Deputy Commissioner of Income Tax, Circle - 2, Belagavi V. M/s Nirani Sugars Limited, Belagavi

ITA 178/PAN/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0354 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Assessment Year: 2011-2012
• Appeal Filed On: 25-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KULKARNI
• Assessee Lawyers: RIJULA UNIYAL
• Keywords: Depreciation; Set aside
• Section: 32; 143(1); 205; 139(1); 139(4)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T. A. No. 178/PAN/2018 Assessment Year: 2011-12 Deputy Commissioner of Income Tax, Circle 2, Belagavi Vs. M/s Nirani Sugars Limited, Jamkhandi Road, Mudhol, Belagavi [PAN: AABCN 2166J] (Appellant) (Respondent) Appellant by : Shri Ashok Kulkarni, Adv. Respondent by: Smt Rijula Uniyal, Sr. DR Date of Hearing: 07.04.2022 Date of Pronouncement: 23.06.2022 ORDER Per Dr. M. L. Meena, AM: The appeal was filed by the Revenue against the impugned order dated 01.02.2018 passed by the Ld. Commissioner of Income Tax (Appeals), Belagavi, in respect of the Assessment Year 2011-12. 2. The Revenue has raised the following amended grounds of appeal vide letter F. No. ITAT/PNJ/2021-22 dated 06.04.2022 as under: 2 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. “(i) The ld. CIT(A) erred in law and on facts by allowing the depreciation under Rule 5 @ 80% as against allowable on Straight Line Method @ 7.69% as per Rule 5 read with Appendix 1A on plant and machinery, as the assessee failed to exercise option of claiming depreciation at the higher rate @80% before the due date of furnishing the return of income u/s 139(1) of the Income Tax Act, 1961. (ii) The ld. CIT(A) erred in deleting the addition of Rs.2,75,00,000/- as per section 36(1)(iii) of the Income Tax Act, 1961 on account of interest not allowable even though the assessee has borrowed huge money from financial institutions for the purpose of its business and paid high rate of interest inspite of having its own funds. (iii) For these and other grounds that may be urged at the time of hearing, the order of the learned CIT(Appeals) may be set aside and that the order of the Assessing Officer be restored.” 3. Brief facts of the records are that the appellant company is engaged in the business of production of Sugar, malicious and generation of electric powers during the course of the assessing proceedings. The Assessing Officer (In short “the AO”) has noticed that the appellant assessee had claimed depreciation at the rate of 80% for plant and machinery under Appendix -1 under Rule 5 of the IT Rules. In the Assessment Order, the A.O stated that during the year under consideration, the assessee has claimed depreciation of Rs.40,51,80,080/- on plan and machinery being energy saving devices @80% on the WDV. A.O further stated that during the A.Y.2009-10, the assessee had claimed depreciation @80% on such plant and machinery being energy saving devices as per New Appendix 1 under Rule 5 under item 8(ix)(d). Similarly, for A.Y.2010-11, the assessee's claim of depreciation @80% on such plant and machinery was denied as per the proviso under rule 5 that any option exercised once shall be final 3 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. and the same shall apply to all subsequent years. Thus, again for AY2010- 11, the assessee was allowed depreciation on such plant and machinery @7.69% as per Appendix 1A under Rule 5 in the Assessment order which was also confirmed by the CIT(A). Considering that A.O has made addition on account of disallowance of claim of depreciation on plants and machinery. 4. During the Assessment proceedings, the A.O after examination of the financial statements of the appellant company held that “assessee has borrowed interest bearing funds at a higher rate inspite of having his own funds in the form of capital and reserves with an intention to deprive the revenue of its taxes". Accordingly, on such assumption the A.O arrived at a figure estimated interest of Rs.2.75 crores which was disallowed as expenses. 4.1. The A.O has noticed from the P & L account and the balance sheet for the year under consideration, that assessee had debited interest expenses to the tune of Rs.26.29 crores on loans borrowed and balance of these loans was shown at Rs.530.48 crores whereas, the assessee had credited interest income of Rs.1.5 lakhs on loan advanced and bank balances. The closing balance of such advances was shown at Rs.142.80 crores. The funds available with the assessee in the form of cash and bank balances were of Rs.74.82 crores, advance income tax of Rs.28 lakhs and CENVAT receivable of Rs.7.81 crores cannot be considered as interest free advance granted thereby leaving trade deposits, cane advances and other advances of Rs.59.90 crores which is hereby considered for interest 4 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. not allowable as expenses. The interest on these advances totaling Rs.59.9 crores amounting to Rs.2.75 crores @ 4.95% was disallowed out of the interest expenses of Rs.26.29crores claimed u/s.36(l)(iii) of the I. T. Act. 5. Aggrieved with the assessment order, the appellant assessee filed an appeal before the ld. CIT(A) who has deleted the addition by observing vide para 6 to 9.2 as under: “6. Issue regarding Depreciation on plant and machinery: In the Assessment order A.O stated that during the year under consideration, the assessee has claimed depreciation of Rs.40,51,80,080/- on plan and machinery being energy saving devices @80% on the WDV. A.O further stated that during the A.Y.2009-10, the assessee had claimed depreciation @80% on such plant and machinery being energy saving devices as per New Appendix 1 under Rule 5 under item 8(ix)(d). Similarly for A.Y.2010-11, the assessee's claim of depreciation @80% on such plant and machinery was denied as per the proviso under rule 5 that any option exercised once shall be final and the same shall apply to all subsequent years. Thus, again for AY2010-11, the assessee was allowed depreciation on such plant and machinery @7.69% as per Appendix 1A under Rule 5 in the Assessment order which was also confirmed by the CIT(A). Considering that A.O has made addition of Rs.33,79,24,000/- as depreciation on plants and machinery. 6.1. During the hearing proceedings AR of the Appellant submitted that the disallowance of depreciation for assessment order for the A.Y.2009-10 & 2010- 11 was subject matter of appeal before the Hon'ble Income Tax Appellate tribunal, Panaji Bench, Goa and the same was allowed in favour of assessee. Relevant portion of ITAT order is as under: ".....We therefore, set aside the order of CIT(A) on this issue and direct the AO to allow the depreciation to the Assessee in accordance with Appendix-1 on the 5 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. items which are mentioned under column 8(ix)(d) as per the rate specified therein. Thus, ground nos. 1 to 7 in A. Ys 2009-10 and 2010-11 are allowed." 6.2. The Assessing Officer took straight line method against assessee's claim of WDV. The jurisdictional ITAT has allowed the claim of the assessee in assessee's own cases for A.Y.2009-10 & 2010-11. Department also accepted the WDV method for later years. Considering the facts I am of the opinion that the addition made by the A.O is unwarranted and not in accordance with law. Hence the same is deleted. 8. Issue regarding interest expenses of Rs.2,75,00,000/-: The appellant has borrowed huge money from financial institutions for the purpose of its business. During the Assessment proceedings, the A.O after examination of the financial statements of the appellant company held that “assessee has borrowed interest bearing funds at a higher rate inspite of having his own funds in the form of capital and reserves with an intention to deprive the revenue of its taxes". On this assumption the A.O arrived at a figure estimated interest of Rs.2.75 crores which accordingly disallowed as expenses. 8.1. A.O in his Assessment order stated that ".........from the P & L account and the balance sheet for the year under consideration, it was observed that assessee had debited interest expenses to the tune of Rs.26.29 crores on loans borrowed and balance of these loans was shown at Rs.530.48 crores whereas, the assessee had credited interest income of Rs.1.5 lakhs on loan advanced and bank balances. The closing balance of such advances was shown at Rs.142.80 crores." "........The funds available with the assessee in the form of cash and bank balances of Rs.74.82 crores, advance income tax of Rs.28 lakhs and CENVAT receivable of Rs.7.81 crores cannot be considered as interest free advance granted thereby leaving trade deposits, cane advances and other advances of Rs.59.90 crores which is hereby considered for interest not allowable as expenses. The interest on these advances totaling Rs.59.9 crores amounting to Rs.2.75 crores @ 4.95% is disallowed out of the interest expenses of Rs.26.29crores u/s.36(l)(iii) of the I. T. Act." 8.2. In the Assessment proceeding the Assessee had submitted as under: "........We have satisfied the requisite conditions for allowability of the claim of deduction of interest under section i.e. The moneys must have been borrowed by 6 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. us, The moneys have been borrowed for the purpose of business and Interest has been paid on the borrowed amount. We have ample "own funds" in the form of capital and reserves, which are adequate to cover the aggregate interest- free loans/ advances given. Hence the interest paid on borrowed funds should not be disallowed." 8.3. From the facts it is clear that amount borrowed is for the purpose of business. There is no case for either diversion of funds for non business purpose or for personal use. Amount of free advances were towards trade deposits, cane advances etc. Assessee is a sugar manufacturing company, these advances are for purpose of its regular business activities of for personal use. When the amounts are borrowed for the purpose of business and the interest is paid, this interest should be allowed. 8.4. Considering the facts I am of the opinion that interest on borrowed funds are used for business purpose only. Following the decision of CIT vs. Bombay Samachar Ltd 74 ITR 723 @ (Bom) and Regal theatre vs. CIT 225 ITR 205 @ 212 (Mad), the addition made by the A.O is deleted.” 6. The Department being aggrieved with the order of the ld. CIT(A) is in appeal before us. The ld. Dr has placed reliance on the assessment order and contended that the ld. CIT(A) has erred in law and on facts by allowing the depreciation under Rule 5 @ 80% as against allowable on Straight Line Method @ 7.69% as per Rule 5 read with Appendix 1A on plant and machinery, as the assessee failed to exercise option of claiming depreciation at the higher rate @80% before the due date of furnishing the return of income u/s 139(1) of the Income Tax Act, 1961 and that the ld. CIT(A) was not justified in deleting the addition of Rs.2,75,00,000/- as per section 36(1)(iii) of the Income Tax Act, 1961 on account of interest not allowable even though the assessee has borrowed huge money from financial institutions for the purpose of its business and paid high rate of 7 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. interest inspite of having its own funds. He urged at the time of hearing, that the order of the learned CIT(Appeals) may be set aside and that the order of the Assessing Officer be restored. 7. Per contra, the ld. counsel supported the order of the ld. CIT(A). He submitted that the ld. CIT(A) has been just fair in holding that borrowed funds were used for business purposes. Therefore, the interest paid is allowable deduction. He has filed a written submission relevant part of the same is reproduced as under: “The appellant had borrowed huge amount aggregating to Rs.530.48 Crores. A sum of Rs.26.29 Crores of interest is debited to the profit and loss account. The assessing officer proceeded on the assumption that the appellant has sufficient funds in the form of capital and reserves, and the borrowal of funds was only to reduce the tax burden. Placing reliance on Section 36(1)(iii) of the Income Tax Act, 1961 a sum of Rs.2.75 Crores of interest was disallowed. 2. The first appellate authority held that the borrowed funds are for business purpose. Therefore, the interest paid is allowable deduction. The addition of Rs.2.75 Crores was deleted. 3. In the present appeal, inter-alia, the revenue is contesting the deletion of Rs.2,75,00,000/-. Ground No.2 reads as under: “The Id.CIT(A) erred in deleting the addition of Rs. 2,75,000/- as per section 36(1)(iii) of the Income Tax Act, 1961 on account of interest not allowable even though the assessee has borrowed huge money from financial institutions for the purpose of its business and paid high rate of interest inspite of having its own funds.” 4. The appellant has borrowed money from financial institutions for the purpose of its business. During the assessment proceedings, the Assessing 8 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. Officer, after examining the financial statements of the appellant company held that, “assessee has borrowed interest bearing funds at a higher rate inspite of having his own funds in the form of capital and reserves with an intention to deprive the revenue of its taxes”. On this assumption the Assessing Officer arrived at a figure of Rs.2.75 crores which according to him is interest not allowable as deduction u/s 36(1 )(iii) of the Act. Assessing Officer, considered Rs. 142.80 (i.e. the sum of Cash and Bank Balances (Schedule - 8) & Loans & Advances - schedule -9) as Less-interest bearing loans advanced. Then he Reduced Rs.74.82 crore (Cash and Bank balances), 0.28 crore (Advance Income Tax) & Rs.7.81Crores (CENVAT credit) from 142.80 crore to arrive at a Total of Rs.59.90 crores. Assessing Officer treated such advances as Less-lnterest bearing advances. We wish to submit that these are the Advances given to Cane growers for procurement of Cane and Advances given to Cane Harvesting and Transporting contractors for the services to be availed. Generally such advances are given to secure Sugar Cane for and contractor’s services and are interest free. 5. It is to be stated that the aggregate loan as on 31.03.2011 was about Rs.530.49 Crores. The breakup of the amount borrowed is as under: S. No. Particulars Amount (in Crores) Utilized For a) Term Loan - for procurement of fixed assets 393.84 Fixed Assets - The closing balance of the assets is Rs.454.83 Crores b) Cash Credit (Working capital) 122.05 Working Capital - Net Current Assets are Rs. 147.97 crores c) Cane Purchase Tax Converted into loan under Govt. of Karnataka Scheme 14.60 Cane Purchased tax payable is deferred and converted into Loan. d) Total 530.49 Note : Profit and Loss A/c & the Balance Sheet for FY 2010-11 (AY 2011-12) is enclosed. 9 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. 6. Admittedly, the appellant had borrowed the funds from the financial institutions for the purpose of its business. This fact is not disputed. It is submitted that the conditions for getting deduction in respect of interest u/s 36(1 )(iii) are: i. money must have been borrowed by the assessee; ii. it must have been borrowed for the purpose of business, and iii. the assessee must have paid interest on the said amount and claimed it as a deduction. 7. It is submitted that, once the conditions stated above are satisfied, the deductions as provided u/s 36(1 )(iii) of the Act is to be allowed. It is not the case of the revenue that the money borrowed is used by the assessee not for a business purpose but for personal benefit. Nor it is the case of the assessing officer that the borrowed sums are diverted for other than business purpose. It is very important to note that it is not the case of the Revenue that the borrowed funds are utilized for other than the business purpose. The case of the Department appears to be that, it was not required for the appellant to borrow funds for the purpose of business. Kind reference is invited to the decision of the Apex Court in S.A. Builders Vs. CIT 288 ITR 1 (SC). The ratio of the decision in the case of S.A. Builders is applicable in the present case with all force. 8. In view of these circumstances, it is prayed that the ground of appeal relating to deletion of addition of Rs.2,75,00,000/- be dismissed.” 7.1. As regards to the issue of the claim of depreciation, the counsel has placed the reliance on the judgment of the ITAT Panaji Bench in the assessee’s own case, passed vide order dated 19.02.2015 where the tribunal has observed vide paras 11 to 15 are as under: “11. So far exercising of the option is concerned, we noted from the proviso to Rule 5(1A) that nothing has been mentioned as to how the option has to be exercised for claiming the depreciation as per Appendix-1. We noted that on the basis of the decision as relied by the ld. AR, the Chennai Bench of the Tribunal in the case of K.K.S.K. Leather Processors (P.) Ltd. vs. ITO, 126 ITD 215 has clearly laid down that the claim in the return will tantamount to exercising of the 10 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. option. In this case, we noted, the Chennai Bench of the Tribunal has held as under: “Section 32 of the Income-tax Act, 1961, read with rule 5 of the Income-tax Rules, 1962 - Depreciation - Allowance/Rate of - Assessment years 2001-02, 2003-04 and 2005-06 - Assessee filed its return of income claiming depreciation at rate of 80% per cent on windmills - Assessing Officer taking a view that assessee did not exercise option under second proviso to rule 5(1A) before due date of filing return of income under section 139(1) for claiming higher rate of depreciation as provided in Appendix I to rule 5(1A), disallowed assessee ’s claim - He, thus, allowed depreciation only at 7.69 per cent of actual cost applying rule 5(1A), rate of depreciation admissible vide Appendix 1A - Whether since there is no specific form or method prescribed for exercising option, claim made in return of income as well as reflected from books of account and audit report filed along with return of income was more than exercise of option as required under second proviso to rule5(1A)- Held, yes - Whether, therefore, assessee was entitled to depreciation on windmills at a higher rate - Held, yes.” 12. The Hon'ble Madras High Court in the case of CIT vs. Kikani Exports P. Ltd., 369 ITR 500 (Mad) has held:- “Held accordingly, dismissing the appeals, that if the assesses exercised the option in terms of the second proviso to rule 5(1A) at the time of furnishing of return, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required. Since the returns were filed in accordance with section 139(1) and the form prescribed therein makes a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required. The option once exercised will continue to all the subsequent years, the assesses are not required to exercise such option each and every year separately.” 13. The Chennai Bench of the Tribunal in ITA No. 2064/Mad/2008 in the case of K. Ravi vs. ACIT, (2010) 2 ITR (Trib) 752 (Chennai) has held as under: “4. We have heard the learned Departmental representative as well as the learned authorized representative and considered the relevant record. As per the provisions of section 32(1)(i), the depreciation on asset of an undertaking engaged in generation or generation and distribution of power is at a percentage as prescribed as per the rates on the actual cost thereof. Thus, sub-clause (i) of 11 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. sub-section (1) of section 32 of the Income-tax Act makes it clear that the depreciation at a prescribed rate on the asset as specified in clause (i) would be on actual cost instead of written down value (WDV). Further Explanation 5 to sub-section (1) of section 32 of the Income-tax Act stipulates that the provision of sub-section (1) shall apply irrespective of any claim made by the assessee with respect to depreciation in computing his total income. For better understanding, we narrate Explanation 5 as under: "For the removal of doubts, it is hereby declared that the provisions of this sub- section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income.” 5. From the provisions of section 32 read with Explanation 5 it is clear that the Assessing Officer is duty bound and under obligation to allow the deduction of depreciation as per the provisions of sub-section (1) of section 32. Since two rates of depreciation are prescribed as per Appendix I and Appendix IA to the Income-tax Rules in respect of assets of the undertaking engaged for generation and distribution of power. Thus, to make it clear and facilitate the Assessing Officer as to which of the rates provided under two different appendixes of depreciation shall be applicable, the second proviso to rule 5(1A) requires the assessee to exercise its option that the depreciation be allowed as per Appendix I. Therefore, the option exercised as per rule 5(1A) is only to facilitate the Assessing Officer in discharging his obligation as per Explanation 5 to sub section (1) of section 32 of the Income-tax Act, so that the depreciation shall be allowed as per the option of the assessee and not at the discretion of the Assessing Officer. 6. In the case in hand, there is no dispute regarding entitlement of the assessee to higher rate of depreciation on wind mill as per Appendix I, but the Assessing Officer has disallowed the claim on the ground that the assessee in the earlier year, i.e., the assessment year 2005-06 did not exercise option within the due date of filing of return as per section 139(1) of the Income-tax Act. Thus on the merits there is no dispute about the entitlement of the assessee at 80 per cent. of depreciation on wind mill but due to technical defect in view of the Assessing Officer the assessee was denied the said claim. When there is no specific form or method prescribed for exercising the said option as per the second proviso to rule 5(1A), then the claim made in the return of income as well as reflected from the books of account and audit report is more than sufficient for exercising the option as required under the second proviso to rule 5(1A). It is an undisputed fact that the assessee exercised the option for the assessment year 2005-06 but the 12 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. return was filed after the due date of filing return as per section 139(1) of the Income-tax Act. It may be an issue of exercising the option after due date for the assessment year 2005-06 but it cannot be an issue in dispute for the subsequent year. As per the third proviso to rule 5(1A) when an option once exercised shall be final and shall apply to all the subsequent assessment years ; then for the subsequent years, there is no requirement of exercising any separate option. Once the assessee has exercised his option for the assessment year 2005-06, that may be belated for that assessment year but once it is exercised then there is no requirement for further exercising the option in the subsequent year. Even otherwise the option exercised for the assessment year 2005- 06 becomes final and applicable to the assessment year 2006-07, which is under consideration and the same is well within time for this year. 7. In view of the above discussion, we hold that the assessee, for the year under consideration, has satisfied the requirement of the second proviso to rule 5(1A) and therefore, is entitled to depreciation on wind mill as per Appendix I. The lower authorities have not taken a correct view on this issue. The orders of the lower authorities are set aside qua this issue.” 14. We noted that the Delhi Bench of the Tribunal in the case of Jindal Steel and Power Ltd. vs. CIT, (2007) 106 TTJ Delhi 943 has held as under: 32. Ground of appeal No. 2 is directed against the disallowance of depreciation on turbines to the extent of Rs. 2,21,40,1312 out of Rs. 3,80,50,138 claimed by the assessee on the ground that the assessee was entitled to depreciation on straightline basis and not on the WDV basis. The learned AO held that under rules various power generating turbines put to use during the financial year 1998- 99 were entitled to depreciation on straightline method. During the course of proceedings before the learned CIT(A), the assessee pointed out that under r.5(1A) of IT Rules, the assessee was given an option to claim depreciation if he so desired on WDV basis instead of straight line method basis. Since the assessee had opted for depreciation on WDV basis, the AO erred in reducing the assessee ’s claim of depreciation to an amount worked out on the basis of straight line method. The learned CIT(A) held that the assessee had not exercised his option and, therefore, the AO rightly calculated depreciation on straight line method. On consideration of the matter we find that as per second proviso to r. 5(1A), the assessee may, instead of the depreciation specified in Appen. IA on his option, be allowed depreciation under sub-r. (i) r/w Appen. I i.e. on WDV basis if such option was exercise by the assessee before 13 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. the due date for furnishing the return of income under Section 139(1) of the Act for asst. yr. 1998-99 or for the assessment relevant to the previous year in which the assessee began to generate power, whichever is later. It is seen that no particular format or procedure has been laid down in the second proviso in relation to exercise of option by an assessee. Second proviso only says that option is to be exercised before the due date for furnishing the return of income under Section 139(1) for the asst. yr. 1998-99 in respect of power generating undertaking then existing and for the first assessment year in which a new undertaking begins to generate power. The case of the assessee is that it began to generate power during the previous year relevant to asst. yr. 1999-2000. As per Annex. D annexed to the computation of income chargeable to tax filed along with the return of income for asst. yr. 1999-2000, the assessee had claimed depreciation in accordance with sub-r. (1) r/w Appen. I. Thereafter the assessee ‟s return of income was processed under Section 143(1) on 29th Sept., 2000 and no adjustment in that behalf was made by the AO. According to the learned counsel for the assessee the return of income filed before the due date of furnishing the return under Section 139(1) for asst. yr. 1999-2000, made proper compliance to the requirements of the second proviso to r. 5(1A) of IT Rules. On consideration of the matter we accept this argument. As noticed earlier the provisions of IT Rules, 1962 have not laid down any particular procedure for exercise of option by the assessee. That being so the assessee could find the occasion to exercise his option while filing the return of income for asst. yr. 1999-2000. We do not appreciate the logic of the contention of the learned counsel CIT(A) that even after having claimed depreciation under the general provisions of Appen. I, the assessee had not exercised his option as contemplated in the second proviso. We, therefore, allow assessee ’s ground of appeal No. 2 and direct the learned AO to allow the assessee depreciation as admissible to the assessee under sub-r. (1) of r. 5 r/w Appen. 1.” 15. From these decisions, it is apparent that Rule 5(1A) has not prescribed any particular form or procedure in the second proviso in relation to exercising of the option by the Assessee. The second proviso to Rule 5(1A) only lays down that the option has to be exercised before the due date of furnishing of return of income u/s 139(1) for A.Y 1998-99 in respect of power generating undertaking then existing and for the first assessment year in which a new undertaking begins to generate power. The Assessee claimed depreciation in its return, even though filed belatedly, but within the date as prescribed u/s 139(4) in accordance with sub-rule (1) read with Appendix-1. The Hon'ble Bombay High Court, as we have already noted above, while interpreting explanation to 14 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. Sec. 11(1) took the view that if the return is filed within the time allowed u/s 139(4) the requirement of the said explanation will stand satisfied. Similar view has been taken by the Hon'ble Karnataka High Court while interpreting the provisions of Sec. 54. The decision of the jurisdiction High Court is binding on us. No contrary decision was brought to our knowledge. Even otherwise also, it is a settled law that rule cannot supersede the Act. U/s 32 there is no specific provision of exercising of the option within a particular time, therefore, to that extent the condition imposed under Rule 5(1A) proviso (ii), in our opinion, is invalid. We, therefore, set aside the order of CIT(A) on this issue and direct the AO to allow the depreciation to the Assessee in accordance with Appendix-1 on the items which are mentioned under column 8(ix)(d) as per the rate specified therein. Thus, ground nos. 1 to 7 in A.Ys 2009-10 and 2010-11 are allowed.” 7.2 He has further placed reliance on the judgment of Hon’ble Karnataka High Court in the assessee’s own case in ITA No. 100098 of 2015 wherein the Hon’ble Lordship has observed vide paras 8 to 10 are as under: “8 . Th u s, f ro m th e clo se sc ru t in y o f Ru l e 5 (1 A ) a s w e ll a s Ru le 1 7 ( 1 ) o f th e Ru le s, it is e vid e n t th a t th e a fo re sa id p ro v is io n s o f pari materia p ro v is io n s. Ru le 1 7 ( 1 ) o f th e Ru le s w a s su bje c t ma tte r o f in te rp re ta t io n in b e fo re th e Ho n 'b le S u p re me Co u rt in th e ca se o f Commissioner of Income Tax (supra). In th e a fo re sa id d e cis io n , th e Ho n 'b le S u p re me C o u rt h a s h e ld a s u n d e r: " It is a b u n d a n tly c l e a r fro m th e w o rd i n g o f su b -se ct io n (2 ) o f se ctio n 1 1 th a t it is ma n d a to ry fo r th e p e rso n cla imi n g th e b e n e fit o f se ctio n 1 1 to in ti ma te to th e a sse ssin g a u th o r it y th e p a rti cu la rs re q u ire d , u n d e r ru le 1 7 in Fo r m No .1 0 of th e Ru le s. If d u rin g th e a s se ss me n t p ro ce e d in g s, th e A sse s sin g O ffice r d o e s n o t h a ve th e n e ce ssa ry in fo r ma t io n , q u e stio n of e xclu d in g su ch in c o me fro m a s se ss m e n t d o e s n o t a rise a t a ll. A s a ma tte r o f fa ct , th is b e n e fit o f e xc l u d in g th is p a r ticu la r p a rt o f th e in co me fro m th e n e t o f ta xa t io n a ri se s fro m se cti o n 1 1 a n d is su b je cte d to th e co n d itio n s sp e cif ie d th e re in . Th e r e fo re , it is n e ce s sa r y th a t th e a sse ssin g a u th o rit y mu st ha ve th is in fo r ma tio n a t th e ti me h e co mp le te s th e a sse s s me n t. I n th e a b se n ce o f a n y su c h in fo r ma tio n , it w i l l n o t b e p o ss ib le fo r th e 15 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. a sse ss in g a u th o r it y to g ive th e a sse sse e th e b e n e fit o f su ch e xclu s io n a n d o n ce th e a sse ss me n t is so co mp le te d , in o u r o p in io n , it w o u ld b e fu ti le to fin d f a u lt w ith th e a s s e ssin g a u th o rit y fo r h a vin g in clu d e d su ch in co me in th e a sse s sa b le in co me o f th e a sse sse e . Th e re fo re , e ve n a ssu min g tha t th e re is n o va l id li mi ta ti o n p re sc r ib e d u n d e r th e A ct a n d th e Ru le s e ve n th e n , in o u r o p in io n , it is re a so n a b le to p re su me th a t th e in ti ma tio n re q u i re d u n d e r se ctio n 1 1 h a s to b e fu rnish e d b e fo re th e a sse s sin g a u th o r ity co mp le te s th e co n c e rn e d a sse ss me n t b e ca u se su ch re q u ire m e n t is ma n d a to ry a nd w ith o u t th e p a rti cu l a rs o f th is in co me , th e a sse ss in g a u t h o rit y ca n n o t e n te rta in th e cla i m o f th e a sse sse e u n d e r sect io n 1 1 o f th e A ct, th e re fo re , co mp l ia n ce w ith th e re q u i re me n t o f th e A ct w ill h a ve to b e a n y ti me b e fo re th e a ss e ss me n t p ro ce e d in g s." 9 . In th e in sta n t ca s e , a d mit te d ly, in t h e re tu rn wa s fi le d o n b e h a lf- o f a s se sse e , w ith in th e e xte n d e d p e rio d o f t i me p ro v id e d u n d e r S e ctio n 1 3 9 (4 ) o f th e A ct, a n d th e a sse sse e ha s cla i me d d e p re cia t io n . Th u s , th e b e n e fit o f t h e a fo re sa id d ec i sio n o f th e Ho n 'b le A p e x Co u rt in th e ca se o f Commissioner of Income Tax (su p ra ) w o u ld e n d u re to th e b e n e f it o f th e a sse sse e. 1 0 . Ho w e ve r it is p e r ti n e n t to me n t io n h e re th a t the Tr ib u n a l w h ile ta kin g in to a c co u n t S e ctio n 3 2 o f th e A ct, h a s h e ld th a t s in ce S e ctio n 3 2 o f th e A ct d o e s n o t p ro v i d e a n y sp e cif ic p r o vis io n fo r e xe rc is in g th e o p tio n w ith in th e ti me li mit, th e re fo re , t h e co n d itio n i mp o se d in th e se co n d p ro viso o f R u le 5 (1 A ) o f th e R u le s to th e e xte n t th a t su ch a n o p tio n h a s to b e e xe rc ise d a t th e t i m e o f fi l in g o f th e re tu rn u n d e r S e ctio n 1 3 9 (1 ) o f th e A ct is in va li d ca n n o t b e u p h e ld . It is t ri te la w th a t th e Tr ib u n a l is b o u n d b y th e p r o vis io n s o f th e A ct a n d th e Ru l e s a n d h a s n o p o w e r to d e cla re an y p ro vi sio n s o f e ith e r th e A ct o r Ru le s to b e in va l i d o r u ltra vi res. T h e re fo re , th e su b sta n tia l q u e stio n o f la w fra me d b y th is Co u rt i s a n sw e re d in fa vo u r o f th e Re v e n u e a n d it is h e ld th a t th e T rib un a l w a s n o t co r re ct in h o ld in g th a t in th e a b se n c e o f p re s cr ip tio n o f a n y ti me li mit u n d e r S e ct io n 3 2 o f th e A ct, t h e co n d it io n men ti o n e d in th e se co n d p ro v iso to Ru le 5 (1 A ) o f th e Ru le s to e xe r cise th e o p tio n w ith re g a rd to d e p re cia tio n a t th e ti m e o f fi lin g of th e r e tu rn u n d e r S e ctio n 1 3 9 (1 ) o f t h e A ct i s in va l id , i s n o t co r re ct. ” 16 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. 8. W e have gone through the rival submissions made by both Ld. CITDR and Ld. Authorised Representative and perused the material on record and the submission filed before us. Admittedly, the assessee has claimed depreciation on plan and machinery being energy saving devices @80% on the WDV during the year under consideration i.e. Assessment Year 2011-12. Following its finding in the immediately preceding assessment year, the A.O. rejected the assessee's claim of depreciation @80% on such plant and machinery for A.Y.2010-11, by holding that as per the proviso under rule 5 that any option exercised once shall be final and the same shall apply to all subsequent years. 8.1 The Ld. CIT (A) has deleted the addition made on thebasis disallowance of depreciation for assessment order for the A.Y.2009-10 & 2010-11 by following the Hon'ble Income Tax Appellate tribunal, Panaji Bench, Goa on the issue of depreciation in assessee’s own case. The relevant portion of ITAT order is as under: “ 6. In the case in hand, there is no dispute regarding entitlement of the assessee to higher rate of depreciation on wind mill as per Appendix I, but the Assessing Officer has disallowed the claim on the ground that the assessee in the earlier year, i.e., the assessment year 2005-06 did not exercise option within the due date of filing of return as per section 139(1) of the Income-tax Act. Thus on the merits there is no dispute about the entitlement of the assessee at 80 per cent. of depreciation on wind mill but due to technical defect in view of the Assessing Officer the assessee was denied the said claim. When there is no specific form or method prescribed for exercising the said option as per the second proviso to rule 5(1A), then the claim made in the return of income as well as reflected from the books of account and audit report is more than sufficient for exercising the option as required under the second proviso to rule 5(1A). It is an undisputed fact 17 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. that the assessee exercised the option for the assessment year 2005-06 but the return was filed after the due date of filing return as per section 139(1) of the Income-tax Act. It may be an issue of exercising the option after due date for the assessment year 2005-06 but it cannot be an issue in dispute for the subsequent year. As per the third proviso to rule 5(1A) when an option once exercised shall be final and shall apply to all the subsequent assessment years ; then for the subsequent years, there is no requirement of exercising any separate option. Once the assessee has exercised his option for the assessment year 2005-06, that may be belated for that assessment year but once it is exercised then there is no requirement for further exercising the option in the subsequent year. Even otherwise the option exercised for the assessment year 2005- 06 becomes final and applicable to the assessment year 2006-07, which is under consideration and the same is well within time for this year. 7. In view of the above discussion, we hold that the assessee, for the year under consideration, has satisfied the requirement of the second proviso to rule 5(1A) and therefore, is entitled to depreciation on wind mill as per Appendix I. The lower authorities have not taken a correct view on this issue. The orders of the lower authorities are set aside qua this issue.” 8.2 From the above, it is evident that the coordinate Bench and Hon’ble Karnataka High Court has allowed the depreciation claim of the assessee @ 80%, in assessee's own cases for A.Y.2009-10 & 2010-11 and the Department has also accepted the WDV method for later years. Considering these facts, we find no infirmity and perversity in the order of the Ld. CIT (A) in deleting the addition made by the AO on account of disallowance of assessee’s claim of depreciation @80%. Accordingly, this ground of appeal of the department is rejected. 9. Having heard rival submissions on the issue of disallowance of interest claim on borrowed funds, we find that admittedly, the appellant assessee has borrowed funds for the purpose of business. The CIT(A) has 18 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. observed that there was no case of either diversion of funds for non business purpose or for personal use and that the amounts of free advances were towards trade deposits, cane advances etc. In our view, since, assessee is a sugar manufacturing company, these advances are meant for purpose of its regular business activities and not for personal use, hence these amounts being borrowed for the purpose of business and so, the aforesaid interest paid is required to be allowed. The CIT (A) by considering the facts that interest on borrowed funds being used for business purpose only and following the decision of “CIT vs. Bombay Samachar Ltd”, (Supra) has been fairly justified in deleting the addition. Similar view has been held by the Hon’ble Apex Court in “S.A. Builders Vs. CIT”, (Supra). 9.1 In the above view, we find no merit and substance in the contention of the revenue. As such, we find no infirmity in the decision of the CIT(A) in deleting the addition made on account of disallowance of interest on borrowed funds. Accordingly, this ground of appeal of the revenue is also dismissed. 10. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 23.06.2022. Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member 19 ITA No.178/PAN/2018 DCIT v. Nirani Sugars Ltd. Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order