ITAT Grants Partial Relief on Minor Deposit & Depreciation Claims, Disallows Late ESIC & Commission Payments [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) granted partial relief to the assessee by allowing depreciation at 60%, permitting interest capitalization, and deleting the Section 68 addition for cash deposits in a minor’s bank account, while upholding disallowances for delayed  Employees State Insurance Corporation (ESIC) payment and commission expenses.

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Kastwel Foundries, the assessee, was involved in the production of ferro and master alloys. It reported a total income of ₹70,20,916 in its income return for the Annual Year (AY) 2012-13. The return was chosen for scrutiny through Computer Selected Scrutiny Selection (CASS).

During the scrutiny, the  Assessing Officer (AO) made multiple additions, including ₹6,598 for delayed ESIC payments, ₹43,943 for disallowed depreciation, ₹2,16,995 towards interest capitalization, ₹7,57,682 for commission expenses, and ₹31,000 for unexplained cash deposits in a minor’s account.

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The assessee filed an appeal against the additions before the Commissioner of Income Tax (Appeal) ( CIT(A) ). The CIT(A) partially allowed the appeal, and the assessee appealed to the tribunal.

Shrunjal Shah, counsel for the assessee, argued that the 60% disallowance of depreciation was unjustified because the assets qualified for higher depreciation and the capitalized interest was related to business expansion.

The counsel also stated that the commission payments were genuine, with most recipients, except S.V. Associates, responding before CIT(A), and that the cash deposit in a minor's bank account was consistently credited in small amounts.

Meanwhile, B.P. Srivastava, the department’s counsel, countered that the delayed payment towards ESIC was not allowable in light of the Supreme Court’s ruling in Checkmate Services Pvt. Ltd. v. Commissioner of Income Tax (2022).

The counsel also added that the assessee had not been able to substantiate the commission payments made to certain parties and that the unexplained credits appearing in a minor’s account rightly attracted the provisions of Section 68 of the Income Tax Act,1961.

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After hearing both sides, the tribunal, led by Dr. BRR Kumar (Vice President) and Suchitra Kamble (Judicial Member), considered each ground individually.

The tribunal held that depreciation was wrongly disallowed, as the asset qualified for 60% depreciation. It also accepted the assessee’s explanation that the interest paid was for business expansion, allowing the ₹2,16,995 capitalization claim.

The addition made under Section 68 was deleted by the tribunal since the cash deposits in the minor’s account were regular and properly explained.

On commission expenses, it sustained the disallowance only for S.V. Associates, as the other parties had confirmed the transactions.

As for the delayed ESIC payment, the Tribunal followed the Supreme Court ruling in Checkmate Services Pvt. Ltd. (2022) and upheld the disallowance.

The tribunal thus partly allowed the appeal, deleting additions on depreciation, interest capitalization, and Section 68, while sustaining those on ESIC and part of the commission expenses.

To Read the full text of the Order CLICK HERE

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