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2013 (9) TMI 520 - ITAT, AHMEDABADDepreciation on Assets – whether lessor was entitled to depreciation on assets leased by it in finance lease - Held that:- Following M/s INDUSIND BANK LTD. Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(3), MUMBAI [2012 (12) TMI 416 - ITAT MUMBAI] - Finance lease was for a fixed period & non-cancellable - Lessee used the asset for its entire economic life & all risks and rewards incidental to ownership were transferred to the lessee even though title may or may not be eventually transferred to him - There was a fixed obligation on the lessee for payment of lease money - the assessee’s lease agreement had all the characteristics of a finance lease - Further, RBI Circular No.FSCBC 18/24-01- 001/93-94 dated 14.02.1994 states that equipment leasing activity should be treated by banks “on par with loans and advances” - lease agreement under consideration was that of finance lease and not operating lease – Decided against Assessee. Disallowance of Expenses – Financial Charges Allowable u/s 36(1)(iii) or Not – Held that:- Following United Phosphorus Ltd. Versus Joint Commissioner Of Income tax. [2001 (5) TMI 134 - ITAT AHMEDABAD-A] - Interest paid on funds borrowed for business purpose, including for the purpose of setting of anew unit of the existing running business was allowable u/s 36(1)(iii) of the Act - While examining the applicability of this tribunal decision, we have noted above that interest expenditure will be allowable if it was found that borrowed fund were used for the purpose of setting up of a new unit of the existing running business - borrowed funds were not used for setting up of a new unit of an existing running business but it was setting up of a new unit for production of an altogether new product i.e. power whereas the existing business of the assessee was production of lignite - Since this aspect was not fulfilled in the present case, even interest expenditure was not allowable in the present case u/s 36(1)(iii) because in the present case, the product to be manufactured by the new unit was an altogether new product – Decided against Assessee. Disallowance as per Explanation u/s 37(1) - salary to staff against the guidelines of Gujarat Govt- Whether the expenditure incurred by the assessee was for any purpose which was an offence and/ or which was prohibited by law and if it was not so, the provisions of explanation to Section 37(1) was not attracted - Held that:- If the expenditure is incurred in violation of the guidelines of Government of Gujarat and against Article 192 of the assessee corporation then the remedy lies somewhere else and action can be taken as per law against the person responsible for such violation but this cannot be the basis for making disallowance of expenses without proving that it was not for the purpose of assessee’s business - This was not the claim of the revenue that this expenditure was not for the purpose of business and therefore, the disallowance was deleted – Decided in favour of Assessee. Disallowance of Obsolete Stores/Stock – Held that:- Writing off of the value of closing stock should be allowed to the extent it brings the value of closing stock at level with cost or market price whichever was lower - The market price of obsolete items of stock will be definitely very low than its cost. At the same time, it is not acceptable that the value of such obsolete items will be ‘nil’ - Now, the question was what can be the scrap value of such obsolete items. Ld. CIT(A) has considered the same @ 25% of the cost - the same was reasonable - the assessee was following mercantile system of accounting and hence, scrap value had to be considered in the present year itself and it could not be deferred till the actual sale of scrap - the scrap value of stock had to be considered as opening stock in the year of sale. Deletion of Disallowance of Expenses – the fact had to be brought out on record as to whether the expenses in question have crystelised during this year and if the assessee is able to do so, no disallowance should be made - The A.O. should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee – Decided in favour of Revenue. Deletion of Addition of Bonus and Royalty – Held that:- Following Kedarnath Jute Manufacturing Co. Ltd Vs CIT [1971 (8) TMI 10 - SUPREME Court] - If liability was crystallized during the year, the same was allowable even if not claimed in the books of accounts - The fact that the liability or expenses were covered U/s. 43B, the disallowances also cannot be upheld since the liability had been filed before filing of return of income within the prescribed period - the expenses cannot be held even U/s. 43B of the Act and the addition/ made therefore cannot be sustained and accordingly deleted - as per the provisions of Section 43B, deduction had to be allowed with regard to these expenses because the payment was made before the due date of filing of return of income – Decided against Revenue.
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