TMI Blog2021 (10) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... addition for the reason that funds have been diverted to the sister-concern interest free. In the case of Embassy Development Corporation [ 2015 (9) TMI 1055 - KARNATAKA HIGH COURT] , the assessee advanced borrowed funds to the sister-concern. The diverted funds was utilized by sister-concern for purchase and development of a property. In this context, the Hon'ble High Court held that funds have been diverted to sister-concern not out of business necessities of the assessee. In the instant case, it is clear that the assessee is having sufficient interest fund for diversion to sister-concern. Therefore, the judgment of CIT Anr. v. M/s. Microlabs Ltd. [ 2016 (4) TMI 219 - KARNATAKA HIGH COURT] , has application to the facts of the instant case. Disallowance of depreciation - A.O. was of the opinion that the home-theatre was not for the purpose of business - CIT-A deleted the addition - HELD THAT:-The theatre is admitted used for the business purpose of exhibiting various technologies development in the field of software to the employees and also to the customers. There was a major fire accident in the premises of the assessee and various books of account, documents and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. 5. The appellant craves leave to add, alter, amend and/or delete any of the grounds mentioned above. 3. Ground No. 1 and 5 are general in nature and no adjudication is called for, hence, these grounds are dismissed. Ground Nos. 2 and 3 is regarding addition of ₹ 1,40,99,637 on account of diversion of funds to sister-concern. Ground No. 4 is regarding disallowance of depreciation amounting to ₹ 30,28,504. We shall adjudicate the above grounds/issues as under. Addition of ₹ 1,40,99,637 (Ground No. 2 3) 4. The assessee is a company engaged in the business of development and marketing of accounting business management software. For the assessment year 2014-2015, the return of income was filed on 28.11.2014 declaring total income of ₹ 5,45,82,790. The assessment was selected for scrutiny. During the course of assessment proceedings the Assessing Officer noticed that the assessee had incurred interest expenditure amounting to ₹ 2,69,84,549. It was further noticed by the A.O. that the assessee-company had diverted funds of ₹ 9,72,38,877 towards sister-concern without charging interest. The A.O. adopted the rate of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, Embassy Development Corporation v. ACIT reported in 62 Taxmann.com 234 (Kar.) is distinguishable on facts. It was submitted in the said case that the assessee, a builder, had advanced certain borrowed funds to the sister-concern for acquiring a land and putting up a project, which was developed by the sister-concern. Therefore, in the facts of those case it was held by the Hon'ble Court that there was no benefit to the assessee for diverting borrowed funds to the sister-concern without charging interest. It was submitted by the learned AR that on the facts of the instant case, the judgment of the Hon'ble jurisdictional High Court in the case of CIT Anr. v. Microlabs Ltd. (supra) is squarely applicable. 4.4. We have heard rival submissions and perused the material on record. The A.O. imputed interest at 14.5% on the amounts outstanding as on 31.03.2014 by the sister-concern towards the assessee for making the addition of ₹ 1,40,99,637. On perusal of the financials, it is noticed that the opening balance of the sister-concern was ₹ 12,05,08,884 (as on 01.04.2013) and the advances had reduced to ₹ 9,72,38,877 as on the close of the financial year, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows:- .....The assessee company is in the business of developing accounting software package. From the business of the assessee it is very clear that the home theatre system is of no use for business purposes. The assessee was asked to provide backup of the said fixed asset and was also asked to produce invoices and other documents. In its reply dated 21.12.2016, it has been said that- 'we submit that, there was a fire accident of the premises of the assessee on 18.07.2014 and the original invoices and various other documents are destroyed.' This establishes the fact that the addition of a home theatre equipment is not for the business purposes. Hence, considering the home theatre equipment as plant and machinery, the depreciation claimed at 15% is being disallowed and added back to the income. 5.1. Aggrieved, the assessee preferred an appeal to the first appellate authority. It was contended before the first appellate authority that the Assessing Officer has disallowed depreciation of ₹ 30,28,504 as against depreciation claim made by the assessee of ₹ 15,14,252 (50% depreciation claimed by the assessee, since home-theater was pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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