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M/s R.N. Gupta and Co. Ltd. Versus The Addl. C.I.T., Range-1, Ludhiana

2016 (5) TMI 1182 - ITAT CHANDIGARH

Disallowance of additional depreciation on tooling cost recovered from the customers - Held that:- From the facts it is quite clear that the assessee first adds the amount of tools and dyes to its capital assets and claims the depreciation on the same. At the time when it gets reimbursed for the same, the same is reduced from the opening balance. This way, the assessee is getting additional benefit on account of depreciation claimed on the tools and dyes which have been reimbursed by the clients .....

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an the bank rates. - Decided partly in favour of assessee - Disallowance of interest u/s 36(1)(iii) on alleged interest free advance ignoring the facts that the said advance was given out of own funds - Held that:- 5. Once, it is established that for a given situation, the assessee has not borrowed any money, for that matter, putting it reverse, the assessee has used his owned funds or interest free funds, there is no question of proving that the funds so taken from owned or interest free fu .....

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y need to go into the question of commercial expediency - Decided in favour of assessee - ITA No.848/Chd/2015 - Dated:- 12-4-2016 - SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER For The Appellant by : Shri Subhash Aggarwal For The Respondent : Shri Manjit Singh, DR The appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-I, Ludhiana dated 21.9.2015 for assessment year 2008-09. 2. Ground No.1 raised by the assessee reads .....

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ks of account and as and when it received the reimbursement, the same is reduced from the opening balance. During the year, the assessee had shown sale/transfer of tools and dyes for an amount of ₹ 4,02,325/-. Since the debiting of sale/transfer consideration from opening balance was not justifiable and the assessee had claimed the amount of ₹ 4,02,305/- and had claimed depreciation of ₹ 1,40,813/- and now by reducing it from opening balance it was merely reducing depreciation .....

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yes account during the year and also disallowed the additional depreciation claimed by the assessee on the additions made during the year. This action of the Assessing Officer is illegal and the assessee is rightly entitled to additional depreciation on the additions made during the year, which has no connection with the old claims recovered from the buyers on old supplies. Rejecting the contention of the assessee the learned Commissioner of Income Tax confirmed the disallowance made by the Asse .....

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h read as under : "4.3 I have considered the facts of the case, the basis of addition made by the Assessing Officer the arguments of the AR during the course of appellate proceedings. The AR has contended that the appellant is rightly entitled to the additional depreciation on the additions made during the year, which have no connection with the old claims recovered from the buyers on old supplies. However, the appellant is claiming depreciation on tools and dies. At the same time, it is al .....

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dies whereas the amount is subsequently reimbursed to it by the buyers. The appellant has shown sale/transfer of tools and dies amounting to ₹ 4,02,325/- additional depreciation has been claimed in the depreciation chart in the year of debiting the said expenditure whereas the same has been reduced from the opening balance. The appellant is not adding back the actual amount of depreciation claimed by it as is evident from the fact that while debiting the amount of ₹ 4,02,325/- , the .....

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ground of appeal is accordingly dismissed." 7. On perusal of the same we do not find any infirmity in the finding given by the learned CIT (Appeals). From the facts it is quite clear that the assessee first adds the amount of tools and dyes to its capital assets and claims the depreciation on the same. At the time when it gets reimbursed for the same, the same is reduced from the opening balance. This way, the assessee is getting additional benefit on account of depreciation claimed on the .....

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(b) of the Income Tax Act, 1961 (in short 'the Act') on the interest paid to relatives by the assessee on unsecured loans restricting the same to 12%, as against 15% charged by the assessee, made the addition. 10. Before the learned CIT (Appeals), besides raising the issue on merits, the assessee submitted that for the assessment year 2007-08 in ITA No.967/Chd/2012 in assessee's own case under similar facts, 15% rate of interest was considered to be reasonable. Following the decision .....

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that the bank interest during the relevant assessment year was to the tune of 15.7%. The learned D.R. relied on the order of the learned CIT (Appeals) and further stated that the rate of interest at 15% is quite reasonable. 12. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The findings of the learned CIT (Appeals) with respect to this ground are recorded at page 15, para 5.2, which rea .....

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#39;ble ITAT Chandigarh Bench in the case of the appellant for the A.Y 2007-08 in ITA No. 967/Chd/2012 has held, on this issue, on similar facts that the disallowance u/s 40A(2)(a) of the Act is to be computed in line with the market conditions and admittedly there was lowering of interest rate from year to year. Accordingly the Hon'ble ITAT Chandigarh Bench confirmed the order of the CIT Appeal in the appellant's case in allowing the interest paid to the specified persons u/s 40A(2)(b) .....

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nance with the order of the I.T.A.T. in assessee's own case for the earlier assessment year and also taking into consideration the fact that the bank rate in this year is around 15.7%, we hereby hold 16% rate of interest to be reasonable, as these are unsecured loans and are always available at a rate higher than the bank rates. The ground No.2 raised by the assessee is partly allowed. 14. The ground No.3 raised by the assessee reads as under : "3. That the Learned CIT - I has erred in .....

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0,00,000/- to the sister concern. The explanation of the assessee was that the amount in earlier year was given for purchase of certain land, while as regards the amount given during the year, it was stated that the assessee had enough owned funds, and the money being lent out of owned funds, no interest is attributable to the same. The Assessing Officer disallowed an amount of ₹ 3,62,132/- being proportionate interest on amounts given to the sister concern, under section 36(1)(iii) of the .....

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hat in the said case, the concerns were in hotel business and the advances were given as a measure of commercial expediency and for the purpose of sister concern. Since one of the conditions to be fulfilled for availing deduct ion on account of interest on borrowed capital under sect ion 36(1) (iii) of the Act is that the money borrowed must have been used for the purpose of business, which is not established in the present case. The assessee has mixed funds and no nexus has been proved to show .....

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,755/-. The amount given to M/s Technico Strips & Tubes Pvt. Ltd. was ₹ 30,00,000/- during the year, which was also received back in the year itself. These figures were shown to us in order to emphasize the fact that the assessee had enough owned funds to land it to the sister concern interest free. Since no interest expenses have been incurred for funds given to the sister concern, no disallowance under section 36(1)(iii) of the Act can be made. Reliance was placed on the judgment of .....

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to be made under section 36(1)(iii) of the Act. 19. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. This is undisputed that that the assessee is having sufficient owned funds to lend to the sister concern. In such a scenario, presumption is that the advances have been given out of owned funds and no interest expenses have been incurred. This proposition has been laid down in very clear .....

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as to be proved by the assessee. For this, we would like to understand the provisions of section 36(1)(iii) of the Act. Section 36 comes under Chapter IVD of the Act, which deals with the computation of income under the head 'profits & gains of business or profession'. Section 36 deals with other deductions, while sub-section (1) to section 36 reads as under : "(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, .....

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, it becomes quite clear that the section relates to the deduction of interest expenditure, while computing business income. While computing income under the head, 'profit & gains from business or profession', the deduction on account of interest is allowed only if the same is paid in respect of capital borrowed and that too for the purpose of business or profession. 23. The scene emerging from this analysis is that conditions for getting deduction in respect of interest are, (i) mon .....

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