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2016 (5) TMI 1170 - ITAT CHENNAI

2016 (5) TMI 1170 - ITAT CHENNAI - TMI - Disallowance u/s 14A - Held that:- Even if the investment did not yield any dividend in the year under consideration, the disallowance under section 14A of the Act on the expenditure incurred for earning income is warranted, notwithstanding the fact that no such income was earned. Further, we find that while making investment, the element of expenditure involved in the process cannot be ruled out. However, this expenditure may not be direct. Thus, there i .....

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made as per step-3 of the formula given in Rule-8D. Accordingly the legislature incorporated and introduced the Rule-8D. Further, as could be seen from the assessment order, the Assessing Officer has rightly quantified the expenditure under Rule 8D(2)(iii) and disallowed under section 14A of the Act. - Decided against assessee

Disallowance of additional depreciation under section 32(1)(iia) - whether the assessee is entitled to carry forward 50% of additional depreciation in the succe .....

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epreciation in the succeeding year as claimed by the assessee. - Decided against revenue - I.T.A.No.109/Mds/2015 - Dated:- 26-4-2016 - Shri Chandra Poojari, Accountant Member and Shri Duvvuru RL Reddy, Judicial Member For The Appellant : Shri Saroj Kumar Parida, Advocate For The Respondent : Mrs. S. Vijaya Prabha, JCIT ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) I, Chennai, dated 24.0 .....

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er section 143(1) of the Act on 11.02.2010. Subsequently, the case of the assessee was taken up for scrutiny and notice under section 143(2) of the Act was issued on 19.08.2010. After considering the details submitted by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act by making various additions. 3. On appeal, the ld. CIT(A), partly allowed the appeal filed by the assessee. 4. Aggrieved, the assessee is in appeal before the Tribunal. By relying on .....

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(iii) since the assessee itself has made disallowance of ₹.2,57,780/-. Therefore, he pleaded that the disallowance made by the Assessing Officer should be deleted. 5. On the other hand, the ld. DR strongly supported the order passed by the ld. CIT(A). 6. We have heard both sides, perused the materials on record and gone through the orders of authorities below. During the year under consideration, the assessee has received dividend income of ₹.20,62,729/- and ₹.74,01,390/- as lo .....

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rs routine expenditure to maintain its establishment and towards administration, a portion of which can be attributed towards investments. The assessee also incurs managerial remuneration and claims the whole of the same as expenditure. The managerial staff and the Directors are involved in making decisions on investments. Such being the case, a portion of this managerial remuneration and Directors remuneration should also be attributed towards the investments, the return on which is exempt unde .....

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exempt income in accordance with Rule 8D. In view of the decision of the Bombay High Court in the case of Godrej & Boyce vs. DCIT, wherein it has been held that disallowance under Rule 8D r.w.s. 14A(2) is "fair and reasonable", the Assessing Officer has worked out the disallowance and added to the total income of the assessee. On appeal, the ld. CIT(A) has observed that the disallowance of ₹.2,57,780 made by the assessee itself shows that the provisions of section 14A of the .....

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ailable own funds works out to ₹.1732.32 lakhs (₹.60 lakhs + ₹.1672.32 lakhs) and the investments was found to be only ₹.729.34 lakhs. The ld. CIT(A) has further noticed from the balance-sheet that these own funds of the assessee can take care of investment even after taking into account investment in fixed assets (₹.597.98 lakhs). Further, the amount borrowed from the bank is for a specific purpose i.e., cash credit and over draft. Therefore, the interest debited o .....

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qualify for disallowance under section 14A of the Act, the ld. CIT(A) has held that there is no decision so far by any similar forum contradicting tile above findings. Similarly, by following the decision of the ITAT Chennai in the case of Southern Petrochemical Industries (93 TTJ 161), the ld. CIT(A) confirmed the disallowance made under limb (iii) to Rule 8D(2), wherein, the Chennai Benches of the Tribunal has held as under: " ... Whether to invest or not to invest and whether to retain t .....

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ty itself called for considerable management attention and could not be left to a junior clerk. " 7. The contention of the assessee is that the disallowance should be computed by taking into consideration only such investment from which the assessee has actually received income and no disallowance can be made for the income not received is not acceptable, because, whether the assessee has earned any exempt income or not, once the assessee made investment, the direct/indirect management and .....

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ure involved in the process cannot be ruled out. However, this expenditure may not be direct. Thus, there is an expenditure involved in making these investments. Therefore, there is a need to identify and apportion a reasonable amount of expenses as attributable for earning the exempted income. In the case of DCIT v. SREI International Finance Ltd. (2006/10 SOT 722 (Delhi)- Trib.), the Delhi Benches of ITAT has held as under: In light of clear provisions of section 14A, even in case it is not po .....

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ome by invoking provisions of section 14A. 8. In order to arrive at a reasonable amount of expenditure, which may vary from case to case and situation to situation, the legislature, after taking various factors into consideration, came to a conclusion that such expenses can be reasonably calculated @ 0.5% of the average investments made by the assessee. For this purpose, the legislature has arrived at a common formula to calculate the expenses @ 0.5% of the average investments made as per step-3 .....

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regard to confirmation of disallowance of additional depreciation under section 32(1)(iia) of the Act. The assessee has claimed additional depreciation under section 32(1)(iia) of the Act amounting to ₹.15,95,635/- during the year out of which a claim amounting to ₹. 70,486/- was made on the additions to plant and machinery made during the preceding previous year. Since the additions were made during the second half of the year, 50% of the additional depreciation had been claimed dur .....

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ent years. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer. 11. Aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has strongly relied on the decision in the case of Apollo Tyres Ltd. v. ACIT [2014] 64 SOT 203 (Cochin) and decision in the case of CIT & Another v. Rittal India Pvt. Ltd. [2016] 380 ITR 423 (Karn.). By relying on the decision of the Coordinate Bench of the Tribunal in the case of Automotive Coaches & Components .....

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iation in the succeeding year when the plant and machinery was put in use less than 180 days in the preceding previous year. By following the decision of Cochin Benches of ITAT in the case of Apollo Tyres Ltd. v. ACIT (supra) and the decision of the Hon ble Karnataka High Court in the case of CIT & Another v. Rittal India Pvt. Ltd. (supra), the Coordinate Bench of the Tribunal in the case of Automotive Coaches & Components Ltd. v. DCIT (supra) has observed and held as under: 5. We have c .....

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he balance 50% was carried forward in the next year. The Assessing Officer found that the additional depreciation is allowable only during the year in which the machinery was installed and used for business of the assessee. There is no provision in the Income-tax Act for carry forward of the additional depreciation to the subsequent assessment year. This issue was examined by the Cochin Bench of this Tribunal in Apollo Tyres Ltd. v. ACIT (supra). The Cochin Bench found that if additional depreci .....

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led after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): Provided that no deduction shall be allowed in respect of (A) Any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) Any machinery or plant installed .....

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Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referred to clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty per cent of the amount calculated at .....

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red and installed the machinery after 31-03- 2005. It is also not in dispute that the assessee is engaged in the manufacture of article or thing. Therefore, the assessee is eligible for additional depreciation which is equivalent to 20% of the actual cost of such machinery. The dispute is the year in which the depreciation has to be allowed. The assessee has already claimed 10% of the depreciation in the earlier assessment year since the machinery was used for less than 180 days and claiming the .....

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ss than 180 days, the deduction shall be restricted to 50% of the amount calculated at the prescribed rate. Therefore, if the machinery is put to use in any particular year, the assessee is entitled for 50% of the prescribed rate of additional depreciation. The Income-tax Act is silent about the allowance of the balance 10% additional depreciation in the subsequent year. Taking advantage of this position, the assessee now claims that the year in which the machinery was put to use the assessee is .....

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assessee cannot carry forward the additional depreciation to be allowed in the subsequent assessment year. The Delhi Bench of this Tribunal after considering the provisions of section 32(1)(iia) and proviso to section 321)(ii) of the Act found that when there is no restriction in the Act to deny the benefit of balance 50%, the assessee is entitled for the balance additional depreciation in the subsequent assessment year. In fact, the Delhi Bench of this Tribunal has observed as follows at pages .....

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shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s 32(1)(iia) is one time benefit to encourage the industrialization and in view of the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188, the provisions related to it have to be construed reasonably, liberally and purposive to make the provision meaningful while gran .....

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y and plant. It has been calculated @15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisition. In section 32(1)(iia), the expression used I "shall be allowed". Thus, the assessee had earned the benefit as soon as he had purchased the new machinery and plant in full but it is restricted to 50% in that particular year on account of period usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% .....

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to extend the benefit. We allow ground no.2 of the assessee's appeal. Since we have decided ground no.2 in favour of assessee, there is no need to decide the alternate claim raised in ground no.3. The same is dismissed." 13. This issue was also considered by another bench of this Tribunal at Delhi in SIL Investment Ltd (supra). At page 233 of the TTJ, the Tribunal has observed as follows: "40. There is nothing on record to show that the directions given by the learned CIT(A) are no .....

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verification. Accordingly, finding no merit therein, ground No.3 raised by the Department is rejected." 14. A similar view was taken by Mumbai Bench of this Tribunal in MITC Rolling Mills (P.) Ltd. (supra). In view of the above decisions of the co-ordinate benches of this Tribunal on identical set of facts this Tribunal is of the considered opinion that the balance 50% of the depreciation has to be allowed in the subsequent year, therefore, the orders of the lower authorities on this issue .....

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e legislation is to allow additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. Accordingly, confirmed the order of the Bangalore Bench of this Tribunal. In fact, the Karnataka High Court has observed as follows:- 7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 0l. .....

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ith effect from 01.0.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause [ii] of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acqui .....

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o be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days said financial year. ………very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. 10. It has been consistently held by this Court, as well as the Apex Court, that beneficial legislation, as in the present case, should be given li .....

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tly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a onetime benefit to encourage industrialization, and provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal. 6. In view of the above, this Tribunal is of the considered opinion that the assessee is entitled for remaining 10% of the depreciation .....

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