TMI Blog2022 (6) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. It is also 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. Further it is 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. The cost of the Gas Turbine parts such as Buckets and Nozzles are high primary due to very special metallurgy and manufacturing process provided by the manufacturer out side India and the assessee company procures the same by import and thus attracts custom duty, air freight, insurance etc. Further the replacement of parts is Capital or Revenue is No more Res integra based on the observation made by the Hon ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. Depreciation on building used for 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 - HELD THAT:- The assessee claimed payment to SVADES, to DEEP and to various NGOs the same were disallowed by the AO. But the Ld 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 - In our considered view the CIT[A] has granted appropriate relief to the assessee, which does not require any further inference. Disallowance u/s 43B - CIT(A) by his detailed order has held that the AO was correct in not allowing the deduction of interest however, the AO is directed to allow this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of capital expenditure in respect of spares (b) in deleting the addition of Rs.46,89,661/- (net of depreciation) made on account of repairs maintenance claimed. (c) in not applying the ratio of the decisions in the case of Ballimal Naval Kishor vs.CIT 222 ITR 414 (SC) and the Supreme Court decision in the case of CIT us Saravana Spinning Mills Pvt. Ltd. (2007) 293 ITR 201 (SC), to the fact of this case. (iii) in allowing the sundry balance written off amounting to Rs.5,02,042/- while computing deduction u/s 80IA of the IT Act. 4. The grounds of appeal raised by assessee in cross objection (CO No. 111/Ahd/2015) for A.Y. 2011-12 read as under: All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. 1. The learned Commissioner of Income Tax (Appeals) - 1, Vadodara [ the CIT(A) ] erred in fact and in law in confirming the action of Deputy Commissioner of Income Tax, Circle-1(1), Baroda ( the AO ) in reopening the assessment u/s 147 of the Income Tax Act, 1961 ( the Act ). Disallowance u/s. 14A: 2. The learned CIT(A) erred in fact and in law in confirming the action of AO in making disallowance by invoking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234C of the Act. 11. The learned CIT(A) erred in fact and in law in confirming the action of AO in ^charging interest u/s. 234D of the Act. 12. The learned CIT(A) erred in fact and in law in confirming the action of AO in initiating penalty proceeding u/s. 271(l)(c) of the Act. 5. As against this disallowances mentioned above, five disallowances were already considered by this Tribunal in ITA No. 3003/Ahd/2010 ors. relating to A.Ys. 2003-04 ors., vide order dated 28.02.2022. It is being agreed by both the parties. The issues are already covered in assessee s own case in ITA No. 3003/Ahd/2010. However, issue regarding disallowance under s.14A of the Act in computation of book profit under s.115JB of the Act is a new issue to be considered by the Tribunal. The AO while computing the book profit under s.115JB of the Act of Rs.1,20,51,97,223/-. The AO added a sum of Rs.72,96,816/- which was disallowed under s.14A of the Act. 6. The brief facts of the case are that assessee is engaged in generation of power in the form of electricity. During Asst. Year 2011-127, assessee filed its return of income declaring Nil income and book profit u/s. 115JB of IT Act of Rs.1,20,51, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 115JB, with legality. There is no dispute that there is no corresponding tax exempt income. Therefore, the adjustment in question is indeed unsustainable in law. ii) H5BC Invest Direct (I ndia) Ltd. v. DCIT [ITA Nos. 3485 3944/Mum/2012] The expenditure disallowed U/S.14A is only that incurred and claimed by the assessee in respect of dividend income, exempt u/s. 10. It is only on this basis, and this basis alone, that we have found Explanation l(f) to section 115JB (s.115JA) to be providing a clear legal basis to the adjustment qua expenditure relatable to dividend income. That the amount disallowed U/S.14A provides a ready basis for determining the amount of such expenditure is another matter. It would be a complete fallacy and a travesty of facts, being without basis and wholly presumptuous to state or consider that the disallowance (u/s 14A) is qua notional expenditure and not against that actually claimed by the assesses and, further, per its books of account. Or does it mean to suggest that the expenditure claimed is outside the books of account? We say so as without doubt the adjustment under Explanation 1 could only be qua sums debited or credited and thus re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Ahmedabad Bench, Mumbai bench and Delhi Bench, we have no hesitation in confirming the deletion made by the CIT(A). Therefore, this ground of appeal raised by the Revenue is hereby rejected. 8. In the remaining issues, namely, Ground Nos. 1to 3, 5 6 are being covered in assessee s own case in ITA No. 3003/Ahd/2010 ors. relating to A.Ys. 2003-04 ors., dated 28.02.2022. The findings of the same had been reproduced hereunder: 14. Issue No.1 regarding Replacement of parts in machineries treated as capital in nature. The Ld AR Mr. Milan Metha appearing for the assessee submission is of two folds [a] that the Accounting method or accounting treatment whether statutorily prescribed under any law or otherwise cannot override the provisions of the Income Tax Act. Further Classification of items in the books is not relevant for deciding the treatment of such items while computing taxable income as held by the Hon ble Supreme Court in the case of Kedarnath Jute Manufacturing Co Ltd - 82 ITR 363. Thus the book entries are not conclusive for determining the nature of expenditure. The provisions of law prevail over the book entries. Accordingly, consumption of spares being onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Buckets and Nozzles are high primary due to very special metallurgy and manufacturing process provided by the manufacturer viz. General Electric. USA. The landed cost to the assessee company also increases as the same is required to be imported and thus attracts custom duty, air freight, insurance etc. The details of spares consumed at regular intervals for various Asst. years is as under: Asst Year Item Description Amount (Rs.) 2003-04 Stage - 1 Bucket Kit, Frame - VI PNo. 314B7162G015 3,96,92,557 2004-05 Stage - 1 Bucket Kit along with set of hardware for Gas Turbine 3,11,38,001 Stage - 1 Bucket Kit - Cutter tooth along with set of hardware for Gas Turbine spare 2,30,61,292 Stage - 2 Nozzle Kit with inter-stage rush seals for FR - 9 Gas Turbine 9,79,20,788 Stage - 2 Bucket Kit, Cutter teeth design for FR - 9 Gas Turbine 6,88,20,943 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 2014 [ID2]-GJX-0224THYD wherein after detailed discussion of Supreme Courts and other Judgements held as follows: 15. We have heard the submissions of the parties and perused the orders of the revenue authorities as well as other materials placed on record. It is quite evident from the facts emanating from record that the expenditure incurred of Rs.20,21,46,278/- which is subject matter of disallowance was towards repair/replacement of nozzles, buckets, shrouds, bearings, pieces and combustion liners which are parts of the three gas tur bines utilized for generating power. It is also a fact that the power generation plant consists of two systems i.e., gas turbines and generating unit. As can be noticed from the process of generation of power as discussed by the CIT(A) in his order, there is no intermediate product in the generation of power. It is also a fact on record that the replaced/repaired parts were relating to three gas turbines. A book let submitted by the assessee regarding operation and maintenance of heavy duty gas turbine clearly shows that a well planned maintenance programme is required for getting the maximum equipment availability and optimizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Saravana Spinning Mills, there is a clear observation of the Hon ble Supreme Court that the Textile Plant consists of different departments having its own independent plants and machinery which produce different intermediate products. However, in the case of the assessee there is no such intermediate products which requires independent and separate plants and machinery. On the contrary, what the assessee has replaced is certain parts of the gas turbines and the gas turbines as a whole have not been replaced. Therefore, in this context the observation made by the Hon ble Supreme Court in the case of CIT V/s. Saravana Spinning Mills rather favours the assessee. Because the Hon ble Supreme court in the said decision has held that when certain parts of a air conditioner or a T.V. is replaced, it does not amount to replacement of entire unit. Therefore, 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o avoid any catastrophic damage to the machine. e. Further it is 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. f. The cost of the Gas Turbine parts such as Buckets and Nozzles are high primary due to very special metallurgy and manufacturing process provided by the manufacturer out side India and the assessee company procures the same by import and thus attracts custom duty, air freight, insurance etc. g. Further the 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 and CIT V/s. Sri Mangayarkarasi Mills (P) Ltd. 315 ITR 114 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. h. Thus this issue is already dealt by the co-ordinate Benches of ITAT, Hyderabad in the case of DCIT -Vs- AP Gas Power Corporation Ltd wherein after detailed discussion held that expenditure incurred by the assessee cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) 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. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 801A for ten consecu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. 19. 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) of the IT Act reported in Assistant Commissioner of Income-tax, Tirupur -Vs- Velayudhaswamy Spinning Mills (P.) Ltd. reported in [2016] 76 taxmann.com 176 (SC). 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. 20. Issue No.3 relates to disallowance under Section 14A of the Act. The Ld Counsel for the assessee submitted that the assessee disclosed tax free income of Rs.65,36,070/-, comprising of dividend income and interest on tax free bond. However there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. 23. Issue No. 4 relates to depreciation on building used for Managing Director s residence. Ld AR submitted that as per the depreciation chart in the tax audit report, an addition of Rs.87,27,750/- on account of GIPCL House under the head factory building. The assessee claimed MD s house is residence-cumoffice building is used for the purpose of residence/office of the Managing Director and he discharges his official duties 365 days for official meetings, therefore the rate of depreciation of 10% is claimed by the assessee. Per Contra the Ld DR relied on the orders of the Lower Authorities. 24. We have given our thoughtful consideration on the materials placed before us, as the building is used for official-cumresidential purpose by the Managing Director, with all office facilities we find that 10% depreciation can be g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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