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2015 (3) TMI 612 - AT - Income TaxDisallowance of higher rate of depreciation claimed on assets classified by the assessee as "pollution control equipment" - Held that:- It is a settled proposition of law that the Income-tax Act has to be construed in a strict manner. The depreciation rates are prescribed under the Act in table given in Appendix I of the Income tax Rules. Under the said Appendix I of the Income-tax Rules, the pollution control equipment, which are eligible for depreciation at 100 per cent. have been listed out. We notice that five items of equipment have been listed under the head "Air pollution control equipment" and 17 items of equipment have been listed under the head "Water pollution control equipment". We also notice that the following words have been used in the Appendix I, viz., "Air pollution control equipment, being :" "Water pollution control equipment, being". The presence of the word "being" signifies that the pollution control equipment should be falling in the nature or category of the list specified in the depreciation schedule. We notice that both tax authorities have given a finding that the assets, on which the higher rate of depreciation has been claimed by the assessee, do not fall in the category of assets listed out in the depreciation table given Appendix I of the Income- tax Rules. Before us, the assessee could not controvert the said finding of the tax authorities. Hence, we do not find any infirmity in the decision taken by the learned Commissioner of Income-tax (Appeals) on this issue and accordingly confirm his order on this issue - Decided against assessee. Assessment of loan receipt as cash credit under section 68 - Held that:- It is a well settled proposition of law that the initial burden of proof to prove the cash credits is placed upon the assessee under section 68 of the Act, i.e., the assessee is required to prove cumulatively the three main ingredients, viz., the identity of the creditors, the creditworthiness of the creditor and the genuineness of transactions. As held by the learned Commissioner of Income-tax (Appeals), the receipt of money through the banking channels may prove the genuineness of the transaction, but the assessee has failed to establish the identity of the creditor and also failed to prove the creditworthiness of the creditor. Hence, we are of the view that the decision taken by the learned Commissioner of Income-tax (Appeals) on this issue is in accordance with the law and accordingly confirm the same. - Decided against assessee. Disallowance of part of interest expenditure - portion of interest bearing funds has been diverted as interest-free advance in the form of "advance for purchase of materials" - Held that:- The assessee has furnished an analysis of balance- sheet to show that the advance for purchase of raw materials was out of own funds. We notice that the learned Commissioner of Income-tax (Appeals) has taken the view that the "interest-free sundry creditors" cannot be considered as "own funds" and accordingly rejected the analysis furnished by the assessee. The claim of the assessee appears to be that the interest bearing funds have been used for other purposes and the advance for purchase of raw material has been given out of "interest-free funds" (own funds + interest-free sundry creditors). However, in our view, the said claim cannot be substantiated by mere analysis of the balance-sheet as at March 31, 2010.We notice that the Assessing Officer has not brought out whether the advance was given to related parties or to outsiders, which is also a vital factor to be considered. Accordingly, we are of the view that the tax authorities have not properly examined this issue and the assessee has also failed to furnish proper details relating thereto. Accordingly, we are of the view that this issue requires fresh examination at the end of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Assessment of "profit from commodity trading" as cash credit under section 68 - Held that:- the assessee has not furnished any material to controvert the finding reached by the Assessing Officer that the profit from commodity trading declared by the assessee was a sham or bogus transaction. We notice that the Assessing Officer has given the above said finding after making necessary enquiries with the commodity exchange. Hence, we do not find any reason to interfere with his decision on this issue and accordingly hold that the claim of receipt of profit from commodity trading is a sham or bogus one. Further as per section 68 of the Act, it is the responsibility of the assessee to explain about the "nature and source" of any sum found credited in the books of account. In the instant case, the assessee has failed to prove about the "nature of credit". Hence we are of the view that the Assessing Officer has rightly assessed the same as cash credit under section 68 of the Act. - Decided against assessee. Assessment of cash credits and profit from commodity trading as income not falling under any of the heads and consequently rejection of claim of set off of business loss and carry forward business loss/depreciation against them - Held that:- In the instant case, the contention of the assessee is that it has no other source of income other than business income. The said contention was not controverted by the tax authorities. The assessee has credited the loan amount of ₹ 18 lakhs and the profit from commodity trading of ₹ 5.13 crores in its books of account. In fact the profit from commodity trading was credited in the profit and loss account and offered as business income. Since the assessee could not explain to the satisfaction of the Assessing Officer the nature and source of loan amount as well as the profit from commodity trading, the Assessing Officer has treated them as deemed income, i.e., as unexplained cash credits under section 68 of the Act. While dealing with the issue relating to the disallowance of interest, the Assessing Officer has pointed out that the assessee has a loan liability of ₹ 21.56 crores and claimed interest expenditure of ₹ 3.33 crores. The Assessing Officer has allowed depreciation of ₹ 2.63 crores. All these figures throw light on the magnitude of operations of the company. Under these set of facts, we are of the view that it may not be unreasonable to treat the loan receipts and profit from commodity trading assessed under section 68 of the Act as receipts from the business activity of the assessee. Accordingly, we direct Assessing Officer to allow set off of current year's business loss as well as the brought forward business loss/unabsorbed depreciation against the income assessed under section 68 of the Act in accordance with the provisions of the Act relating to set off. - Decided in favour of assessee.
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