The DCIT, Circle-1(1), Baroda V. Gujarat Industries Power Co.Ltd., Baroda

ITA 3003/AHD/2010

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7721 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2003-2004
• Appeal Filed On: 01-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Revenue expenditure; Rule 8D
• Section: 43B; 14A; 80G; 80IA; 201; 274; 13; 119; 22

Judgement Text

, ‘D’ । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD (Convened through Virtual Court) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR & SHRI WASEEM AHMED, ACCOUNTANT MEMEBR आयकर अपील सं./I.T.A. Nos. 3003/Ahd/2010, 1534/Ahd/2009 A/w. C O No.117/Ahd/2009, 1109/Ahd/2010, 644/Ahd/2010, 521/Ahd/2012 & 495/Ahd/2012 ( Assess ment Ye ar : 2003-04, 2006-07, 2007-08 & 2008-09) Th e DC IT Cir cl e- 1( 1), B ar od a / V s . Gu ja rat I n du str ie s Pow er C o. L td . P. O. P et ro ch e mica ls, Di st. - Ba ro da - 39 1 34 6 यी ल सं./ ीआ आर सं./P A N / G IR N o . : A A A C G 7 2 7 7 Q (Appellant/Respondent) . . (Respondent/Appellant/Cross Objector) र क र स /Revenue by : Sh ri M oh d. Us ma n, CI T D R & Sh ri Pu ru sh ot ta m Ku ma r, Sr. D R अपील र स /Assessee by : Shri Milin Mehta, Shri Bhavin Marfatia, Shri Nirmit Mehta & Shri Amrin Pathan, A.Rs. स क र D a t e o f H e a r i n g 25/01/2022 ! क र /D a t e o f P r o n o u n c e m e n t 28/02/2022 ORDER PER MAHAVIR PRASAD, JM: These batch of appeals filed by the Revenue and assessee and cross objection filed b y the asse ssee are as follows: ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 2 - S l . N o . IT A / C O N o . A . Y . Fi l e d b y 1 IT A N o . 3 0 0 3 / A h d / 2 0 1 0 2 0 0 3 - 0 4 R e v e n u e 2 IT A N o . 1 5 3 4 / A h d / 2 0 0 9 2 0 0 6 - 0 7 R e v e n u e 3 C O N o . 1 1 7 / A h d / 2 0 0 9 2 0 0 6 - 0 7 A s s e s s e e 4 IT A N o . 1 1 0 9 / A h d / 2 0 1 0 2 0 0 7 - 0 8 R e v e n u e 5 IT A N o . 6 4 4 / A h d / 2 0 1 0 2 0 0 7 - 0 8 A s s e s s e e 6 IT A N o . 5 2 1 / A h d / 2 0 1 2 2 0 0 8 - 0 9 R e v e n u e 7 IT A N o . 4 9 5 / A h d / 2 0 1 2 2 0 0 8 - 0 9 A s s e s s e e 2. The issues involved in these appeals are recurrin g in nature for all the assessment years, since for the sake of brevity ITA No.1534/Ahd/2009 and C.O.No.117/And/2009 relevant to the Asst. Year 2006-07 are taken as l ead case for disposal of the above batch of appeals. 3. The grounds of appeal raised b y Rev enue read as under: “ 1 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d i n l a w , t h e l e a r n e d C 1 T ( A ) e r r e d i n d e l e t i n g t h e a d d i t i o n o n a cc o u n t o f R s . 3 , 8 3 , 0 2 , 2 2 8 / - m a d e o n a c c o u n t o f c a p i t a l , e x p e n di t u r e i r r e s p e c t i v e o f t h e f a c t s h u g e e x p e n d i t u r e t o w a r d s s p a r e p a r t s w h i c h e x t e n d e d t h e l i f e t i m e , r e l y i n g o n t h e d e c i s i o n i n t h e c a s e o f B a l l i m a l N a v a l K i s h o r v / s . P I T 2 2 4 I T R 4 1 4 (S C ) a n d t h e d e c i s i o n o f H o n . S u p r e m e C o u r t i n t h e c a s e o f C I T ( A ) v s . S a r a v a n a S p i n n i n g M i l l s P v t . L t d . ( 2 0 0 7 ) 2 9 3 I T R 2 0 1 ( S C ) . 2 . O n t h e f a c t s a n d c i r c u m s t a n c e s o f t h e c a s e a n d i n l a w , t h e l e a r n e d C I T ( A ) e r r e d i n a l l o w i n g d e d u c t i o n U / S . 8 0 I A i r r e s p e c t i v e o f t h e f a c t t h a t t h e a s s e s s e e h a d c l a im e d t h e s a i d d e d u c t i o n i n v i e w o f s u b s e q u e n t c h a n g e o f i t s o p i n i o n i n r e s p e c t o f t h i s c l a i m . T h e n e c e s s a r y c o n d i t i o n of s e c t i o n 8 0 1 A t o s u b m i t t h e r e p o r t o n o r b e f o r e t h e d u e d a t e o f f i l i n g o f r e t u r n o f i n c o m e w a s n o t f u l f i l l e d b y t h e a s e s s ee . F u r t h e r , i n v i e w o f s e c t i o n 8 0 I A ( 5 ) t h e a s s e s s e e w a s r e q u i r ed t o s e t o f f p r e v i o u s y e a r b r o u g h t f o r w a r d l o s s e s o f t h e s a id u n i t f i r s t . 4. The grounds of appeal raised by assessee in cross objection read as under: ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 3 - “ 1 . T h e l e a r n e d C I T (A ) e r r e d i n f a c t a n d i n l a w in d i r e c t i n g t h e A O t o c o m p u t e d i s a l l o w a n c e u / s . 1 4 A a s p e r R u l e 8 D d e s p i t e t h e f a c t t h a t t h e A s s e s s e e h a d m e n t i o n e d t h a t n o e xp e n d i t u r e i s i n c u r r e d f o r e a r n i n g t a x f r e e i n c o m e a n d t h e A O h a s n o t r e j e c t e d t h e s a i d c o n t e n t i o n o f t h e A s s e s s e e . 2 . T h e l e a r n e d C I T ( A ) e r r e d i n f a c t a n d i n l a w i n c o n f i r m i n g t h e a c t i o n o f t h e A O i n d i s a l l o w i n g c o n t r i b u t i o n m ad e t o t h e v a r i o u s o r g a n i s a t i o n s o f R s . 5 , 3 6 , 5 0 0 / - o n t h e a l l e ge d g r o u n d t h a t n o d e t a i l s w e r e f u r n i s h e d f o r m a k i n g s uc h c o n t r i b u t i o n . 3 . T h e l e a r n e d C I T ( A ) e r r e d i n f a c t a n d i n l a w i n c o n f i r m i n g t h e a c t i o n o f t h e A O i n t r e a t i n g M D ' s r e s i d e n c e a s r e s i d e n t i a l b u i l d i n g a n d d i s a l l o w i n g d e p r e c i a t i o n am o u n t i n g t o R s . 3 , 1 3 , 1 0 8 / - d e s p i t e t h e f a c t t h a t t h e b u i l d i n g w a s u s e d f o r o f f i c e p u r p o s e . 4 . T h e l e a r n e d C I T ( A ) e r r e d i n f a c t a n d i n l a w i n c o n f i r m i n g t h e a c t i o n o f t h e A O i n c h a r g i n g i n t e r e s t u / s . 2 3 4 B o f t h e I n c o m e T a x A c t , 1 9 6 1 . 5 . T h e l e a r n e d C I T ( A ) e r r e d i n f a c t a n d i n l a w i n c o n f i r m i n g t h e a c t i o n o f t h e A O i n c h a r g i n g i n t e r e s t u / s . 2 3 4 C o f t h e I n c o m e T a x A c t , 1 9 6 1 . 6 . T h e l e a r n e d C I T ( A ) e r r e d i n f a c t a n d i n l a w i n c o n f i r m i n g t h e a c t i o n o f t h e A O i n i n i t i a t i n g t h e p e n a l t y p r o ce e d i n g u / s . 2 7 1 ( 1 ) ( c ) o f t h e I n c o m e T a x A c t 1 9 6 1 . ” 5. The brief facts of the case are that assessee is engaged in generation of power in the form of electricity. During Asst. Year 2006-07, assessee filed its return of income on 30.12.2006 declaring total inco me of Rs.1,78,43,82,629/-. The return of income was proce ssed under s.143(1) of the Act on 23.04.2007. Subsequently, the case was selecte d for scrutiny and a detailed assessment order was passed on 28.03.2008 making the following Disallowances: (i) Replace ment of parts of machines treated as capital expenditure; (ii) clai m of deduction u/s.80IA of the I T Act. ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 4 - (iii) Disallowance under s.14A; (iv) clai m of deduction under 43B & (v) depreciation on Managing Director’s residence. Thus, the Ld Assessing Officer deter mined the total income as Rs.1,83,04,23,203/- and demanded the tax of Rs. 2,03,900/- which includes interest under s.234B & 234C. 6.1. First issue regarding Replace ment of part s in mac hineries trea ted as capital in nature. On scrutiny of the repairs & maintenance expenses debited in the books, the AO observed that some of the expenses were c apital in nature. The assessee classified the spares as capital spares in the books and therefore the claim was not allowable as revenue expenditure. The AO issued a show cause notice to the assessee as to why the clai m of capital spares on replacement of parts a mounting to Rs.708.61 lakhs should not be disallowed as the expenditure was capital in nature. In reply, the assessee submitte d some of the parts of the plant and machines require replacement on achieving the fixed rated life. Repl ace ment of such parts in no wa y increased the power generation capacity of the plant but only recouped the last efficiency to so me extent. The a ssessee is co mpulsorily required to replace such parts based on the criteria of repairs interval hours prescribed by the original equipment manufacturer. The assessee further submitted that by making replace ment ther e is no increase in the power generation capacity. B y consuming the spares worth Rs 4.50 crores, there is no impact of increasing the utility of fixed assets having base of Rs.889.93 crores. It was also submitted that the parts ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 5 - replaced are not independent machines b y itself. These machines can wor k only if fitted wit h the main plant. Therefore, the assessee claimed expenses of revenue in nature. However not satisfied with the above reply, the AO made a ne t addition of Rs 3,83,02,228/- after allowing depreciation @ 15% on the ite ms considered capital in nature. 6.2. On appeal the Ld CIT( A) considered the issue in hand and held that the Hon’ble Supre me Court and High Courts have held that replacement of a part of a larger machine would not a mount to creation of any new asset or incurring of capital expenditure. Wher e a manufacturing activity i s carried on b y machines co mprising of various parts, and where one or more o f the parts is replaced, it would not a mount to replace ment of the whole. This proposition has been reiterated by the Hon ’ble Supre me Court in the case of Saravana Spinning Mills Pvt. Ltd., 293 ITR 201, in the context of a part called ‘auto leveler’ f or ming part of a carding machine, in the following ter ms: " S i m i l a r l y , i n t h e C a r d i n g D e p a r t m e n t w e h a v e C a r d in g M a c h i n e s w i t h a u t o l e v e l e r s . I f t h e a u t o l e v e l e r f a i l s , t h e c a r d i n g m a c h i n e b e c o m e s n o n f u n c t i o n a l . I f a n a u t o l e v e l e r i s t o b e r e p a i r e d t h e n t h a t r e p a i r w o u l d c o m e w i t h i n] t h e c o n n o t a t i o n o f th e w o r d " c u r r e n t r e p a i r s " b e c a u s e i t i s a p a r t o f t h e C a r d in g M a c h i n e . E v e n i f i n a g i v e n c a s e , r e p l a c e m e n t o f a n a u t o l e ve l e r c o u l d c o m e w i t h i n t h e c o n n o t a t i o n o f t h e w o r d " c u r r e n t r e p a i r s" i f t h e o l d p a r t i s n o t a v a i l a b l e i n t h e m a r k e t . I t i s a " c u r r e n t r ep a i r " b e c a u s e t h e C a r d i n g M a c h i n e r e m a i n s a s a n a s s e t w i t h o u t a n y c h an g e e v e n a f t e r r e p a i r o r r e p l a c e m e n t o f t h e a u t o l e v e l e r . T o g i v e a n e x a m p l e , a C o m p r e s s o r i s a n - i m p o r t a n t p a r t o f a n A ir - c o n d i t i o n M a c h i n e . R e p a i r o f t h e C o m p r e s s o r w i l l c o m e i n t h e c o n n o t a t i o n o f t h e w o r d " c u r r e n t r e p a i r s " i n S e c t i o n 3 1 ( i ) o f th e s a i d A c t b e c a u s e t h e a s s e s s e e d o e s n o t r e p l a c e t h e A i r - c o n d it i o n M a c h i n e . A t t h e ' h i g h e s t , h e r e p l a c e s a p a r t o f t h e A i r - c o n di t i o n M a c h i n e . S o i s i n t h e c a s e o f t h e p i c t u r e t u b e i n a t e l e v i s io n s e t , w h e n t h e p i c t u r e t u b e i s r e p l a c e d t h e t e l e v i s i o n s e t i s n o t r e p l a c e d , ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 6 - t h e r e f o r e , s u c h r e p a i r s a l o n e c a n c o m e w i t h i n t h e co n n o t a t i o n o f t h e w o r d " c u r r e n t r e p a i r s " i n S e c t i o n 3 1 (i ) o f t h e sa i d A c t - a s i t s t o o d a t t h e m a t e r i a l t i m e . T h e y a r e e f f e c t e d t o p re s e r v e a n d m a i n t a i n t h e a s s e t , v i z . , a i r - c o n d i t i o n e r o r a c a r di n g m a c h i n e . " 4 . 2 . 1 H e n c e , j u d i c i a l o p i n i o n i s q u i t e c l e a r l y a r t i c u l a t e d t o th e e f f e c t t h a t r e p l a c e m e n t o f o n e o r m o r e p a r t ( s ) o f a c a p i t a l a s s e t w o u l d c o n s t i t u t e r e v e n u e e x p e n d i t u r e a n d n o t c a p i t al e x p e n d i t u r e . I f p r e s e r v a t i o n o f t h e c a p i t a l a s s e t en t a i l s r e p l a c e m e n t o f w o r n - o u t p a r t s , s u c h e x p e n s e s w o u l d b e r e v e n u e i n n a t u r e . 4 . 2 . 2 R e g a r d i n g t h e e x p e n d i t u r e i n c u r r e d b y t h e a p pe l l a n t , i t i s a p p a r e n t f r o m t h e n a t u r e o f t h e p a r t s r e p l a c e d t h a t t h e s e a r e s m a l l p a r t s o f l a r g e m a c h i n e s , w h i c h m a y r e q u i r e r e p l a c e me n t o n b e i n g w o r n o u t . B y i n c u r r i n g e x p e n d i t u r e o n p u r c h a s e o f it e m s , n o n e w a s s e t s c a m e i n t o e x i s t e n c e w h i c h w e r e c a p a b l e o f p ro d u c i n g a n y s a l e a b l e i t e m . T h e p a r t s r e p l a c e d a r e u s e f u l o n l y wh e n a t t a c h e d t o t h e m a i n m a c h i n e . A c c o r d i n g l y , i t i s h e l d t h a t e x p en d i t u r e o n r e p l a c e m e n t o f s u c h p a r t s i s r e v e n u e i n n a t u r e . E v en i f t h e i t e m s i n q u e s t i o n a r e c l a s s i f i e d a s c a p i t a l a s s e t s t h e r e i s n o d o u b t r e g a r d i n g t h e f a c t t h a t s u c h i t e m s a r e s p a r e p a r t s o f l a r g e r m a c h i n e . S u c h m a c h i n e w o u l d r e q u i r e r e p l a c e m e n t o f w o r n o u t p a r t s f r o m t i m e t o t i m e . S i n c e i m m e d i a t e a v a i l a b i l it y o f s p a r e p a r t i s n e c e s s a r y f o r r e p l a c i n g t h e w o r n o u t p a r t w i t h o ut c a u s i n g u n d u e l o s s o f p r o d u c t i o n , t h e a s s e s s e e h a s c a r r i e d a s t o ck o f s u c h c a p i t a l s p a r e p a r t s . T h e e n t i r e e x p e n d i t u r e i n c u r r e d o n m a in t a i n i n g s u c h i n v e n t o r y h a s n o t b e e n c l a i m e d , b u t o n l y t h e v a l u e o f s p a r e s a c t u a l l y u t i l i z e d f o r r e p l a c e m e n t h a d b e e n d e b i t e d t o P &L a / c . S i n c e s p a r e p a r t s o f t h e v a l u e o f R s 4 , 5 0 , 6 1 , 4 4 5 / - h a v e b e e n a c t u a l l y c o n s u m e d , t h e s a m e w o u l d b e a l l o w a b l e a s re v e n u e e x p e n d i t u r e . A c c o r d i n g l y , t h e d i s a l l o w a n c e o f t h e sa i d a m o u n t i s d i r e c t e d t o b e d e l e t e d . ” 7.1. Issue No.2 relates to additional claim und er section 80IA of the Act . The assessee has made additional clai m of deduction under s.80IA of the Act in respect of profit of 250MW Power St ation. The AO has denied the claim on the ground that assessee neither obtained or filed audit report nor clai med deduction under s.80IA of the Act at the time of filing of original return of income. F urther, in view of Section 80IA(5) of the Act, the assessee required set off or previous years brought forward losses of the said unit first. However , ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 7 - the assessee has not done it. Thus, taking into totality of merits of the case, the clai m made b y the assessee was rejec ted by the AO. 7.2. On appeal the learned CIT(A) hel d that filing of audit report is procedural in nature and if the same is submitted before the finalization of assessment, the legal require ment would be satisfied as held by the Jurisdictional Gujarat High Court in the case of CIT vs. Guja ra t Oil and Allied I ndustries, [reported in 201 ITR 325]. Regarding the computation of profits in confor mit y with the provisions of section 80IA(5), it is seen that the controversy in question is covered by the decision of the Chennai Bench of the Tribunal in the case of Mohan Breweries & Distilleries Ltd. v. ACI T, 114 TTJ 532, in this case the Chennai Tribunal has very ca tegorically held that initial assessment yea r is the year in which the assessee first opts to be governed by the deduction provisions and not the year of manufacture. Following the judgment, the CIT( A) a llowed the clai m made b y the assessee. 8.1. Issue No.3 relate s to disallowance under Section 1 4A of the Act . The a ssessee had disclosed tax free inco me of Rs.65,36,070/-, co mprising of dividend inco me and interest on tax free bond. Th e learned AO called upon the assessee to show cause why the financial and administrative expenses attributable to earning such inco me should not be disallowed under s.14A of the Act. In reply, the assessee contended that there were no ad ministrative expenses were incurred since the tax free income was essentially pa ssive income requ iring no efforts on the part ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 8 - of the assessee. The next part name ly of financial expenses are concerned the assessee submitte d it had not made any investments during the year in the assets yielding the tax free income . The AO had not accepted submissions of the assessee and following the rationale of the assessment orders for the Asst. Years 2004-05 & 2005-06, disallowed 10% namely, Rs.6,53,607/- of the exe mpt inco me under S.14A of the Act . 8.2. The learned CIT( A) has held that the issue relating to disallowance under s.14A of the Act had beco me contentious issue and conflicting judgments were available. Special Bench of the ITAT has exa mined in detail in the case of ITO vs. Daga Capital Management Pvt. Ltd. 119 TTJ 289, wherei n Hon’ble ITAT has held that so far as the onus is concerned, the burden lies on the assessee to prove that the expenditure was incurred in the taxable business operations and not in the exempt income operations. Secondly, it has been held that Parliament in its wisdo m had enacted section 14A with retrospective effect fro m 01.04.1962 in order to clarify the a lread y existing position that only those expenses could be claimed which were relatable to the taxable income. Further, subsection (2) & (3) to Section 14A were inserted by the Finance Act, 2006 w.e.f . 01.04.2007. However, these are onl y machiner y provisions intended to provide a basis for co mputation of the disallowance to be made under s.14A of the Act. Since, the main section itself was retrospectively inserted in the statute book w.e.f . 01.04.1962, the machiner y provisions providing that the disallowance should be co mputed as per Rule 8D would also be deemed to have been in force w.e.f. 01.04.1962. Following the decision of Special ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 9 - Bench (supra), it is held that the provisions of Rule 8D would be applicable on the fact of the instant case. Accordingly the Ld CIT[ A] directed the AO to re-co mpute the disallowance under s.14A of the Act in ter ms of the provisions contained in Rule 8D. 9. Issue No. 4 re lates to depreciation on building used for Managing Director’s residence. 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 “factor y building”. It is observed from fur ther details, the capitalization of this building made on 20.06.2008 for assessee’s M anaging Director’s residence. It me ans the building is used as residence of the Managing Director and the assessee clai med depreciation @10% in respect of this building. The assessee claimed MD’s house residence-cu m-off ice building is used for the purpose of residence/office of the Managing Director and he discharges his official duties for official meetings. Therefore , t he rate of depreciation of 10% is clai med b y t he assessee. However, AO allowed depreciation @ 5% as per IT Rules as MD’s house is used mainl y for re sidential purpose. 10. Issue No.5 re lates to disallowance of contribu tion mad e to various organizations: The assessee claimed payment of Rs.2,00,000/= to SVADES , Rs.9 5,65,559/= to DEEP and Rs.15,36,500/= to various NGOs. The AO held there was no business obligation in respect of these expenses and not allowable under the Income Tax Ac t. On Appeal, the Ld CIT[ A] held that the assessee has submitted Certificate of R egistration ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 10 - of 80G in respect of payments mad e to SVADES and DEEP to that extent relief was allowed and balance amount was confir med. 11. Issue No.6 re lates to claim of disallowance under S.43B of the Act. The AO required the assessee to explain as to why the interest payable to Power Finance Corporation of Rs.2,49,82,597/-which was not paid as per the provisions of section 43B of the Act should not be disallowed. The assessee replied that the provision of Section 43B of the Act is not applicable to the above expenditure. The assessee submitted that since the due date of payment of interest to Power Finance Corporation is 21.11.2007 (relating to A.Y.2007-08) whereas the due date of filing of return of inco me was 31.10.2007, the provisions of Section 43B of the Act fails to cover such situation. Further, the assessee submitted that the above interest is only acc rued during the year an d not due for the payment in view of the terms of the loan and the sa me could not fall within the meaning of ter m "an y su m pa ya ble" as occurring in Section 43B of the Act and relied upon the Explanation 2 to Section 43B of the Act. The said explanation provides that "any su m payable" means a su m for which the assessee incurred liability in previous year even though such su m might not have been payable within that year under the relevant law. The said explanation is however applicable only to clause (a) of Section 43B of the Act. The assessee therefore clai med that the law itself envisaged difference between the meaning of payable and incurrence and for the purpose of Section 43B(a) of the Act only the sa me me aning is given. However, for the purpose of ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 11 - Section 43B(d) of the Act there is spell difference between the ter m "pa yable" and "incurrence". Ther efore, the assessee submitted that since the su m was not payable, the pr ovisions of Section 43B are not applicable. However, the AO held that assessee had not paid the said amount before the due date of filing of the return of income under s.139(1) of the Act. Th e AO disallowed Rs.2,49,82,597/- under s.43B of the Ac t. 12. The learned CIT( A) b y his detailed order has held that the fact that Power Finance Corporation Ltd (PFC) was a public finance institution is not in dispute. The nature of the payment (interest) is also not in dispute. The only dispute is with regard to the fact that although the interest pertained to the PY relevant to AY 2007-08, the payment thereof fell due only in the PY corresponding to AY 2008-09. The issue here is not an accounting one relating to the period to which the liability relates, but a legal one relating to the deeming provisions contained in sec.43B. The words “irrespective of the PY in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly e mployed by hi m” clearl y bring out the legislative intention. The only material fa ct to be seen while allowing the said interest as a deduction is the year in which such sum was actually paid. Accordingly, it is held that the AO was correct in not allowing the deduction of interest a mounting to Rs.2,49,82,597/-. However, the AO is directed to allow this as a deduction in AY 2008-09. Si mila rl y, the interest payment disallowed in the earlier year , whic h was actually paid in the PY corresponding to AY 2007-08 should be allowed as de ducting in this yea r.” ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 12 - 13. Argu ments of both parties and our Decision on each issue are as follows: 14. Issue No.1 regarding Re placement of parts in mac hineries trea ted as capital in nature. The Ld AR Mr . Milan Metha appearing for the assessee submission is of two folds [a] that the Accounting meth od or accounting treat ment whether statutorily prescribed under an y la w or otherwise cannot override the provisions of the Inco me Tax Act. Further Classification of ite ms in the books is not relevant for deciding the treatment of such items while co mputing taxable income as held by the Hon’ble Supre me 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, consu mption of spares being only replace ment of spare parts would qualify under the head "current repairs" and treated as Revenue Expenditure. The Ld AR sub mitted before the Bench a “Technical Write Up” a bout the ma chinery and also details of spares consumed at re gular intervals for various assessment years as follows: Technical Write up Stage # 1 Bucket Kit- General Electric, USA- G.E.Fr.6 Gas Turbine G.E.Fr.6 (ms6001B) Gas Turbine is 3 Stage turbine having set of Nozzle, Bucket and Shroud in each stage. Bucket set is assembled on turbine rotor in inverted fur-tree slots provided on rotor. Stage # 2 Bucket Kit consists of 92 buckets which when assembled on the rotor forms a series like wheel. The basic function of Buckets is to convert the heat energy of hot ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 13 - flue gases in to mechanical energy and thereby driving the coupled generator, which generates the POWER. Stage # 3 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. The buckets are designed with special profile of airfoil cross section for efficient energy conversion. It is manufactured using precision investment casing process using GTD-1 11 material, which is General Electric. USA proprietary material. To overcome very high operating temperature, Buckets are coated with proprietary Thermal Barrier Coating (TBC)-GT FN33 and designed with cooling provision. Because of the above specialties, buckets are designed and manufactured as per General Electric, USA proprietary material and process under very stringent quality control and tests. For a power generating company, these spares are in the nature of consumables spares only notwithstanding its high cost. It is also to be submitted that the Original Equipment Manufacturer which in the case of the assessee company is 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 to be 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 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. Th e d et ail s of sp a res c on sum ed a t r eg ula r in te rva ls f or va ri ou s As st. y ea rs i s a s u n der : A s s t Y e a r I t e m D e s c r i p t i o n A m o u n t ( R s . ) 2 0 0 3 - 0 4 S t a g e - 1 B u c k e t K i t , F r a m e - V I 3 , 9 6 , 92 , 5 5 7 P N o . 3 1 4 B 7 1 6 2 G 0 1 5 2 0 0 4 - 0 5 S t a g e - 1 B u c k e t K i t a l o n g w i t h s e t o f h a r d w a r e f o r G a s T u r b i n e 3 , 1 1 , 3 8 , 0 0 1 S t a g e - 1 B u c k e t K i t - C u t t e r t o o t h a l o n g w i t h s e t o f h a r d w a r e f o r G a s T u r b i n e s p a r e 2 , 3 0 , 6 1 , 2 9 2 S t a g e - 2 N o z z l e K i t w i t h i n t e r - s t a g e r u s h s e a l s f o r F R - 9 G a s T u r b i n e 9 , 7 9 , 2 0 , 7 8 8 S t a g e - 2 B u c k e t K i t , C u t t e r t e e t h d e s i g n f o r F R - 9 G a s T u r b i n e 6 , 8 8 , 2 0 , 9 4 3 2 0 0 5 - 0 6 S t a g e - 1 B u c k e t K i t a l o n g w i t h s e t o f ha r d w a r e f o r G a s T u r b i n e 3 , 3 5 , 4 4 , 3 0 5 S t a g e - 1 B u c k e t K i t - C u t t e r t o o t h a l o n g w i t h s e t o f h a r d w a r e f o r G a s T u r b i n e s p a r e 2 , 3 0 , 6 1 , 2 9 2 ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 14 - 2 0 0 6 - 0 7 C o m p r e s s o r R o t o r B l a d e G T F r . 6 1 , 6 3, 2 6 , 1 2 6 C o m p r e s s o r S t a t o r B l a d e G T F r . 6 2 , 1 9 , 6 5 , 9 6 1 E n t r A r m ( E x c i t o r ) 6 7 , 6 9 , 3 5 8 2 0 0 7 - 0 8 S t a g e - 1 N o z z l e A r r a n g e m e n t f o r G T F R - 6 1 , 0 6 , 0 1 , 6 7 7 S t a g e - 1 B u c k e t K i t f o r G T F R – 6 3 , 2 5 , 6 8 , 4 5 6 2 0 0 8 - 0 9 S t a g e - 1 N o z z l e - F r - 6 G a s T u r b i n e 3, 0 7 , 1 0 , 0 0 0 S t a g e - 2 B u c k e t f o r G T F R – 6 2 , 3 0 , 2 1 , 0 0 0 14.1. The second fold of argument of the Ld. Counsel for the assessee is that the spares consumed during the year under the consideration does not give enduring benefit to the assessee nor it increases the life or capacity of the machines and therefore are in nature of current repairs allowable as revenue expenditure. The assessee being in the business of generation and distribution of power requires specialized machines for generating power. Some of the parts of the machines require replacement from time to time on being used for fixed number of hours. The number of hours after which the machines are to be replaced are prescribed by the original equipment manufacturer (OEM). As soon as the machines complete the prescribed number of firing hours, the same are replaced. Thus the replacement is of parts of machines and not the entire machinery. The classification of spares in the books is not relevant for determining taxability of such items as per Income Tax Act. Further the consumption of spares is 0.50% of the net block of plant and machinery as on 31.03.2005. Every year such expenditure is required to be incurred with regularity considering the nature of business. 14.2. In support of this contention the Ld AR further submitted that this issue is squarely covered by the decision of the co- ordinate Benches of ITAT, Hyde rabad in the case of DCI T -Vs- AP Gas Powe r Corporation Ltd reported in 2014 [ID2]-GJ X- ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 15 - 0224-THYD whe rein after detailed discussion of Supre me Courts and other Judgements held as follows: “ ... ... 1 5 . W e h a v e h e a r d t h e s u b m i s s i o n s o f t h e p a r t ie s a n d p e r u s e d t h e o r d e r s o f t h e r e v e n u e a u t h o r i t i e s a s w el l a s o t h e r m a t e r i a l s p l a c e d o n r e c o r d . I t i s q u i t e e v i d e n t f r om t h e f a c t s e m a n a t i n g f r o m r e c o r d t h a t t h e e x p e n d i t u r e i n c u r r e d o f R s . 2 0 , 2 1 , 4 6 , 2 7 8 / - w h i c h i s s u b j e c t m a t t e r o f d i s a l lo w a n c e w a s t o w a r d s r e p a i r / r e p l a c e m e n t o f n o z z l e s , b u c k e t s , s h ro u d s , b e a r i n g s , p i e c e s a n d c o m b u s t i o n l i n e r s w h i c h a r e p ar t s o f t h e t h r e e g a s t u r b i n e s u t i l i z e d f o r g e n e r a t i n g p o w e r . It i s a l s o a f a c t t h a t t h e p o w e r g e n e r a t i o n p l a n t c o n s i s t s o f t w o s y st e m s i . e . , g a s t u r b i n e s a n d g e n e r a t i n g u n i t . A s c a n b e n o t i c e d f r om t h e p r o c e s s o f g e n e r a t i o n o f p o w e r a s d i s c u s s e d b y t h e C I T ( A ) in h i s o r d e r , t h e r e i s n o i n t e r m e d i a t e p r o d u c t i n t h e g e n e r a t i o n o f p o w e r . I t i s a l s o a f a c t o n r e c o r d t h a t t h e r e p l a c e d / r e p a i r e d p ar t s w e r e r e l a t i n g t o t h r e e g a s t u r b i n e s . A b o o k l e t s u b m i t t ed b y t h e a s s e s s e e r e g a r d i n g o p e r a t i o n a n d m a i n t e n a n c e o f h e av y d u t y g a s t u r b i n e c l e a r l y s h o w s t h a t a w e l l p l a n n e d m a i n t e n a nc e p r o g r a m m e i s r e q u i r e d f o r g e t t i n g t h e m a x i m u m e q u i pm e n t a v a i l a b i l i t y a n d o p t i m i z a t i o n o f m a i n t e n a n c e c o s t s . T h e s a i d b o o k l e t f u r t h e r s p e c i f i c a l l y n o t i f i e s t h e p a r t s w h i c h re q u i r e c a r e f u l a t t e n t i o n a n d m a i n t e n a n c e a r e t h o s e a s s o c i a t e d w i t h t h e c o m b u s t i o n p r o c e s s t o g e t h e r w i t h t h o s e e x p o s e d t o th e h o t g a s e s d i s c h a r g e d f r o m t h e c o m b u s t i o n s y s t e m . T h i s i n c l u d e c o m b u s t i o n l i n e r s , e n d c a p s , f u e l n o z z l e s a s s e m b l i e s , c r o s s f ir e t u b e s , t r a n s i t i o n p i e c e s , t u r b i n e n o z z l e s , t u r b i n e s t a t i o ne r y s h r o u d s a n d t u r b i n e b u c k e t s . T h e s a i d b o o k l e t m e n t i o n s a b o u t pe r i o d i c i n s p e c t i o n a n d r e p a i r / r e f u r b i s h / r e p l a c e m e n t o f t h e a f o r e s a i d p a r t s o f t h e g a s t u r b i n e . I t a l s o m e n t i o n s t h a t w h en t h e p a r t s a r e n o t r e p a i r a b l e , t h e y a r e t o b e r e p l a c e d . F r o m t h i s , i t i s v e r y m u c h c l e a r t h a t t h e e n t i r e g a s t u r b i n e s a r e n o t r e p l a c e d b u t s o m e o f i t s p a r t s a r e e i t h e r r e p a i r e d o r r e p l a c e d a s p e r t h e m ai n t e n a n c e r e q u i r e m e n t . I t i s t o b e n o t e d f r o m t h e d e t a i l e d d is c u s s i o n m a d e b y t h e C I T ( A ) t h a t t h e a s s e s s e e h a s s u b m i t t e d t h e de t a i l s o f p e r i o d i c i n s p e c t i o n t o b e m a d e a s r e c o m m e n d e d b y t he e q u i p m e n t m a n u f a c t u r e r . F u r t h e r i t i s a f a c t t o b e t a k e n n o t e o f t h a t t h e a s s e s s e e h a s b e e n c l a i m i n g s u c h e x p e n d i t u r e t o w a r d s r e p l a c e m e n t o f n o z z l e , s h r o u d s , b u c k e t s e t c . , f r o m t h e F . Y . 1 9 9 8 - 9 9 a n d a l l a l o n g t h e d e p a r t m e n t h a s a l l o w e d s u c h e xp e n d i t u r e . T h i s f a c t h a s n o t b e e n c o n t r o v e r t e d b y t h e l e a r n e d D . R . I t i s a l s o a f a c t t h a t o u t o f t h e t o t a l b l o c k o f t h e a s s e t s r el a t i n g t o g a s t u r b i n e s o f R s . 5 1 7 c r o r e s , t h e r e p a i r a n d m a i n t e n a nc e t o t h e e x t e n t o f R s . 2 0 , 2 1 , 4 6 , 2 7 8 / - . T h e r e f o r e , c o n s i d e r i n g t h e q u a n t u m o f e x p e n d i t u r e , i t c a n n o t b e s a i d t h a t t h e r e i s r e pl a c e m e n t o f t h e e n t i r e g a s t u r b i n e s o a s t o b r i n g i n t o e x i s t e n c e a c o m p l e t e l y n e w a s s e t r e s u l t i n g i n e n d u r i n g b e n e f i t t o t h e a s s e s s e e. I t i s a f u r t h e r f a c t o n r e c o r d t h a t t h e a s s e s s e e ’ s c o n t e n t i o n t h a t t h e r e i s n o ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 16 - e n h a n c e m e n t o f c a p a c i t y o f t h e g a s t u r b i n e s o r g e n er a t i o n o f p o w e r a f t e r r e p l a c e m e n t / r e p a i r o f t h e p a r t o f t h e ga s t u r b i n e s r e m a i n s u n c o n t r o v e r t e d . T h e r e f o r e , i n t h e a f o r e s a i d c i r c u m s t a n c e s , i t c a n n ot b e s a i d t h a t t h e e x p e n d i t u r e i n c u r r e d b y t h e a s s e s s e e i n r e p a i r /r e p l a c e m e n t o f t h e p a r t s o f t h e g a s t u r b i n e , h a s r e s u l t e d i n b r i n gi n g i n t o e x i s t e n c e o f a n a s s e t o f e n d u r i n g b e n e f i t t o t h e a ss e s s e e s o a s t o t r e a t i t a s c a p i t a l e x p e n d i t u r e . S o f a r a s t h e d e c is i o n i n t h e c a s e o f C I T V/ s . S a r a v a n a S p i n n i n g M i l l s ( s u p r a ) i s c o n ce r n e d , t h e C I T ( A ) h a s c l e a r l y b r o u g h t o u t t h e d i s t i n g u i s h i n g fe a t u r e s . I t i s t o b e n o t e d t h a t i n t h e c a s e o f C I T V/ s . S a r a v a n a Sp i n n i n g M i l l s , t h e r e i s a c l e a r o b s e r v a t i o n o f t h e H o n ’ b l e S u p r e m e C o u r t t h a t t h e T e x t i l e P l a n t c o n s i s t s o f d i f f e r e n t d e p a r t m e n t s h a v i n g i t s o w n i n d e p e n d e n t p l a n t s a n d m a c h i n e r y w h i c h p r o d u c e d i f fe r e n t i n t e r m e d i a t e p r o d u c t s . H o w e v e r , i n t h e c a s e o f t h e a s s e s s e e t h e r e i s n o s u c h i n t e r m e d i a t e p r o d u c t s w h i c h r e q u i r e s i n de p e n d e n t a n d s e p a r a t e p l a n t s a n d m a c h i n e r y . O n t h e c o n t r a r y , w h at t h e a s s e s s e e h a s r e p l a c e d i s c e r t a i n p a r t s o f t h e g a s tu r b i n e s a n d t h e g a s t u r b i n e s a s a w h o l e h a v e n o t b e e n r e p l a c e d . T h er e f o r e , i n t h i s c o n t e x t t h e o b s e r v a t i o n m a d e b y t h e H o n ’ b l e S up r e m e C o u r t i n t h e c a s e o f C I T V/ s . S a r a v a n a S p i n n i n g M i l l s r a th e r f a v o u r s t h e a s s e s s e e . B e c a u s e t h e H o n ’ b l e S u p r e m e c o u r t i n t h e s a i d d e c i s i o n h a s h e l d t h a t w h e n c e r t a i n p a r t s o f a a i r c o n d i t i o n e r o r a T . V. i s r e p l a c e d , i t d o e s n o t a m o u n t t o r e p l a c e m en t o f e n t i r e u n i t . T h e r e f o r e , a p p l y i n g t h e s a m e l o g i c t o t h e f a ct s o f t h e a s s e s s e e ’ s c a s e , i t c a n b e s a i d t h a t t h e r e i s n o r ep l a c e m e n t o f t h e g a s t u r b i n e a s a w h o l e b u t c e r t a i n r e p a i r a n d r e p l ac e m e n t t o s o m e o f t h e p a r t s o f t h e g a s t u r b i n e , w h i c h d o e s n ot r e s u l t i n b r i n g i n g i n t o e x i s t e n c e a n e w a s s e t o f e n d u r i n g n a tu r e , r a t h e r , t h e r e p a i r a n d m a i n t e n a n c e a r e o f r e c u r r i n g n a t u r e a n d e s s e n t i a l l y r e q u i r e d f o r s m o o t h r u n n i n g o f b u s i n e s s o f t h e a s s e s s e e i . e , g e n e r a t i o n o f p o w e r . T h e o t h e r d e c i s io n o f t h e H o n ’ b l e S u p r e m e C o u r t r e l i e d u p o n b y t h e l e a r n e d D .R . i n t h e c a s e o f C I T V/ s . S r i M a n g a y a r k a r a s i M i l l s ( P ) L t d . 3 1 5 I T R 1 1 4 a l s o f o l l o w i n g t h e d e c i s i o n i n t h e c a s e o f C I T V/ s . S a r a v a n a S p i n n i n g M i l l s ( s u p r a ) , h a s l a i d d o w n t h e s a m e p r o po s i t i o n o f l a w . O n t h e o t h e r h a n d , t h e d e c i s i o n s r e l i e d u p o n by t h e a s s e s s e e a s n o t e d i n t h e o r d e r o f t h e C I T ( A ) c l e a r l y s u p p o r ts t h e v i e w t h a t t h e e x p e n d i t u r e i n c u r r e d b y t h e a s s e s s e e c a n n o t b e t r e a t e d a s c a p i t a l e x p e n d i t u r e . I n t h e a f o r e s a i d v i e w o f t h e ma t t e r , w e d o n o t f i n d a n y r e a s o n t o i n t e r f e r e w i t h t h e f i n d i n g s o f t h e C I T ( A ) i n t h i s r e g a r d . W e t h e r e f o r e , c o n f i r m t h e o r d e r o f t h e C I T ( A ) a n d d i r e c t t h e A s s e s s i n g O f f i c e r t o d e l e t e t h e a d d i t i o n m a d e o n a c c o u n t o f d i s a l l o w a n c e o f e x p e n d i t u r e t o t h e t u n e o f R s . 2 0 , 2 1 , 4 6 , 2 7 8 / - . 14.3. Per contra the Ld DR appearing for the Revenue could not bring any contrary vie w on the above preposition but however ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 17 - contented that when the assessee itself clai med t he above expenses in its books of account as “Capital” now can not claim the sa me as “Rev enue” and relied upon the order passed by the Assessing Officer and prayed for c onfir ming the addition since it is recurring in nature. 15. We have given our thoughtful consideration on the materials placed before us na mel y Technical Write Up, Details of spares consumed at regular intervals for various Asst. years and the case laws relied by the assessee. We need not labour ourself in co ming to a conclusion that the Replace ment of parts in machineries treated as Not Capital but “R evenue” in nature for the following reasons: a. For a powe r g enerating compan y, these bucket spares are in the nature of consu mables spares only notwithstanding its high cost. b. The buckets are designed with special profile of airfoil cross section for efficient energy co nversion. c. Due to high working te mperature 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 ma y lead to catastrophic dama ge to the ma chine. d. It is also seen fro m the Original Equipment Manufacturer na mel y BHEL/ Ge neral Electric, USA have ver y ca tegorically prescribed the operating life of the above bucket which helps to ensure trouble free operation and to avoid any c atastrophic da mage to the ma c hine. ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 18 - e. Further it is also stated that by re place ment of the buckets on co mpletion of 48000 hours of continuous operation the power generation capacity is neither increased nor is the power plant efficienc y or life of the plant gets increased. f. The cost of the Gas Turbine parts such as Buckets and Nozzles are high pri mar y due to ver y special meta llurgy and manufacturing process provided by the manufactur er out side India and the assessee co mpan y procures the same by i mport and thus attracts custom dut y, air fre ight, insurance etc. g. Further the replace ment of parts is Capital or Revenue is No more Res integra based on the observation made b y the Hon’ble Supre me Court in the case of CIT V/s. Saravana Spinning Mills and CIT V/s. S ri Mangaya rkarasi Mills (P) Ltd. 315 ITR 114 wherein held that when certain par ts of an air-conditioner or a T.V. is replaced, it does not a mount to replacement of entire unit. h. Thus this issue is alread y dealt b y the co-ordinate Benches of ITAT, Hydera bad in the case of DCI T -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, appl ying the sa me logic to the facts of the assessee’s case, it can be said that there is no replace ment 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 s mooth running of business of the assessee i.e, generation of power. ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 19 - j. Therefore we have no hesitation in holding that the replace ment of spares in the machineries would be allowable as Revenue expenditure only and addition made b y t he AO is directed to be deleted. Thus the Dep art ment ground is rejected. 16. Issue No.2 relates to additional claim und er section 80IA of the Act. The Ld Counsel for the assessee submitted that there is no dispute that the Assessee has satisfied all the conditions for clai ming deduction u/s 80IA of the Act. Onl y reason for disallowing the claim of Assessee is non-furnishing of audit report along with the return of inco me . Referring to page nos. 247 to 274 of the paper book the Ld AR stated that the Audit Report was filed before co mpletion of the Assess ment. Thus, it is settled law that filing of report during the pendency of assessment proceedings is sufficient co mpliance for c lai ming deduction u/s 80IA of the Act and relied on the judge ment of the jurisdictional High Court in the case of Gujarat Oi l and Allied Industries - 201 ITR 325. 17. The Ld AR fu rther sub mitted that regarding the issue of set off of losses as per section 80IA(5) for computation of income of eligible unit, the issue of "Initial Assess ment Ye ar" is settled by CB DT Circular No. 1 of 2016 dated 15-02-2016. As per the Circular, the ter m 'initial assessment year' w ould mean the first year opted for by the assessee for claiming deduction u/s 80-IA. As per CBDT Circular, AY 2006-07 would be the Initial Assessmen t Year since for the SLPP unit, the Assessee has clai med the deduction u/s 80IA for the first time in AY 2006-07. Therefor e the require ment of setting off unabsorbed ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 20 - depreciation and losses shall arise fro m AY 20 07-08 i.e. i mmediatel y succeeding the initial assessment year i.e. AY 2006-07. 17.1. Relevant portion of CBDT Circular No. 1/2016 dated 15.02.2016 is extracted below: I n t h e a b o v e s u b - s e c t i o n , w h i c h p r e s c r i b e s t h e m a n ne r o f d e t e r m i n i n g t h e q u a n t u m o f d e d u c t i o n , a r e f e r e n c e ha s b e e n m a d e t o t h e t e r m ' i n i t i a l a s s e s s m e n t y e a r ' . I t h a s b e e n r e p r e s e n t e d t h a t s o m e A s s e s s i n g O f f i c e r s a r e i n t e r p r e t i n g t h e t e r m 'i n i t i a l a s s e s s m e n t y e a r ' a s t h e y e a r i n w h i c h t h e e l i g i b l e b u s i n e s s / m a n u f a c t u r i n g a c t i v i t y h a d c o m m e n c e d a n d a r e c o n s i de r i n g s u c h f i r s t y e a r o f c o m m e n c e m e n t / o p e r a t i o n e t c . i t s e l f a s t h e f i r s t y e a r f o r g r a n t i n g d e d u c t i o n , i g n o r i n g t h e c l e a r m a n d a t e p r o v i d e d u n d e r s u b - s e c t i o n ( 2 ) w h i c h a l l o w s a c h o i c e t o t h e a s s e s se e f o r d e c i d i n g t h e y e a r f r o m w h i c h i t d e s i r e s t o c l a i m d e d u c t i o n ou t o f t h e a p p l i c a b l e s l a b o f f i f t e e n ( o r t w e n t y ) y e a r s . T h e m a t t e r h a s b e e n e x a m i n e d b y t h e B o a r d . I t i s a bu n d a n t l y c l e a r f r o m s u b - s e c t i o n ( 2 ) t h a t a n a s s e s s e e w h o i s e l i g i bl e t o c l a i m d e d u c t i o n u / s 8 0 I A h a s t h e o p t i o n t o c h o o s e t h e i n it i a l / f i r s t y e a r f r o m w h i c h i t m a y d e s i r e t h e c l a i m o f d e d u c t i o n f o r t e n c o n s e c u t i v e y e a r s , o u t o f a s l a b o f f i f t e e n ( o r t w en t y ) y e a r s , a s p r e s c r i b e d u n d e r t h a t s u b - s e c t i o n . I t i s h e r e b y c l ar i f i e d t h a t o n c e s u c h i n i t i a l a s s e s s m e n t y e a r h a s b e e n o p t e d f o r b y t h e a s s e s s e e , h e s h a l l b e e n t i t l e d t o c l a i m d e d u c t i o n u / s 8 0 1 A f o r te n c o n s e c u t i v e y e a r s b e g i n n i n g f r o m t h e y e a r i n r e s p e c t o f w h i c h he h a s e x e r c i s e d s u c h o p t i o n s u b j e c t t o t h e f u l f i l l m e n t o f c o n d i t i o ns p r e s c r i b e d i n t h e s e c t i o n . H e n c e , t h e t e r m ' i n i t i a l a s s e s s m e n t y ea r ' w o u l d m e a n t h e f i r s t y e a r o p t e d f o r b y t h e a s s e s s e e f o r c l a i m in g d e d u c t i o n u / s 8 0 1 A . H o w e v e r , t h e t o t a l n u m b e r o f y e a r s f o r c l a i m in g d e d u c t i o n s h o u l d n o t t r a n s g r e s s t h e p r e s c r i b e d s l a b o f f i f t e en o r t w e n t y y e a r s , a s t h e c a s e m a y b e a n d t h e p e r i o d o f c l a i m sh o u l d b e a v a i l e d i n c o n t i n u i t y . T h e A s s e s s i n g O f f i c e r s a r e , t h e r e f o r e , d i r e c t e d t o a l l o w d e d u c t i o n u / s 8 0 I A i n a c c o r d a n c e w i t h t h i s c l a r i f i c a t i o n s a t is f i e d t h a t a l l t h e p r e s c r i b e d c o n d i t i o n s a p p l i c a b l e i n a p a r t i c u l a r c as e a r e d u l y s a t i s f i e d . P e n d i n g l i t i g a t i o n o n a l l o w a b i l i t y o f d ed u c t i o n u / s 8 0 I A s h a l l a l s o n o t b e p u r s u e d t o t h e e x t e n t i t r e l a t e s t o i n t e r p r e t i n g ' i n i t i a l a s s e s s m e n t y e a r ' a s m e n t i o n e d i n s u b s e c t i on ( 5 ) o f t h a t s e c t i o n f o r w h i c h t h e S t a n d i n g C o u n s e l s / D . R . s b e s ui t a b l y i n s t r u c t e d . ” ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 21 - 17.2. In reply, the Ld DR appearing for the Revenue ad mitted that the above Circular No.1/2016 issued by the CBDT has put to end all the issues following the judge ment rendered by the High Court of Madras in the case of Vela yuthasa my Spinning Mills. 18. We have given our thoughtful consideration on the materials placed before us the issue is now settled by the Circular No.1/2016 issued by the CBDT that an assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year fro m which it ma y desire the claim of deduction for ten consecutive years , out of a slab of fifteen (or twent y) years , a s prescribed under that sub-section. The Circular further clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to clai m 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 co nditions prescribed in the section. Hence, t he ter m 'initial assessment year' would mean the first year opte d for b y the assessee for clai ming deduction u/s 80IA. Ho wever, the total nu mber of years for clai ming deduction should not transgress the prescribed slab of fifteen or twent y years, as the case ma y be and the period of clai m should be availed in continuity. Thus the Assessing Officers are directed to allow deduction u/s 80IA in accordance with this 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 ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 22 - interpreting 'initial assessment year ' as mentioned in subsection (5) of section 80IA of the Act. 19. Following this Circular the SLP filed by the depart ment was also dis missed against High Court's ruling that loss in year earlier to initial assessment yea r alread y 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 Co mmissioner of Inco me-tax, Tir upur -Vs- Vela yudhaswa my Spinning Mills (P.) Ltd. reported in [2016] 76 taxmann.co m 176 (SC). Following the same we hereb y reject the Grounds of appeal filed by the Revenue and allow the clai m of deduction u/s.80IA in favour of the assessee. 20. Issue No.3 relates to disallowance under Sec tion 14A of the Act . The Ld Counsel for the assessee submitted that the assessee disclosed tax free inco me of Rs.65,36,070/-, co mprising of dividend income and interest on tax free bond. However there were no ad ministra tive expenses were incurred since the tax free income was essentially passive income requiring no efforts on the part of the assessee. The next part na mel y of finan cial expenses are concerned the assessee submitted it had not made an y invest ments during the yea r in the assets yielding the tax free income . The adhoc disallowance of 10% on the ex e mpt inco me under S.14A of the Ac t made b y the AO is against law and the CIT[A] is also not correct in directing to adopt Rule 8D, since the assess ment year s are prior to the introduction Rule 8D. In the absence of any ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 23 - ad ministrative expenses and no barrowed funds for such investments, the question of disallowance u/s.14A is unwarrented. 21. Per contra the Ld DR appearin g for the Revenue accepted that man y rulings b y various Court on this issue and however supported the orders of the lower authorities. 22. We have given our thoughtful consideration on the materials placed before us, the issue is now settled by the Hon’ble Supre me Court in the case of Maxopp Investment Ltd. - Vs- Co mmissioner of Inco me Tax, New Delhi reported in [2018] 91 taxmann.co m 1 54 (SC) wherein it clearly held that Rule 8D is prospective in nature and could not have been made applicable in respect of assess ment yea rs prior to 2007 when this rule was inserted w.e.f . March 24, 2008 vide Inco me Tax (Fifth Amend men t) Rules, 2008. Further jurisdictional High Court in the case of Principal Commissioner of Income-tax-4 - Vs- Sintex Industries Ltd. reported [2017] 82 taxman n.co m 171 (Guja rat) wherei n it is clearly held that the Expenditure incurred in relation to income not includible in total income (Ad ministrative expenses) - Whether where assessee alread y had its own surplus fund against which minor investment was made , no question of making any disallowance of expenditure in respect of interest and administrative expenses under section 14A arose and, therefore, there was no question of any estimation of expenditure in respect of interest and ad ministrative expenses under rule 8D. Further the Hon’ble Court referred the another decision in the case of Pr. CIT v. India ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 24 - Gelatine & Chemicals Ltd. [2015] 376 ITR 553/[2016] 66 taxmann.com 356 wherein it is observed that when the assessee had sufficient interest-free funds out of which concerned investments had been made , disallowance under Section 14A is not justified. Thus we clear in 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 ad ministrative 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.1 4A of the Act. 23. Issue No. 4 relates to depreciation on building used for Managing Director’s residence. Ld AR sub mitted 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 factor y building. The assessee clai med MD’s house is residence-cu m-off ice 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-cu m- residential 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 sa me. Acco rdingly the CO filed on this ground is allowed. ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 25 - 25. Issue No.5 re lates to disallowance of contribu tion mad e to various organizations: The assessee claimed payment of Rs.2,00,000/= to SVADES , Rs.9 5,65,559/= to DEEP and Rs.15,36,500/= to various NGOs the sa me were disallowed by the AO. But the Ld CI T[A] grante d relief in cases were the assessee has submitted Certificate of Registration of 80G in respect of payme nts made to SVADES and DEEP a nd balance a mount was confirmed. 26. In our considered view the CIT[ A] h as granted appropriate relief to the assessee, which does not require any further inference. Accordingly the C O filed on this ground is dismissed. 27. Issue No.6 relates to claim of disallowance under S.43B of the Act. The l earned CIT( A) b y his detailed order has held that the AO was correct in not allowing the deduction of interest amounting to Rs.2,49,82,597/-. However, the AO is directed to allow this as a deduction in AY 2008-09. Si milarl y, the interest payment disallowed in the earlier year, which was actually paid in the PY corresponding to AY 2007-08 should be allowed as deducting in this year . 28. In our considered view the CIT[A] has granted appropriate relief to the assessee, which does not require any further inference. Accordingly the C O filed on this ground is dismissed. 29. In the result, the c aptioned appeals are S l . N o . IT A / C O N o . A . Y . Fi l e d b y R e s u l t 1 IT A N o . 3 0 0 3 / A h d / 2 0 1 0 2 0 0 3 - 0 4 R e v e n u e D i s m i s s e d 2 IT A N o . 1 5 3 4 / A h d / 2 0 0 9 2 0 0 6 - 0 7 R e v e n u e D i s m i s s e d ITA No. 3003/Ahd/2010, 1534/Ahd/2009 & Ors. (Gujarat Industrial Power Co. Ltd. ) - 26 - 3 C O N o . 1 1 7 / A h d / 2 0 0 9 2 0 0 6 - 0 7 A s s e s s e e P a r t l y A l l o w e d 4 IT A N o . 1 1 0 9 / A h d / 2 0 1 0 2 0 0 7 - 0 8 R e v e n u e D i s m i s s e d 5 IT A N o . 6 4 4 / A h d / 2 0 1 0 2 0 0 7 - 0 8 A s s e s s e e P a r t l y A l l o w e d 6 IT A N o . 5 2 1 / A h d / 2 0 1 2 2 0 0 8 - 0 9 R e v e n u e D i s m i s s e d 7 IT A N o . 4 9 5 / A h d / 2 0 1 2 2 0 0 8 - 0 9 A s s e s s e e P a r t l y A l l o w e d Sd/- Sd/- ( WASEEM AHMED) (MAHAVIR PRASAD) ACC OUNTANT MEMB ER JUDICIAL MEMBER Ahmedabad: Dated 28/02/2022 True Copy S.K.SINHA ेश ! " #े" / Copy of Order Forwarded to:- ". र / Revenue 2. आ दक / Assessee %. सं&ं'( आयकर आय ) / Concerned CIT 4. आयकर आय ) - अपील / CIT (A) ,. - . /ीय 01 1 '(2 आयकर अपील य अ'(कर!2 अ34द & द / DR, ITAT, Ahmedabad 5. / 67 8 ल / Guard file. By order/आद श स 2 उप/स3 यक पं ीक र आयकर अपील य अ'(कर!2 अ34द & द । This Order pronounced in Open Court on 28/02/2022