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2022 (4) TMI 642 - AT - Income TaxNature of expenditure - Replacement of parts in machineries treated as capital in nature - reference to Technical Write Up, Details of spares consumed at regular intervals for various Asst. years - HELD THAT:- We need not labour ourself in coming to a conclusion that the Replacement of parts in machineries treated as Not Capital but “Revenue” in nature for a power generating company, these bucket spares are in the nature of consumables spares only notwithstanding its high cost. The buckets are designed with special profile of airfoil cross section for efficient energy conversion.Due to high working temperature of around 800' C and high speed of the turbine (5100 RPM), this component is the most critical in the turbine and failure of this component may lead to catastrophic damage to the machine. As seen from the Original Equipment Manufacturer namely BHEL/General Electric, USA have very categorically prescribed the operating life of the above bucket which helps to ensure trouble free operation and to avoid any catastrophic damage to the machine - also stated that by replacement of the buckets on completion of 48000 hours of continuous operation the power generation capacity is neither increased nor is the power plant efficiency or life of the plant gets increased. Replacement of parts is Capital or Revenue is No more Res integra based on the observation made by the Hon’ble Supreme Court in the case of CIT V/s. Saravana Spinning Mills[2007 (8) TMI 16 - SUPREME COURT] and CIT V/s. Sri Mangayarkarasi Mills (P) Ltd. [2009 (7) TMI 17 - SUPREME COURT] wherein held that when certain parts of an air-conditioner or a T.V. is replaced, it does not amount to replacement of entire unit. Applying the same logic to the facts of the assessee’s case, it can be said that there is no replacement of the gas turbine as a whole but certain repair and replacement to some of the parts of the gas turbine, which does not result in bringing into existence a new asset of enduring nature, rather, the repair and maintenance are of recurring nature and essentially required for smooth running of business of the assessee i.e, generation of power. Replacement of spares in the machineries would be allowable as Revenue expenditure only and addition made by the AO is directed to be deleted. Thus the Department ground is rejected. Claim of deduction u/s.80IA - initial assessment year - additional claim of deduction in respect of profit of 250MW Power Station denied on the ground that assessee neither obtained or filed audit report nor claimed deduction under s.80IA of the Act at the time of filing of original return of income - HELD THAT:- The issue is now settled by the Circular No.1/2016 issued by the CBDT that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. The Circular further clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. Thus the Assessing Officers are directed to allow deduction u/s 80IA in accordance with this clarification and Standing Counsels/D.R.s are suitably instructed pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in subsection (5) of section 80IA Following this Circular the SLP filed by the department was also dismissed against High Court's ruling that loss in year earlier to initial assessment year already absorbed against profit of other business cannot be notionally brought forward and set off against profits of eligible business as no such mandate is provided in section 80-IA(5) reported in Assistant Commissioner of Income-tax, Tirupur -Vs- Velayudhaswamy Spinning Mills (P.) Ltd. [2016 (11) TMI 373 - SC ORDER] - Following the same we hereby reject the Grounds of appeal filed by the Revenue and allow the claim of deduction u/s.80IA in favour of the assessee. Disallowance under s.14A r.w.r. 8D - HELD THAT:- The issue is now settled by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs- Commissioner of Income Tax, New Delhi [2018 (3) TMI 805 - SUPREME COURT] wherein it clearly held that Rule 8D is prospective in nature and could not have been made applicable in respect of assessment years prior to 2007 when this rule was inserted w.e.f. March 24, 2008 vide Income Tax (Fifth Amendment) Rules, 2008. Further jurisdictional High Court in the case of Principal Commissioner of Income-tax-4 Vs- Sintex Industries Ltd. [2017 (5) TMI 1160 - GUJARAT HIGH COURT] wherein it is clearly held that the Expenditure incurred in relation to income not includible in total income (Administrative expenses) - Whether where assessee already had its own surplus fund against which minor investment was made, no question of making any disallowance of expenditure in respect of interest and administrative expenses under section 14A arose and, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses under rule 8D - Thus we clear in our mind the direction given by the Ld CIT[A] to apply Rule 8D is not proper and there being the surplus funds were invested by the assessee and there were no administrative expenses, the disallowance made u/s.14A is unwarranted and liable to be deleted. Thus the Cross Objection filed by the assessee is allowed by deleting the addition made u/s.14A Depreciation on Managing Director’s residence - HELD THAT:- As the building is used for official-cumresidential purpose by the Managing Director, with all office facilities we find that 10% depreciation can be granted on this Building and direct the AO to allow the same. Accordingly the CO filed on this ground is allowed. Disallowance of contribution made to various organizations - CIT[A] granted relief in cases were the assessee has submitted Certificate of Registration of 80G in respect of payments made to SVADES and DEEP and balance amount was confirmed - HELD THAT:- In our considered view the CIT[A] has granted appropriate relief to the assessee, which does not require any further inference. Accordingly the CO filed on this ground is dismissed. Claim of deduction under 43B - interest payable to Power Finance Corporation which was not paid as per the provisions of section 43B of the Act disallowed - HELD THAT:- CIT(A) correctly by his detailed order has held that the AO was correct in not allowing the deduction of interest amounting to ₹ 2,49,82,597/-. However, the AO is directed to allow this as a deduction in AY 2008-09. Similarly, the interest payment disallowed in the earlier year, which was actually paid in the PY corresponding to AY 2007-08 should be allowed as deducting in this year.
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