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TMI Blog2022 (6) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... case for disposal of the above batch of appeals. 3. The grounds of appeal raised by Revenue in ITA No. 1257/Ahd/2015 for A.Y. 2011-12 read as under: "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred (i) in deleting disallowance of Rs.72,96,816/- made u/s 14A of the IT Act |r.w. Rule 8D while computing Book Profit u/s 115JB of the IT Act, ignoring the provisions of Explanation [1] (f) to Section 115JB of the IT) Act. (ii) (a) in deleting the addition of Rs.4,73,27,345/- (net of depreciation) made on account 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. 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 234B of the Act. 10. The learned CIT(A) erred in fact and in law in confirming the action of AO in charging interest u/s. 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere fact that the assessee has accepted this disallowance affects that disallowance only and nothing more than that; it does not clothe such an adjustment, in computation of book profit under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of Rs. 72,96,816/while computing book profit u/s115JB. Thus,the ground of appeal no. 3 of the appellant is allowed." For the well-considered reasons given in the judgment passed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration 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 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 2005-06 Stage - 1 Bucket Kit along with set of hardware for Gas Turbine 3,35,44,305 Stage - 1 Bucket Kit - Cutter tooth along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 optimization of maintenance costs. The said book let further specifically notifies the parts which require careful attention and maintenance are those associated with the combustion process together with those exposed to the hot gases discharged from the combustion system. This include combustion liners, end caps, fuel nozzles assemblies, cross fire tubes, transition pieces, turbine nozzles, turbine stationery shrouds and turbine buckets. The said book let mentions about periodic inspection and repair/refurbish/replacement of the aforesaid parts of the gas tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 recurring nature and essentially required for smooth running of business of the assessee i.e, generation of power. The other decision of the Hon'ble Supreme Court relied upon by the learned D.R. in the case of CIT V/s. Sri Mangayarkarasi Mills (P) Ltd. 315 ITR 114 also following the decision in the case of CIT V/s. Saravana Spinning Mills (supra), has laid down the same proposition of law. On the other hand, the decisions relied upon by the assessee as noted in the order of the CIT(A) clearly supports the view that the expenditure incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reight, 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 treated as capital expenditure but Revenue expenditure only. i. Thus, 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. j. Therefore we have no hesitation in holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 801A. 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. The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 were no administrative expenses were incurred since the tax free income was essentially passive income requiring no efforts on the part of the assessee. The next part namely of financial expenses are concerned the assessee submitted it had not made any investments during the year in the assets yielding the tax free income. The adhoc disallowance of 10% on the exempt income under S.14A of the Act made by the AO is against law and the CIT[A] is also not correct in directing to adopt Rule 8D, since the assessment years are prior to the introduction Rule 8D. In the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L 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 granted on this Building and direct the AO to allow the same. Accordingly the CO filed on this ground is allowed. 25. Issue No.5 relates to disallowance of contribution made to various organizations: The assessee claimed payment of Rs.2,00,000/- to SVADES, Rs.95,65,559/- to DEEP and Rs.15,36,500/- 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. 26. In our considered view the CIT[A] h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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