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2019 (12) TMI 1299 - AT - Income TaxAssessment 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 Rs. 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 expense s - 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.
Issues Involved:
1. Validity of assessment order under Section 143(3) read with Section 153A of the Income Tax Act, 1961. 2. Disallowance of additional depreciation on fixed assets. 3. Disallowance of expenditure incurred in relation to exempt income under Section 14A. 4. Treatment of sales tax incentives and excise duty benefits as capital receipts. 5. Disallowance of depreciation on fixed assets under Section 40(a)(ia) read with Section 37. 6. Disallowance of FCCB premium and depreciation on FCCB premium debited to pre-operative expenses. Issue-wise Detailed Analysis: 1. Validity of Assessment Order under Section 143(3) read with Section 153A: The first issue concerns the validity of the assessment order passed under Section 143(3) read with Section 153A. The assessee argued that the assessment order was without jurisdiction and beyond the scope of Section 153A since the assessment was unabated as of the date of the search. The Tribunal noted that the assessment was abated due to the reopening under Section 147, and therefore, the Assessing Officer (AO) had the authority to assess or reassess the total income, including undisclosed income. The Tribunal concluded that the assessment order was valid and rejected the assessee's ground. 2. Disallowance of Additional Depreciation on Fixed Assets: The second issue pertains to the disallowance of additional depreciation claimed on fixed assets. The assessee claimed additional depreciation under Section 32(1)(iia) for subsequent years. The Tribunal held that the provision allows for a one-time deduction in the year the plant and machinery are installed and put to use. The Tribunal upheld the CIT(A)'s decision to disallow the additional depreciation claimed in subsequent years, stating that the legislative intent was to allow a one-time deduction. 3. Disallowance of Expenditure Incurred in Relation to Exempt Income under Section 14A: The third issue involves the disallowance of expenditure incurred in relation to exempt income under Section 14A. The AO applied Rule 8D and disallowed Rs. 95,64,303/-, while the CIT(A) restricted it to an ad hoc amount of Rs. 1 lakh. The Tribunal noted that although Rule 8D does not apply prior to AY 2008-09, a reasonable amount of expenditure related to exempt income should be disallowed. The Tribunal directed the AO to disallow 5% of the total exempt income earned for the year. 4. Treatment of Sales Tax Incentives and Excise Duty Benefits as Capital Receipts: The fourth issue is the treatment of sales tax incentives and excise duty benefits as capital receipts. The Tribunal referred to the decision in the case of Welspun India Ltd. and other judicial precedents, concluding that such incentives are capital receipts not liable to tax. The Tribunal upheld the CIT(A)'s decision to treat these incentives as capital receipts and rejected the revenue's appeal. 5. Disallowance of Depreciation on Fixed Assets under Section 40(a)(ia) read with Section 37: The fifth issue concerns the disallowance of depreciation on fixed assets under Section 40(a)(ia) read with Section 37 due to non-deduction of tax at source. The Tribunal noted that the issue needs to be examined on merits and directed the AO to verify the facts regarding the applicability of Section 40(a)(ia) and reconsider the issue in accordance with the law. 6. Disallowance of FCCB Premium and Depreciation on FCCB Premium Debited to Pre-operative Expenses: The sixth issue relates to the disallowance of FCCB premium and depreciation on FCCB premium debited to pre-operative expenses. The AO disallowed the expenditure, stating that it was a provision not crystallized during the year. The Tribunal noted that the assessee claimed to have offered the amount for taxation in AY 2014-15 and directed the AO to verify this claim. If verified, the additions made for the year under consideration should be deleted. Conclusion: The Tribunal partly allowed the appeals filed by both the assessee and the revenue for statistical purposes, directing further verification and reconsideration on certain issues. The Tribunal upheld the validity of the assessment order and the treatment of sales tax incentives and excise duty benefits as capital receipts, while directing the AO to re-examine other disallowances.
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