Industrial Cables (India) Limited, ... vs Assessee

of ld. CIT(Appeals) Patiala dated 26.02.2015 for

assessment year 2010-11.

2. I have heard ld. DR and ld. counsel for the assessee

and perused the material on record.

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Departmental Appeal

3. In the departmental appeal, revenue challenged the

order of ld. CIT(Appeals) in deleting the addition of Rs.

40,68,847/- on account of disallowance of interest on

interest free advances/loans given by the assessee to the

subsidiary company M/s Haryana Telcom Ltd. by

accepting the ground of commercial expediency, whereas

no commercial expediency was made out. It is also stated

in the ground of appeal that ld. CIT(Appeals) erred in

placing reliance on the order of the Tribunal in the case of

the assessee for assessment year 2006-07 even though the

department is in appeal in Hon'ble High Court.

4. The ld. CIT(Appeals) noted in the impugned order

that the facts are that assessee has advanced interest free

loans to its subsidiary companies. The Assessing Officer

held that assessee had diverted interest bearing loan for

non business purpose and thereafter disallowed

proportionate interest accordingly. During the appellate

proceedings, the assessee submitted that the issue is

covered by decision of ITAT and ld. CIT(Appeals) in earlier

years. The Assessing Officer in his counter comments

relied upon assessment order and submitted that the

Tribunal in ITA No. 237/CHD/2008 for assessment year

2005-06 has deleted the addition of Rs. 32,98,600/- on

account of interest disallowance. As per order of the

Tribunal, the interest of Rs. 32,98,600/- pertain to M/s

Haryana Telcom Ltd.

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5. The ld. CIT(Appeals) considering the material on

record noted that issue is covered by earlier decision of

the Tribunal in ITA 799/CHD/2009 dated 30.08.2011 for

assessment year 2006-07 wherein the addition in respect

of disallowance of interest on interest free advance to M/s

Haryana Telcom is deleted. The ld. CIT(Appeals),

following the order of the Tribunal in the case of the

assessee deleted the addition in respect of interest free

interest to M/s Haryana Telecom and accordingly allowed

the appeal of the assessee.

6. The ld. DR filed copy of the order of the Tribunal

dated 30.08.2011 (supra) in which the Tribunal following

the earlier decision in the case of the same assessee

confirmed deletion of the addition in respect of amount

advanced to M/s Haryana Telecom Ltd. The issue is,

therefore, covered in favour of the assessee and against

the revenue by order of the Tribunal dated 30.08.2011.

Even the Assessing Officer admitted that the issue is

covered in favour of the assessee by earlier order of the

Tribunal for assessment year 2005-06 in his comments

before ld. CIT(Appeals). Merely because department is in

appeal against the order for assessment year 2006-07 is

no ground to take a different view in the matter.

Following the rule of consistency, I do not find any

infirmity in the order of the ld. CIT(Appeals) in following

the order of the Tribunal for earlier year.

7. The departmental appeal thus, fails and is dismissed. 4

Assessee's appeal

8. On ground No. 1 assessee challenged the order of ld.

CIT(Appeals) in upholding disallowance of depreciation of

Rs. 13,09,167/-. The ld. CIT(Appeals) noted that facts are

that the Assessing Officer has disallowed depreciation on

account of factory building and plant and machinery on

the ground that assessee company has not done any

manufacturing activity during the year. Further, part of

the disallowance has been disallowed by the Assessing

Officer for non-maintenance of proper records. During the

appellate proceedings, the assessee has submitted that

during the year, manufacturing activity was suspended

due to absence of proper orders as the company had

incurred huge loss in the past. It was further submitted

that assets of the manufacturing activity were kept ready

for use in case sufficient orders were received by the

assessee company. The ld. CIT(Appeals), finding that no

manufacturing activity was dune in this year and no

evidence regarding plant being ready for use, dismissed

this ground of appeal of the assessee.

9. I have heard ld. Representatives of both the parties.

The ld. counsel for the assessee referred to Paper Book-21

which is notes to financial statement ending March 31,

2010 and submitted that since assessee could not get

sufficient orders, therefore, plant and machinery were not

used for manufacturing purposes but the same were kept

ready for the purpose of use of the business. Therefore, 5

Assessing Officer should have allowed depreciation on

factory building and plant and machinery. Considering

the submission of the ld. counsel for the assessee and

note to the financial statement, I am of the view the

matter requires re-consideration at the level of the

Assessing Officer. The law is well settled that if the plant

and machinery and factory building is kept ready for use

for the business purposes, on passive user also,

depreciation could be allowed on building and plant and

machinery. The order of the authorities below to that

extent is set aside and the matter in issue is restored to

the file of Assessing Officer with direction to re-examine

this issue in the light of the material produced before

him. The Assessing Officer shall give reasonable

sufficient opportunity of being heard to the assessee.

9(i) However, as regards the part of the depreciation

disallowed by the Assessing Officer, ld. counsel for the

assessee submitted that vehicle and furniture etc. are

part of the same block and asset, therefore disallowance

should not be made out of the depreciation on these

items. The Assessing Officer noted in the assessment

order the claim of depreciation with regard to furniture

and motor vehicles. The Assessing Officer called for the

details of furniture which is used in the factory building

and non factory building. The assessee failed to give

details of the furniture as no such details of the record is

available with the assessee company. Therefore, in the

absence of proper record, the genuineness of the claim of 6

the assessee of depreciation of furniture could not be

verified. Further, assessee was asked to give details of the

number of vehicles on which depreciation has been

claimed but assessee submitted that it does not exactly

know the number of vehicles which are in running

condition as large number of vehicles are not in running

condition. Therefore, in the absence of complete details,

Assessing Officer disallowed the depreciation on furniture

and vehicles. The ld. CIT(Appeals) also disallowed part of

the claim of assessee because assessee did not maintain

proper records. Even if the counsel for assessee stated

that furniture and vehicles are part of the same block of

asset but assessee failed to prove which of the furniture

was used in the factory building and which vehicles were

kept on running for business purposes. Therefore, in the

absence of complete details, the Assessing Officer could

not believe genuineness of claim of depreciation with

regard to vehicle and furniture. The authorities below

were, therefore, justified in disallowing depreciation on

furniture and vehicles. The orders of authorities below to

that extent are confirmed and appeal of the assessee to

that extent is dismissed.

10. In the result, ground No. 1 of appeal of the assessee

is partly allowed for statistical purposes as is directed

above.

11. On ground No. 2, assessee challenged the order of ld.

CIT(Appeals) in not restricting the disallowance of 7

notional interest on account of loan advances to

subsidiary companies of Rs. 4,95,000/-, the amount of

interest paid during the year. This ground is same as was

considered in the departmental appeal on which the ld.

CIT(Appeals) deleted the disallowance of interest

pertaining to M/s Haryana Telecom Ltd. However, as

regards the disallowance of interest on interest free

advances to M/s ICL Tower Ltd. and M/s Good Star Credit

& Portfolio Pvt. Ltd, the ld. CIT(Appeals) noted that

addition has been confirmed by the Tribunal in

assessment year 2006-07 on the same facts, therefore,

finding the issue to be identical, ld. CIT(Appeals) directed

the confirmation of the disallowance of interest to these

concerns and dismissed this part of the ground of appeal

of the assessee.

12. The ld. DR filed copy of the order of Tribunal dated

30.08.2011 for assessment year 2006-07 in which the

Tribunal decided the departmental appeal as well as

appeal of the assessee in ITA 799/2009 and 842/2009.

While deciding appeal of the assessee in ITA 842/2009,

the Tribunal considered the disallowance of interest in

respect of M/s ICL Power Ltd. And M/s Good Star Credit

and Portfolios Ltd. With regard to interest free loan to

M/s ICL Power Ltd., the Tribunal noted that this issue is

decided against the assessee by jurisdictional High Court

as was admitted by ld. counsel for the assessee before the

Court. With regard to interest free loan advanced to M/s

Good Star Credit & Portfolios Ltd., the Tribunal following 8

the decision of the jurisdictional High Court in the case of

CIT Vs Abhishek Industries 286 ITR 1 (P&H) dismissed

this ground of appeal of the assessee. Therefore, the

Tribunal, following the decision of the jurisdictional

Hon'ble Punjab & Haryana High Court, decided the issue

against the assessee in preceding assessment year 2006-

07 vide order dated 30.08.2011. Therefore, there is no

infirmity in the order of ld. CIT(Appeals) in following the

earlier decision of the Tribunal in the case of the same

assessee for assessment year 2006-07 for the purpose of

dismissing the appeal of the assessee with regard to

disallowance of interest in respect of M/s ICL Power ltd.

and M/s Good Star Credit & Portfolios Pvt. Ltd. The ld.

counsel for the assessee, however, submitted that

disallowance is to be restricted to Rs. 4,95,000/- and

referred to PB-8 and 16 in this regard to claim that

expenditure was claimed only for Rs. 4,95,000/-. This

issue is not arising out of the impugned orders of the

authorities below, therefore cannot be decided at this

stage.

13. The ld. counsel for the assessee further submitted

that the assessee has moved application under section

154 of the Income Tax Act before Assessing Officer which

has not been decided. Since the assessee has raised this

issue for the first time before the Tribunal, therefore, it is

difficult to adjudicate upon the claim of assessee at this

stage because no complete details are available from the

orders of the authorities below. Therefore, this ground of 9

appeal of the assessee cannot be entertained. The same

is, therefore, dismissed. However, Assessing Officer is

directed to decide the rectification application of the

assessee under section 154 of the Act as is submitted by

ld. counsel for the assessee during the course of

arguments at the earliest. With these observations,

ground No. 2 of the appeal of the assessee is dismissed.

In the result, appeal of the assessee is partly allowed for

statistical purposes.

14. In the result, departmental appeal is dismissed and

appeal of the assessee is partly allowed for statistical

purposes.

Order pronounced in the Open Court on 25th

June,2015.

Sd/-

(BHAVNESH SAINI) JUDICIAL MEMBER Dated: 25th June,2015.

'Poonam' Copy to:

The Appellant, The Respondent, The CIT(A), The CIT,DR

Assistant Registrar, ITAT Chandigarh