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M/s. Associated Printers (Madras) (P) Ltd. Versus The Deputy Commissioner of Income Tax, Company Circle 1 (1) , Chennai

2016 (5) TMI 1170 - ITAT CHENNAI

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 is an expenditure involved in making these .....

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n 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 succeeding year when the plant and machinery w .....

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imed 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 24.09.2014 relevant to the assessment year 20 .....

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0. 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 the decision in the case of REI Agro Ltd .....

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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 long term capital gains on sale of mutual f .....

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tablishment 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 under section 10 of the Act. Before the Asses .....

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. 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 Act are applicable in the assessee s cas .....

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32.32 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 of ₹.2,37,570 cannot be attributed t .....

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A 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 the investments or to liquidate the same a .....

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ent 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 administrative expenses qualify for disal .....

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ed 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 possible to identify expenses incurred in e .....

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. 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 of the formula given in Rule-8D. Accordi .....

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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 during that year (being less than 180 days). .....

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irmed 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 Ltd. v. DCIT in I.T.A. No. 1789/Mds/2014 .....

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ant 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 considered the rival submissions on either .....

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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 depreciation could not be allowed at the rate of .....

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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 in any office premises or any residential .....

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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 the percentage prescribed for an asset un .....

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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 balance 10% in the year under considerat .....

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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 entitled for 50% additional depreciation .....

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onal 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 641 and 642 of the ITD: " Thus, the .....

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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 granting the additional allowance. This addit .....

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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% will not be allowed in succeeding year. .....

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.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 not proper. The eligibility for deduction o .....

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rit 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 are set side and the assessing officer i .....

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fit. 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.04.2006. Prior to that, a proviso to the .....

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dditional 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 acquired is put to use for less than 180 days .....

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on. 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 liberal interpretation so as to benefit the .....

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lowed 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 during the year under consideration. Acc .....

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