TMI Blog2022 (5) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant claims that, no interest expenditure was indeed incurred for earning exempt dividend income stands tall and de fact remained uncontroverted by the Ld. DR, consequently the disallowance made u/r 8D(2)(ii) remained baseless on records, hence it deserves to be deleted, accordingly we direct as such. Disallowance for indirect administrative expenditure u/r 8D(2)(iii) - DR after going through the details of additional evidence, conceded to the revised computation of the appellant regarding the amount of disallowance worked out u/r 8D(2)(iii), consequently the disallowance on this count is restricted to ₹1,92,200/- which is worked out on the basis of average investment into the class of dividend earning fund. Disallowance to computation of book profit u/s 115JB - Section 115JB(1) of the Act provides the mode of computation of the total income and tax payable by the assessee u/s 115JB of the Act. Section 115JB(5) of the Act provides that, save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section , therefore, if any expenditure relatable to earning of income exempt is disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery carrying 80% rate of depreciation is sustained, consequently the ground II and its counter parts are dismissed. Disallowance of leave encashment as unascertained liability - HELD THAT:- Hon ble Supreme Court in the case of Bharat Earth Movers Vs CIT [ 2000 (8) TMI 4 - SUPREME COURT] as observed that, what should be certain is the incurring of the liability and the fact that the same is capable of being estimated with reasonable certainty, although the actual quantification may not be possible and if the aforesaid requirements were satisfied, then the liability could not be held as a contingent liability. Although the liability is in praesenti though it is to be discharged at a future date, it would not make any difference if the future date on which the liability is to be discharged is not certain. In the backdrop of aforesaid observations, the Hon ble Supreme Court had concluded that the provision made by an assessee for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling of accumulation as applicable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t passing a speaking order on the grounds whether disallowance u/s 14A rw rule 8D2(ii) can be made when the appellant is having sufficient free reserves to cover the investment made. 4) The Learned CIT(A) has erred in not passing a speaking order distinguishing the various favourable judgements of jurisdictional High Courts on the issues covered by impugned order. 5) The Learned CIT(A) has failed to appreciate that the appellant has not incurred any expenditure in earning the dividend income which is claimed as exempt u/s 10(35) of the I.T. Act. 6) The Learned CIT(A) has erred in interpreting that Section 14A mandates maintenance of separate books of account relating to investments. He has also erred in observing that the books of accounts and other documentary evidence relating to the investment and expenditure was not produced before the Learned Assessing Officer. 7) The Learned CIT(A) has erred in holding the disallowance u/s 14A on the basis of presumptions and surmises of expenditure having been incurred for earning of exempt income when no facts have been brought on record to show that the expenditure was actually incurred in relation to earning of exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation @80% 7) Without prejudice, presumption but not admitting that the impugned devices are not energy saving devices, the Learned Assessing Officer ought to have allowed depreciation on UPS @60% as peripheral devices attached to computers. III. Disallowance of the provision for leave encashment: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer in making addition of the leave encashment amount to the book profit u/s 115JB of the Income Tax Act by holding the same to be a provision for liabilities other than ascertained liabilities. 2) The Learned CIT(A) has failed to appreciate that the provision is made based on actuarial calculations worked out and certified by an actuary towards ascertained liabilities after considering method as prescribed in AS-15 issued. 3) The Learned CIT(A) has made factually erroneous observation that the provision for leave encashment is not in the nature of salary, that the same is not taxable in the hands of the employee and no TDS has been deducted thereon and by virtue of the non-taxability and non-deduction of TDS thereon, it cannot be treated as an ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 14A of the Act, r.w.r. 8D of Income Tax Rules, 1962 [for short IT-Rules ] are applicable where the assessee claimed to have incurred no expenditure for earning exempt income, secondly whether a diesel generator falls within the sweep of renewable energy device and thirdly whether leave encashment is an ascertained liability to qualify deduction. 6.2 It is palpable from the records that, the assessee company for the AY 2012-2013 filed its return of income on 06/09/2012 with a returned income of ₹1,25,76,339/- which was initially accepted u/s 143(1) of the Act, and subsequently subjected to scrutiny by service of statutory notice dt. 07/08/2013 u/s 143(2) of the Act. By issue of further notices dt. 05/05/2014 21/05/2014 u/s 142(1) of the Act, the information in the form of questionnaire as regards to expenditure incurred in relation to exempt income earned, claim of depreciation @80% on diesel generation treating as energy saving device and leave encashment treating as ascertained liability eligible for deduction were sought. In reply thereof, the assessee through its authorised representative [for short AR ] filed submission substantiating its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain why the provision towards the leave encashment of ₹32,026/- debited to P L should not be added back in computing the book profit u/s 115JB of the Act, as unascertained liability. In support of its claim as ascertained liability, the assessee company submitted the copy of audit report in the Form No 29B establishing the correctness of computation of book profit, and to buttress warranting no further adjustments. Au contraire, on the strength of clause 1 to explanation 1 to section 115JB(1) of the Act, the Ld. AO rejecting the claim of the assessee, added the amount of provision for leave encashment in computing the book profit u/s 115JB of the Act treating it as unascertained liability and not deductible. 7. Aggrieved, in an appeal before first appellate authority, the assessee company through its authorised representative [for short AR ] filed analogous submission and reiterated its contention in assailing all three additions / disallowance carried out by the Ld. AO. During the course of first appellate proceedings, Ld. CIT(A) figuring out the absence of tangible material showcasing the incurring of interest expenditure not relating to earning of exempt income, and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional evidence laid suo-moto by the appellant company u/r 29 of the Rules, which prima-facie consist of details of interest expended towards discounting of bill/invoices and guarantee commission, detailed working of investment earning exempt income and copy of actuarial report to support of its claim of allowability of leave encashment expenditure. Insofar as the admission of additional evidence is concerned, the Hon ble Delhi High Court while dealing with the similar matter on admissibility of additional evidence before the Tribunal laid by the assessee suo-moto u/r 29 Rules, have categorically held in CIT Vs Text Hundred India Pvt Ltd that; The law clearly lays down a neat principle of law that, the discretion lies with the Tribunal to admit additional evidence in the interest of justice, once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (Emphasis Supplied) 11.2 Method for determining amount of expenditure in relation to income not includible in total income has been specified in rule 8D of the rules, which is as under; 8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned disallowance. In the absence of outside borrowing vis- -vis absence of interest expenditure on any borrowed capital, the appellant claims that, no interest expenditure was indeed incurred for earning exempt dividend income stands tall and de fact remained uncontroverted by the Ld. DR, consequently the disallowance made u/r 8D(2)(ii) remained baseless on records, hence it deserves to be deleted, accordingly we direct as such. 11.4 Insofar as the disallowance for indirect administrative expenditure u/r 8D(2)(iii) is concern, the computation was carried out based on gross total average investment of the appellant company, without same being bifurcated into value of investment earning exempt income and the value of investment earning taxable income. It remained an undisputed fact that, the appellant had investment into three classes, such as (a) investment into dividend earning fund (b) investment into growth fund and (c) investment into fixed maturity plan. However, it is noticed that, while computing the disallowance u/r 8D(2)(iii) of the IT-Rules, the Ld. AO could not cause the bifurcation of value of investment in the absence of reconciliation statement. Per contra, duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f special bench of the Tribunal in the case of ACIT V/s Vireet Investment (P) Ltd. reported in 165 ITD 27 (Del). Thus, the ground I and its counter parts stands partly allowed. 12. Now coming to disallowance of claim of depreciation made u/s 32 on diesel generator as renewable energy device . It is an admitted fact that, during the financial year relevant to assessment under consideration, the appellant company has on 20/03/2012 purchased an Diesel Generator Set for sum of ₹34,95,230/- and added to its block as Plant Machinery and claimed 80% rate of depreciation treating it to be an renewable energy devices under an Entry No. III(8)(xiii)(m) (New) Appendix-I r.w.r 5 of IT-Rules, which reads as under; NEW APPENDIX I [Effective from assessment year 2006-07 onwards] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE III. Machinery and Plant (8) (xiii) Renewable energy devices being - (m) Any special devices including electric generators and pumps running on wind energy [installed on or after the 1st day of April, 2014] The claim of the appellant that, the diesel generators are helpful in saving the electrici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appendix-I reveals that, all the sub- items of renewable energy devices, i.e., devices for generating non-conventional energy qualify for higher rate of depreciation. An item number (m) specifies Any special devices including electric generators and pumps running on wind energy. Although, at the first blush it may appear that this entry (m) includes electric generators and, therefore, diesel sets for generating electrical energy may fall under this sub-item, but on proper scrutiny it would appear that, what is contemplated is electric generators running on wind energy and pumps running on wind energy. Hence, generator sets running on diesel would not fall under an entry (m) of sub-item (xiii). In view of the above analysis of III(8)(xiii)(m) in the table in Part A of Appendix I to the Income Tax Rules, 1962, we are of the clear view that, the diesel generator sets do not fall under entry number (m) so as to entitle the assessee to claim depreciation at the higher rate of 80% per cent. Thus, since the item of diesel generator does not find its place in the enumerated list of class (xiii) of clause entry 8 of block III of New Appendix-I r.w.s. 5 of the IT-Rules, the action of Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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