2018 (3) TMI 1661 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - no exempt income is received or receivable - Held that - The fact that no exempt income was earned is undisputed. The Hon ble Delhi High Court in the case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT has held that the section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Thus respectfully following the above decision no disallowance could have been made under section 14A of the Act and accordingly we uphold the finding of the Ld.CIT(A) in deleting the addition - Decided in favour of assessee Disallowance on account of claim of depreciation on canteen building - Held that - Main evidence in support of the claim of putting the canteen building to use is the running expenses of Rs. 24, 83, 572/- paid to M/s Gupta Hospitality Services Private Limited which is an unrelated party. The Assessing Officer has allowed the running expenses. This factual finding has not been controverted by the Ld. DR. On the issue of provision of Rs. 25 lakhs also the Ld. CIT(A) has observed that building was already constructed in the month of February 2010 and liability towards construction was ascertained and tax was also deducted on said payment. The Ld. DR also could not controvert this factual finding of the Ld. CIT(A) - Decided in favour of assessee Disallowance on account of excess claim of depreciation on electrical items - whether these items were in the nature of electric installation being part of plant and machinery and eligible for depreciation at the rate of 15%? - Held that - CIT(A) in the impugned order has re-produced the list of the electrical items on which depreciation has been claimed at the rate of 15%. It is evident from the items that those are electrical installation and in the nature of essential part of plant and machinery required for functioning of the machinery. The Ld. DR could not controvert that those items were essential for running of the plant and machinery and thus in the nature of electrical installation. In our opinion order of the Ld. CIT(A) on the issue in dispute is well reasoned - Decided in favour of assessee

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Incorrect claim of depreciation on canteen building
3. Excess claim of depreciation on electrical fittings/installation

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961
The Revenue challenged the deletion of disallowance of Rs. 1,39,58,000 under section 14A. The Ld. CIT(A) deleted the addition as no exempt income was earned during the year, citing the decision in Cheminvest Ltd Vs. CIT. The Tribunal upheld the deletion, emphasizing that no disallowance could be made under section 14A if no exempt income was received or receivable during the relevant year.

Issue 2: Incorrect claim of depreciation on canteen building
The Revenue disputed the deletion of disallowance of Rs. 5,83,812 on account of depreciation on the canteen building. The Ld. CIT(A) found that the canteen building was put to use during the year based on evidence provided by the assessee. The Tribunal upheld the decision, noting that the running expenses paid to an unrelated party supported the claim of the building being in use, and no infirmity was found in the Ld. CIT(A)'s order.

Issue 3: Excess claim of depreciation on electrical fittings/installation
The Revenue challenged the deletion of disallowance of Rs. 11,89,519 on the excess claim of depreciation on electrical items. The Ld. CIT(A) determined that the items were integral parts of plant and machinery, eligible for depreciation at 15%. The Tribunal upheld the decision, stating that the items were essential for the functioning of machinery and thus qualified for depreciation at the higher rate.

The general grounds raised by the Revenue were dismissed as they were covered by specific issues addressed. The appeal of the Revenue was ultimately dismissed by the Tribunal, and the decision was pronounced on 16th March 2018.