallowance of depreciation - plant and machinery installed and put to use or not? - HELD THAT:- In the case of Southern Petrochemical Industries Corporation Ltd [2007 (7) TMI 284 - MADRAS HIGH COURT] the High Court held that stand-by assets not put to use during year will be entitled to depreciation. In the impugned year under consideration, the assessee had furnished certificate from the General Manager of the company and another certificate from an independent party to the effect that plant and machinery had been installed and put to use during the year under consideration. However, Ld. CIT(Appeals) did not accept the additional evidence placed before him during the course of appellate proceedings and dismissed this ground of appeal of the assessee. The evidence furnished by the assessee with regard to certificate issued by an independent party has also been accepted by the Department in the assessment of the assessee for subsequent years and depreciation on such plant and machinery was allowed accordingly. Looking into the instant facts, we are of the considered view that the assessee is eligible to claim depreciation on such plant and machinery installed and put to use during the year under consideration.

Disallowance of 5% of travelling expenses - HELD THAT:- In the case of Vardhman Shipping (P.) Ltd [2022 (8) TMI 954 - ITAT AHMEDABAD] the Assessee debited certain amount of travel ticket expenses and travelling expense. AO disallowed 1/5th of said expenses. It was noted that assessee had submitted statement substantiating payment towards said expenses before Commissioner (Appeals), however, it had not been clarified as to how said expenditure was being incurred for business purpose.

ITAT held that impugned disallowance made by Assessing Officer was rightly confirmed by Commissioner (Appeals). In the case of Kohinoor Indian (P.) Ltd [2021 (9) TMI 839 - ITAT AMRITSAR] where assessee claimed foreign travel expenses, however, some vouchers for expenditure incurred by assessee were missing, order of lower authorities restricting expenditure to 5 per cent, in absence of supporting document was reasonable. In the present case CIT(Appeals) observed that most of the expenses have been incurred in cash and the supporting vouchers were also self-made by the assessee. According, most of the expenses could not be verified. Accordingly, in our considered view, the Ld. CIT(Appeals) has been reasonable in restricting the disallowance to 5% of such expenses.

Disallowance of the vehicle and maintenance expenses - HELD THAT:- Looking into the facts of the instant case and the fact that disallowance has been made on a totally ad hoc basis and in light of the ITAT order in assessee’s own case for assessment year 2004-05 [2019 (1) TMI 2005 - ITAT AHMEDABAD] we are hereby allowing ground number 6 of the assessee’s appeal.