“Chlorine Toners” used for transportation of chlorine gas are essentially “gas cylinders” and are eligible for depreciation @ 60%:

Assessee claimed depreciation @ 60% on chlorine toners used for transportation of chlorine gas generated in its caustic soda plant which came to be restricted to 15% by AO on the count that such toners were part of “Plant and machinery” and cannot be categorized as “Gas cylinders”. CIT(A) allowed depreciation on such toners. On Revenue’s appeal, ITAT observed that such chlorine toners looked exactly like cylinders as was evident from its pictures. Assessee had also filed a certificate signed by Executive Director of the assessee to the effect that such toners were used for transportation of compressed chlorine gas generated in caustic soda plant, were capable of being filled up by 900 kgs. net weight of compressed chlorine gas and such toners were technically gas cylinders. It was further observed that “Gas cylinder” or “Cylinder” has been defined under “Gas Cylinder Rules, 1981” as any closed metal container having a volume exceeding 500 millilitre but not exceeding 1000 litres intended for storage and transport of compressed gas including LPG container fitted to a motor vehicle as its fuel tank but not including any other such container fitted to a transport or under carriage. As per Appendix-I to I.T. Rules, gas cylinders were entitled to depreciation @ 60%. In light of the above, ITAT held that such toners were essentially gas cylinders and accordingly, depreciation is allowable on the same @ 60%. On Revenue’s appeal Hon’ble High Court, relying on the decision in the cases of “CIT vs. Goyal MG Cases Ltd. – 296 ITR 72 (Del)” and “CIT vs. Chemplast Sanmar Ltd. – 296 ITR 81 (Mad)”, upheld the ITAT’s order. Accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Gujarat Alkalies and Chemicals Ltd. – Tax Appeal No.942 of 2013]

Section 80P(4) shall not apply to an assessee which is not a “Co-operative bank”:

Assessee is a co-operative credit society engaged in carrying on the business of banking or providing credit facilities to its members and claims deduction u/s 80P(1) by virtue of provisions contained in section 80P(2)(a)(i). AO disallowed the said deduction on the count that as per section 80P(4), provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. Both, CIT(A) as well as ITAT, reversed the decision of AO. On Revenue’s appeal, Hon’ble High Court observed that CBDT had, vide circular no.133 of 2007 dated 09.05.2007 clarified that section 80P(4) will not apply to an assessee which is not a “Co-operative bank”. In the given case, assessee is admittedly not a “Credit co-operative bank” but is a “Credit co-operative society”. Hence, it was held that exclusion clause of section 80P(4) shall not apply and accordingly, Revenue’s appeal was dismissed.

[CIT Vs. Jafari Momin Vikas Co-op. Credit Society Ltd. – Tax Appeal Nos.442, 443 and 863 of 2013]

Penalty u/s 271(1)(c) cannot be levied on disallowance made u/s 40(a)(ia) for failure to deduct tax at source u/s 194C:

AO levied penalty u/s 271(1)(c) on disallowance made u/s 40(a)(ia) on account of failure to deduct tax at source on certain payments covered u/s 194C. Such penalty came to be deleted by CIT(A) as well as ITAT. On Revenue’s appeal, Hon’ble High Court found that ITAT applied decision in the case of Reliance Petroproducts Pvt. Ltd. – 322 ITR 158 (SC) and observed that merely on account of disallowance of certain claim, penalty cannot be imposed. ITAT had also recorded that the question of disallowance u/s 40(a)(ia) in respect of transporters had given rise of diversified opinion. Further, genuineness of expenditure was not in question. Disallowance was made on the count that tax was not deducted at source. In light of the above, Hon’ble High Court dismissed Revenue’s appeal.

[CIT Vs. Dahyabhai Veljibhai Patel – Tax Appeal No.793 of 2013]

Filing of audit report at the assessment stage instead of filing it alongwith return of income is construed as sufficient compliance for claiming deduction u/s 80IB:

AO disallowed the deduction claimed u/s 80IB of the Act merely on the count that the audit report was not filed alongwith the return of income. The said claim was allowed by CIT(A). On Revenue’s appeal, Hon’ble ITAT observed that the though the assessee had not filed the audit report alongwith the return of income, the same was furnished before AO at the assessment stage. It was also observed that the Hon’ble Gujarat High Court, in the case of “CIT vs. Gujarat Oil and Allied Industries – 201 ITR 325 (Guj)”, has held that the requirement of filing audit report alongwith return of income is procedural in nature and audit report filed at the assessment stage shall be construed as sufficient compliance of the same. Following the said decision, assessee’s claim u/s 80IB was allowed. Accordingly, revenue’s appeal was dismissed.

[DCIT vs. Anoli Holdings Pvt. Ltd. – ITA No.3175/Ahd/2010]

No disallowance can be made u/s 14A r.w.r. 8D if interest income is more than interest expenditure:

AO found that the assessee-company is a partner in several partnership firms and has earned profits from such firms which have been claimed as exempt u/s 10(2A). Also, the assessee had paid interest on unsecured loans during the year under consideration. AO therefore took a view that assessee invested such borrowed funds in various partnership firms and earned exempted income. Consequently, he made disallowance u/s 14A r.w.r. 8D. Hon’ble ITAT observed that the assessee had sufficient own funds and hence, it was of the view that it was unfair on the part of revenue to presume that borrowed funds had been utilised for the purpose of making investment in such partnership firms. It was further observed that interest income earned by the assessee was more than the interest expenditure. Hon’ble ITAT, following the order in the case of “ITO vs. Karnavati Petrochem Pvt. Ltd. – ITA No.2228/Ahd/2012”, held that when the interest income was more than interest expense, AO was not justified in invoking the provisions of S.14A r.w.r. 8D. Accordingly, the impugned addition was deleted.

[Safal Reality Pvt. Ltd. vs. ACIT – ITA Nos.2334/Ahd/2012 & 1842/Ahd/2013]

Depreciation on vehicles cannot be disallowed merely because such vehicles have been registered in the name of director of an assessee-company:

AO disallowed depreciation on cars on the count that such cars were bought and registered in the name of the director of the assessee-company. On appeal, CIT(A) observed that payment in respect of such cars was made by the assessee. Such cars were sued for the business of the assessee. Accordingly, CIT(A) allowed the claim of depreciation in such cars. On Revenue’s appeal, Hon’ble ITAT also observed that assessee had made payments of such cars. The said cars were included in the block of assets of the assessee and were used for assessee’s business. In light of the above, Hon’ble ITAT also held that there was no reason to interfere with the order of CIT(A). Accordingly, Revenue’s appeal was dismissed.

[DCIT vs. Nandan Exim Ltd - ITA Nos.601 & 225/Ahd/2011 and 2419/Ahd/2010]

Gift received by an HUF from uncle of Karta of such HUF shall be not be taxable in the hands of HUF:

AO made an addition in the hands of the assessee-HUF in respect of sum introduced by Karta of the HUF during AY 2005-06. The said addition was made since he was of the view that HUF can’t have any relatives and hence, sum received by HUF from its Karta is to be taxed as gift u/s 56(2). Hon’ble ITAT observed that the Karta of the HUF had received a gift from his uncle (brother of his father). It was an undisputed fact that the said gift was accepted by the donee as Karta of the HUF. Hon’ble ITAT was of the view that HUF is basically “a group of relatives”. It was further observed that for the purpose of S.56(2)(vii) introduced w.e.f. 01/10/09, “Relative” in case of HUF includes “any member thereof”. Considering the aforesaid scenario, it was held that the assessee-HUF had received gift from a relative who is uncle of Karta of the assessee-HUF (i.e. “Brother or sister of either of the parents of an individual). Hence, the gift was not chargeable in the hands of the assessee-HUF.

Note: Hon’ble ITAT has, in the case, treated uncle of Karta of assessee-HUF as relative of HUF by adopting liberal interpretation. However, in case of a gift received by any HUF after 01/10/09 from any person other than member of such HUF shall be taxable in light of Explanation to S.56(2)(vii) according to which only “Members” of HUF are considered to be relatives of an HUF.

[HARSHADBHAI DAHYALAL VAIDHYA HUF Vs. ITO – ITA No.1527/Ahd/2010]

Interest received on FDR made from grant received from Govt. can’t be considered as assessee’s income if such interest is to be treated as part of the grant as per the terms of release of such grant:

AO made addition in respect of interest on FDR received by the assessee which was confirmed by CIT(A) but deleted by ITAT. On Revenue’s appeal, Hon’ble High Court observed that the assessee received grant from Central Govt. (CG) and the same was deposited in bank as FDR. AO made the impugned addition since he found that the assessee had claimed refund in respect of TDS on such interest deducted by the concerned bank. ITAT found from the letter issued by CG while releasing the grant that interest earned on grant already released shall form part of central grant limit. Hence, relying on decisions in the case of “Gujarat Municipal Finance Board vs. DCIT – 318 ITR 317 (Guj)” and “Gujarat Power Corporation Ltd. vs. ITO – 354 ITR 201 (Guj)], the impugned addition was deleted. Hon’ble High Court also held that in light of the aforesaid stipulated condition and the two decisions cited above, such interest shall be treated as part of grant received from CG and hence, it can’t be treated as assessee’s income. Accordingly, Revenue’s appeal was dismissed.

[CIT vs. Sar Infracon Pvt. Ltd. – Tax Appeal No.855 of 2013 and 828 of 2013]