2019 (12) TMI 1299 - AT - Income Tax

Assessment u/s 153A - Reopening of assessment u/s 147 - unabated assessment - HELD THAT:- The concept of unabated assessment has been explained by the courts, as per which any assessment, which is not pending as on the date of search is considered as unabated assessment. In the light of above legal position, if you examine facts of the present case, it is abundantly clear that the assessment for the impugned assessment year is abated as on the date of search, because before search and seizure action conducted on 13/10/2010, the Ld. AO has reopened the assessment u/s 147 by issuing notice u/s 148 on 26/22/010.

Once, the assessment is reopened, then the AO shall have time limit for completion of assessment one year from the end of the relevant assessment year in which notice u/s 148 is issued. In this case, since notice u/s 148 was issued on 26/12/2010, the Ld. AO will have time limit for completion of reassessment up to 31/03/2011, which is much later than the date of search i.e on 13/10/2010. Consequently, the assessment for the impugned assessment year is abated and the Ld. AO shall have the power to assess or re-assess total income, including undisclosed, if any found as a result of search.

Disallowances of additional depreciation claimed on fixed assets - assessee has claimed additional depreciation u/s 32(1)(iia) @ 20% of the cost of plant and machinery which were purchased, installed and put to use in the proceeding previous year - AO has disallowed the claim of additional depreciation in the second year, on the ground that said claim is allowable in the year in which said plant and machinery was purchased/installed and put to use and also, it is one time claim - whether, an assessee can claim additional in the subsequent years in absence of any reference to a specific previous year after amendment by the Finance Act, 2005 in section 32(1)(iia) ? - HELD THAT:- On a literal reading of section 32(1)(iia), the additional depreciation is restricted to one time deduction and there is no explicit provision entitling the assesee to claim additional depreciation in subsequent year or years, when the additional depreciation was allowed in the year, when plant and machinery has been put to use. It is illogical and irrational to presume so, when the legislation intention is to allow one time additional depreciation u/s 32(1)(iia) in a previous year in which plant and machinery is installed and put to use. CIT(A) after considering relevant facts has rightly noted that there is no error in the findings recorded by the ld. AO in disallowances of additional deprecation on plant and machinery for second year - findings recorded by the CIT(A), while confirming additions made by the Ld. AO towards of additional depreciation in subsequent years is in accordance with law as enumerated under the provision of section 32(1)(iia) and hence, the findings of the ld. CIT(A) does not call for any interference from our side. Accordingly, the ground taken by the assessee is dismissed.

Disallowances of expenditure incurred in relation to exempt income u/s 14A - HELD THAT:- Although provisions of Rule 8D has no strict application for the year under consideration, but a reasonable expenditure related exempt income needs to be estimated considering the nature of investments and the amount of exempt income earned by the assessee. In this case, the assessee has earned huge amount of exempt income in the form of dividend from shares but did not disallowed any expenditure on its own. Although, the Ld. AO has determined disallowances, as per Rule 8D and which is on higher side, when compare to nature of investments and amount of exempt income earned for the year, but adhoc disallowances of ₹ 1 Lac sustained by the Ld.CIT(A) cannot be accepted. Therefore, considering the totality of facts and circumstances of this case and also taken note of the decision of the Hon’ble Bombay High Court in assessee’s own case for AY 2009-10 [2019 (3) TMI 397 - BOMBAY HIGH COURT] we are of the considered view that a reasonable amount of expenditure attributable to exempt income needs to be disallowed. Accordingly, we direct the Ld.AO to disallow 5% of total exempt income earned for the year towards expenditure incurred in relation to exempt income u/s 14A.

Characterization of income - treatment of sales tax incentives and excise duty benefits received - revenue or capital receipt - HELD THAT:- An identical issue has been considered by the co-ordinate bench of ITAT, in the case of Welspun India Ltd. Vs DCIT [2019 (2) TMI 1061 - ITAT MUMBAI] where under identical set of facts, the Tribunal held that sales tax incentives and excise duty benefit received by the assessee is in the nature of capital receipts not liable to tax.

Disallowance of depreciation on fixed assets u/s 40(a)(ia) r.w.s 37(1) under different categories on the plea that the deprecation was disallowed in the AY 2005-06 - whether the claim of the assessee with regard to depreciation on fixed assets, in respect of that expenditure for non deduction of tax at source is in accordance with law - HELD THAT:- The provisions of section 40(a)(ia) of the Act, is applicable, where any expenditure is debited into profit and loss account without deduction of tax at source, then to that extent, the expenditure on which TDS was not deducted is not allowable as deduction. Similarly, if any amount as capitalized to fixed assets and depreciation was claimed thereon, if no TDS is deducted, in respect of those capitalized fixed assets, then depreciation to that extent is not allowable. Assessee has failed to bring on record any evidence to prove that whether, the claim made, in respect of depreciation on fixed assets, in respect of those expenditure is in accordance with provision of section 40(a)(ia) of the Act. Therefore, we are of the considered view that the issue needs to go back to the file of AO for verification of facts with regard to applicability of provision of section 40(a)(ia). Hence, we set aside the issue to file of the Ld. AO and direct him to reconsider the issue in accordance with law.

Disallowances of FCCB premium and depreciation on FCCB premium debited to pre-operative expenses - HELD THAT:- Assesse has debited provision towards FCBB premium and FCBB issue expenditure, even though the bond holders have not exercised their option. If any expenditure is debited to profit and loss account by creation of provision and such liability was not crystallized, then obviously, the same cannot be allowed as deduction, and therefore to that extent, the findings of Ld. AO is correct. However, the fact remains that assessee claims to have offered the same for taxation for AY 2014-15, when the bond holders have exercised their option. In this regard, he has filed a copy of statement of total income, where FCCB premium paid on conversion of bonds into equity shares have been disallowed in the statement of total income. But, the facts with regard to the availability of these evidences before the AO at the time of assessment proceedings are not clear - issue needs to go back to the file of the Ld. AO to ascertain the fact with regard to the claim of the assesee that said expenditure has been suffered to tax in AY 201415. Hence, we set aside the issue to the file of the Ld. AO and direct him to cause necessary enquiries and if he is found that the said amount has been offered to tax in AY 2014-15, then the additions made for the year under consideration needs to be deleted.