COMBINED FOODS (P) LIMITED,ERNAKULAM V. INCOME TAX OFFICER, CORPORATE WARD-1(1), KOCHI

ITA 862/COCH/2023

AI Insights

The case involves Combined Foods (P) Limited, which appealed against the order of the National Faceless Assessment Centre / Commissioner of Income-tax (Appeals) concerning the assessment year 2014-2015. The primary issues in the appeal were the disallowance of depreciation on moulds and tools, additions under section 14A of the Income-tax Act, and the treatment of refundable deposits from distributors. The Tribunal's decision reversed some of the lower authorities' findings, particularly regarding the treatment of the company's financial dealings and the application of depreciation on certain assets.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46901 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Other Referred Cases: South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LEENA LAL; SENIOR
• Assessee Lawyers: P.M.VEERAMANI
• Keywords: Revenue expenditure; Depreciation; Earning of tax free income; Rule 8D
• Section: 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, COCHIN Before Shri Inturi Rama Rao, Accountant Member ITA No.862/Coch/2023 : Asst.Year 2014-2015 Combined Foods (P) Limited 28/2485, Elamkulam Village Cheruparampath Road Kadavanthra Ernakulam – 682 020. PAN : AAACC9366N. v. The Income Tax Officer Corporate Ward 1(1) Kochi. (Appellant) (Respondent) Appellant by : Sri.P.M.Veeramani, CA Respondent by : Smt.Leena Lal, Senior AR Date of Hearing : 13.03.2025 Date of Pronouncement : 08.04.2025 O R D E R This appeal filed by the assessee is directed against the order of the National Faceless Assessment Centre / Commissioner of Income- tax (Appeals) [“CIT(A)” for short] dated 28.11.2023 for the assessment year 2014-2015. 2. Briefly the facts of the case are that the appellant is a company, registered under the Companies Act, 1956. It is engaged in the business of manufacture of ice and frozen food. The return of income for the assessment year 2014-2015 was filed on 20.01.2015 declaring total income of Rs.5,65,210. Against the said return of income, the assessment was completed by the Assessing Officer (“the AO”) vide order dated 20.12.2016 passed u/s.143(3) of the Act at a total income of Rs.30,70,400. While doing so, the AO made addition of Rs.9,73,497 ITA No.862/Coch/2023. Combined Foods (P) Limited. 2 u/s.41(1) of the Income-tax Act, 1961 (“the Act”), treating the deposits received from the distributors holding that there was no liability of refund to deposit. The AO also made addition on account of write off of moulds, tools and utensils of Rs.2,11,123. The AO also made addition u/s.14A of the Act amounting to Rs.47870 etc. 3. Being aggrieved an appeal was filed before the CIT(A), who vide the impugned order had partly allowed the appeal deleting the addition made u/s.41(1) of the Act amounting to Rs.9,73,497 by following the Tribunal order in assessee’s own case for assessment year 2007-2008. The CIT(A) however confirmed the addition made on account of write off of tools and moulds and addition u/s.14A of the Act. The CIT(A) also confirmed the addition on account of freezer. 4. Being aggrieved, an appeal was filed before the Tribunal in the present appeal. Grounds of appeal No.1 is general in nature, which does not require any specific adjudication. Ground No.2 challenges the disallowance of depreciation on moulds and tools. It is submitted that the CIT(A) had wrongly confirmed the addition under the mistaken impression that the depreciation was already allowed by the AO. However, it is submitted that the appellant made the claim for depreciation in respect of the assets which are capitalized in the books of account, whereas, the cost of tools and moulds were claimed as revenue expenditure. However, the AO held the same to be of capital in nature. The appellant is only seeking depreciation on the amounts allowed on the cost of tools and moulds which are held to be capital by the AO. The claim made by the appellant is correct, and accordingly, I ITA No.862/Coch/2023. Combined Foods (P) Limited. 3 direct the AO to allow the depreciation on the cost of moulds and tools amounting to Rs.2,11,123. Ground Nos.3 and 4 challenges addition u/s.14A of the Act. It is the contention of the appellant that the own funds are far exceeds of investment made yielding the tax free income. Therefore, no disallowance of interest is called for. It is further argued that the amounts which are already disallowed u/s.36(1)(iii) cannot be again added u/s.14A of the Act and he also placed reliance on the judgment of the Hon’ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC). It is further submitted that for the purpose of calculating disallowance under clause (iii) of Rule 8D of the Income Tax Rules, the only investment which yielded exempt income alone should be considered. 5. Having heard the rival submissions, I am of the considered opinion that it is now settled position of law that when own funds of the assessee far exceeds cost of investment, the disallowance u/s.14A is not warranted. Reference in this connection can be made in the judgment of the Hon’ble Supreme Court in the case of South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC). In this case, undisputedly, own funds of the assessee are far exceeds the investment made, therefore, no disallowance u/s.14A of the Act is warranted. Thus, ground Nos.2, 3 and 4 are allowed. 6. Ground No.5 challenges the disallowance of depreciation on the cost of freezer as reduced by the deposits received from the distributors. The material on record clearly indicates that the deposit received from the distributors is refundable deposits, which is not in the nature of ITA No.862/Coch/2023. Combined Foods (P) Limited. 4 reimbursement towards cost of freezers nor is it a subsidy. Therefore, explanation to section 43(1) of the Act has no application therein. Thus, the lower authorities were not justified in reducing the amount of deposits received from the customers from the cost of freezers while allowing the depreciation. Thus, ground No.5 stands allowed. 7. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 08th day of April, 2025. Sd/- (Inturi Rama Rao) ACCOUNTANT MEMBER Cochin; Dated : 08th April, 2025. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT, Cochin. 4. The DR, ITAT, Cochin. 5. Guard File. Asst.Registrar/ITAT, Cochin "