Assistant Commissioner of Income tax, Pune V. Dhariwal Industries Ltd, Pune

ITA 287/PUN/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7653 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S B PRASAD
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 10; 2

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI S.S. VISWANETHRA RAVI, JM . / ITA NO.287/PUN/2017 / ASSESSMENT YEAR : 2011-12 THE ASST.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), PUNE. . / APPELLANT. V/S DHARIWAL INDUSTRIES LTD., MANIKCHAND HOUSE, PLOT NO.100/101, D. KENNEDY ROAD, BEHID HOTEL LE MERADIEN, PUNE 411 001. PAN : AAACD5896L. . / RESPONDENT ASSESSEE BY : NONE. REVENUE BY : SHRI S.B. PRASAD. / ORDER PER ANIL CHATURVEDI, AM : 1. THIS APPEAL FILED BY THE REVENUE IS EMANATING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (A), PUNE 11 DATED 28.11.2016 FOR THE ASSESSMENT YEAR 2011-12. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- ASSESSEE IS A COMPANY WHO ELECTRONICALLY FILED ITS RETURN O F INCOME FOR A.Y. 2011-12 ON 29.09.2011 DECLARING LOSS OF RS.66,41,42,079 /-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSE SSMENT WAS / DATE OF HEARING : 17.10.2019 / DATE OF PRONOUNCEMENT: 30.10.2019 2 FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 14.03.2014 A ND THE TOTAL LOSS WAS DETERMINED AT RS.52,18,16,211/- AND INCOME U/S 11 5JB OF THE ACT WAS DETERMINED AT RS.46,22,169/-. AGGRIEVED BY THE O RDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE CON SOLIDATED ORDER FOR A.Y. 2004-05 TO 2013-14 (IN APPEAL NO.PN/CIT(A)- 11/DCIT, CEN.CIR.1(1), PUNE/148/2014-15) GRANTED PARTIAL RELIEF TO THE A SSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APP EAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOW ANCE UNDER RULE 8D(2)(III) TO EACH YEAR ON 'ADHOC BASIS' WITHOUT APPRECIATING THAT SECTION 14A(2) MANDATES THAT THE AMOUNT OF EXPENDITURE TO BE DISAL LOWED IS TO BE DETERMINED AS PER THE METHOD PRESCRIBED IN RULE 8D OF THE I.T. RULES, 1962 AND WHEN RULE 8D(2) USES THE WORD 'SHALL' AND THEREFORE COMPUTATION OF DISALLOWANCE IS ALSO MANDATORY? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE ITAT WAS JUSTIFIED IN ALLOWING THE CLAIM OF ADDITIONAL DEPRECIATION ON WINDMILLS OF THE ASSESSEE FOR A.Y.201 0-11, WHEN THE FINANCE BILL, 2012 ENVISAGED ALLOWANCE OF INITIAL DEPRECIATION W . E . F. A . Y.2013-14 AND SUBSEQUENT YEARS? 3. THE ORDER OF CIT(A) MAY BE VACATED AND THAT OF T HE ASSESSING OFFICER BE RESTORED. 3. THE CASE FILE REVEALS THAT THERE IS NO APPEARANCE FROM ASSESSEE SIDE EVEN IN THE PAST DESPITE SERVICE OF NOTICES. EVEN ON THE DATE OF PRESENT HEARING, NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY ADJOURNMENT APPLICATION WAS FILED. WE THEREFORE PROCEED T O DISPOSE OF THE APPEAL EX-PARTE QUA THE ASSESSEE. 4. FIRST GROUND IS WITH RESPECT TO DISALLOWANCE U/S 14A OF THE ACT. 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOT ICED THAT ASSESSEE HAD CLAIMED RS.27,20,26,138/- AS EXEMPT INCOME U/ S 10 OF THE ACT AND HAD ATTRIBUTED RS.41,425/- ON ADHOC BASIS A S EXPENDITURE 3 TOWARDS EARNING OF EXEMPT INCOME. IT WAS ALSO NOTICED THA T AMOUNT ATTRIBUTED BY THE ASSESSEE TOWARDS EARNING EXEMPT INC OME WAS WITHOUT APPLYING THE PROVISIONS OF RULE 8D OF IT RULES. THE ASSES SEE WAS THEREFORE ASKED TO EXPLAIN AS TO WHY THE EXPENDITURE IN RELATION TO EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A R.W. RULE 8D OF I.T. RULES, TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT ASSESS EE HAS ALREADY DISALLOWED THE EXPENSES FOR EARNING EXEMPT INCOME. THE SU BMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO A S AO NOTICED THAT ASSESSEE HAD OFFERED RS.41,425/- ON ACCOUNT OF SALARY AND TELEPHONIC EXPENSES ETC TOWARDS EARNING EXEMPT INCOME AND THAT T OO ON ADHOC BASIS. AO NOTED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD., VS. DCIT REPORTED IN (2017 ) 394 ITR 449 (SC) HAS HELD THAT PROVISIONS OF RULE 8D ARE APPLICAB LE FOR THE YEAR UNDER CONSIDERATION AND THEREFORE BY FOLLOWING THE METHODO LOGY PRESCRIBED UNDER RULE 8D OF IT RULES, WORKED OUT THE DISA LLOWANCE U/S 14A OF THE ACT AT RS.27,71,521/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO WHILE DE CIDING THE ISSUE NOTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 TO 2010-11 HAD RESTRICTED THE DISALLOWANCE OF ADMINISTRATIVE E XPENSES TO RS.2 LAKHS. HE THEREAFTER DIRECTED THE AO TO FOLLOW THE TR IBUNALS DECISION IN A.Y. 2008-09 TO 2010-11. AGGRIEVED BY THE ORD ER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 5. BEFORE US, LD. D.R. SUBMITTED THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND THEREFORE THE DISALLOWANCE HAS TO BE MADE AS PER SEC.14A R.W. RULE 8D OF I.T. RULES. HE FURTHER SUBMITTED THAT IN THE ORDER OF LOWER AUTHORITIE S THERE IS NO FINDING WITH RESPECT TO THE EXPENDITURE INCURRED BY THE A SSESSEE ON 4 EARNING EXEMPT INCOME WORKING OUT DISALLOWANCE UNDER RULE 8D(2)(II) AND THE AVAILABILITY OF INTEREST FREE FUNDS FOR WORKING OUT TH E DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(III) OF I.T. RULES. HE TH EREFORE FAIRLY SUBMITTED THAT THE ISSUE MAY BE REMITTED BACK TO THE FILE OF AO TO WORK OUT THE DISALLOWANCE AS PER THE PROVISIONS OF THE ACT. 6. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL A VAILABLE ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPEC T TO DISALLOWANCE U/S 14A R.W RULE 8D OF I.T. RULES. IT IS AN UNDISPUTED FAC T THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE FOR THE YEAR UNDER CON SIDERATION. RULE 8D OF THE I.T. RULES PRESCRIBES THE METHOD FOR DETER MINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL IN COME. AS PER RULE 8D(2) THE DISALLOWANCE OF EXPENSES IS AGGREGATE OF EXPENDITURE DIRECTLY RELATING TO EXEMPT INCOME, [(RULE 8D(2)(I)], DISALLOWAN CE OF INTEREST EXPENSES AS PER WORKING OF RULE 8D(2)(II) AND DISALLOWA NCE OF ADMINISTRATIVE EXPENSES AS PER RULE 8D(2)(III). WITH RESPECT TO DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II), VARIOUS H IGH COURTS INCLUDING HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD., (2014) 160 DTR 140 HAVE HELD THAT IF THE A SSESSEE HAS INTEREST FREE FUNDS MORE THAN THE INVESTMENTS, THEN THE RE IS A PRESUMPTION THAT INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS AND NO DISALLOWANCE OF INTEREST UNDER RULE 8D (2)(II) IS CALLED FOR. 7. IN THE PRESENT CASE, THERE IS NO MATERIAL ON RECORD TO DEMONSTRATE THE AVAILABILITY OF INTEREST FREE FUNDS VIS--VIS THE INVESTMEN TS. FURTHER, NO DETAILS ARE AVAILABLE ON THE NATURE OF EXPENSES WHICH HAVE BEEN INCURRED BY THE ASSESSEE TO EARN EXEMPT INCOME. CONSID ERING THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO 5 BE REEXAMINED BY AO. WE THEREFORE RESTORE THE ISSUE BA CK TO THE FILE OF AO TO RE-EXAMINE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE REQUIRED DETAILS CALLED FOR BY THE AUTHORIT IES. IN CASE THE ASSESSEE FAILS TO FILE THE REQUISITE DETAILS, THE AO SHALL BE AT LIBERTY TO DECIDE THE ISSUE ON THE BASIS OF MATERIAL AVAILABLE ON RECO RD. THUS, THE GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOS ES. 8. GROUND NO.2 IS WITH RESPECT TO ALLOWING THE CLAIM OF AD DITIONAL DEPRECIATION ON WINDMILL. 8.1. AO ON PERUSING THE DEPRECIATION CHART NOTICED THAT ASSESSEE HAD CLAIMED ADDITIONAL DEPRECIATION AT 20% ON WINDMILL AMOUNTING T O RS.7,90,56,303/-. THE ASSESSEE WAS ASKED TO JUSTIFY TH E CLAIM OF ADDITIONAL DEPRECIATION, TO WHICH THE ASSESSEE MADE THE S UBMISSIONS WHICH WERE NOT FOUND ACCEPTABLE TO THE AO. AO WAS OF T HE VIEW THAT THE ASSESSEE WAS NOT MANUFACTURING OR PRODUCING ANY ARTICLE OR THING BY OPERATING WINDMILLS AND THE PROCESS OF POWER GENERATI ON WAS NOT DESCRIBED IN THE STATUTE, AS CLAIMED BY THE ASSESSEE. HE WAS OF THE VIEW THAT THEREFORE ASSESSEE WAS NOT ELIGIBLE TO CLAIM ADDITIO NAL DEPRECIATION AMOUNTING TO RS.7,90,56,303/- AND ACCORDINGLY DENIED THE CLAIM OF ADDITIONAL DEPRECIATION. AGGRIEVED BY THE ORDER OF A O, ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO BY FOLLOWING THE TRIB UNALS DECISION IN ASSESSEES OWN CASE (IN ITA NOS.1318 TO 1324 /PN/13 FOR A.Y. 2004-05 TO 2006-07 ORDER DATED 02.05.2016) DIRECTED THE AO TO ALLOW THE CLAIM OF ADDITIONAL DEPRECIATION. AGGRIEVED BY THE O RDER OF LD.CIT(A), REVENUE IS NOW BEFORE US. 6 9. BEFORE US, LD. D.R. FAIRLY SUBMITTED THAT LD.CIT(A) HAS ALLOW ED THE CLAIM OF DEPRECIATION BY FOLLOWING THE ITATS ORDER IN ASSES SEES OWN CASE ORDER DATED 02.05.2016 (SUPRA). HE FURTHER PLACED ON RECORD LETTER DATED 09.08.2019 FROM THE OFFICE OF ADDL.COMMISSIONER OF I.T. (C ENTRAL) RANGE 1, PUNE BEARING REF.NO.(PN/ADDL.CIT/CR-1/SCR.REP/DIL / 2019-20/416) WHEREIN IT WAS STATED THAT ON SIMILAR ISSUE, T HE ASSESSEE HAS ALREADY GOT A FAVOURABLE RULING FROM HONBLE BOMBAY HI GH COURT IN ITA NO.275 OF 2017 (ORDER DATED 914/2019) AND THE DECISIO N OF HONBLE HIGH COURT HAS BEEN ACCEPTED BY THE DEPARTMENT. HE TH EREFORE SUBMITTED THAT THE ISSUE BE DECIDED ACCORDINGLY. 10. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL O N RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE C LAIM OF ADDITIONAL DEPRECIATION ON WINDMILLS. WE FIND THAT THE CO-ORDINATE BENC H OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS IN ITA NOS.1318 TO 1324/PN/13 ORDER DATED 02.05.2016 (SUPRA) HAS DECIDED T HE ISSUE IN ASSESSEES FAVOUR BY FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COUR T IN THE CASE OF CIT VS. M/S. HITECH ARAI LTD., REPORTED IN 3 73 TIR 477 AND OTHER DECISIONS AND ALLOWED ASSESSEES CLAIM OF ADDITIO NAL DEPRECIATION. BEFORE US, LD. D.R. HAS ALSO PLACED ON RECORD A COMMUNICATION RECEIVED FROM THE OFFICE OF ADDL.CIT, PUNE WHERE IN IT IS STATED THAT ON SIMILAR ISSUE, ASSESSEE HAS ALREADY GOT A FAVOURABLE RULING FROM HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 09 .04.2019 (ITA NO.275 OF 2017) AND THE DECISION OF HONBLE BOMBAY HIGH COURT HAS BEEN ACCEPTED BY THE DEPARTMENT. IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 7 11. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 30 TH DAY OF OCTOBER, 2019. SD/- SD/- ( S.S. VISWANETHRA RAVI) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; DATED : 30 TH OCTOBER, 2019. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4. 5 6. CIT(A)-11, PUNE. PR. CIT(CENTRAL), PUNE. '#$ %%&',) &', / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // /01%2&3 / SR. PRIVATE SECRETARY ) &', / ITAT, PUNE.