ACIT, CHENNAI V. M/s Shree Ambika Sugars Ltd., CHENNAI

ITA 306/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2163 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRIDHAR DORA IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Additional evidence; Rule 8D; Set aside
• Section: 14A; 115JB; 32(1)(iia)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./I.T.A. NOS.306, 307, 308 & 309/CHNY/2018 ! / ASSESSMENT YEARS :2009-10, 2010-11, 2011-12 & 2 012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT -2, CHENNAI 600 034 VS. M/S. SHREE AMBIKA SUGARS LIMITED, ELDARADO, 5 TH FLOOR, 112, MAHATMA GANDHI ROAD, CHENNAI 600 034 ./I.T.A. NOS.340, 341, 342 & 343/CHNY/2018 ! / ASSESSMENT YEARS :2009-10, 2010-11, 2011-12 & 2 012-13 M/S. SHREE AMBIKA SUGARS LIMITED, ELDARADO, 5 TH FLOOR, 112, MAHATMA GANDHI ROAD, CHENNAI 600 034 VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT -2, CHENNAI 600 034 [PAN AABCS 5163J] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI. R. VIJAYARAGHAVAN, ADV DEPARTMENT BY : SHRI. SRIDHAR DORA, IRS, JCIT. ' # $ % /DATE OF HEARING : 11-06-2019 &'! $ % /DATE OF PRONOUNCEMENT : 25-06-2019 ITA NOS.306 TO 309 & 340-343/18 :- 2 -: / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE REVENUE AND A SSESSEE RESPECTIVELY DIRECTED AGAINST THE COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-17 (HEREINAFTE R CALLED AS CIT(A), CHENNAI DATED 21.11.2017 FOR THE ASSESS MENT YEARS 2009- 10, 2010-11, 2011-12 & 2012-13. 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLVED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS C OMMON ORDER. 3. FOR THE SAKE OF CONVENIENCE AND CLARITY THE FACTS R ELEVANT TO THE APPEAL IN ITA NO.306/CHNY/2018 FOR ASSESSMENT Y EAR 2009-10 ARE STATED HEREIN. 4. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE NAMELY M/S. SHREE AMBIKA SUGARS LIMIT ED IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF SUGAR MANU FACTURING AND POWER GENERATION. THE RETURN OF INCOME FOR THE AY 2 009-10 WAS FILED ITA NOS.306 TO 309 & 340-343/18 :- 3 -: ON 30.09.2009 DISCLOSING NIL INCOME. AGAINST THE S AID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI (HEREI NAFTER CALLED AO) VIDE ORDER DATED 14.12.2011 PASSED U/S. 143(3 )OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL LOSS OF RS.46,56,44,031/-. WHILE DOING SO, THE AO MADE THE FOLLOWING DISALLOWA NCES: (I) LOSS ON FOREIGN EXCHANGE DERIVATIVES 18,78,80,250/- (II) EXCESS CLAIM OF DEPRECIATION 4,54,60,597/- (III) DISALLOWANCE U/S.14A 4,05,32,067/- (IV) EXPENDITURE ON CORPORATE SHARE ADJUSTED FOR TERRA ENERGY LTD 46,48,867/- THE ASSESSING OFFICER DISALLOWED THE LOSS ON ACCOUN T OF FOREIGN EXCHANGE DERIVATIVE TRANSACTION HOLDING TO BE SPEC ULATIVE LOSS. AS REGARDS TO DEPRECIATION, THE ASSESSING OFFICER MADE ADDITION OF H4,54,60,597/- ON ACCOUNT OF EXCESS CLAIM OF DEPREC IATION. IT IS STATED THAT M/S. SUPREME RENEWABLE ENERGY LTD AND M/S. AUR O ENERGY LIMITED WERE AMALGAMATED WITH ASSESSEE COMPANY W.E .F. 01.04.2003. IT IS STATED BEFORE THE ASSESSING OFFICER THAT AMAL GAMATED COMPANIES WERE CLAIMING DEPRECIATION ON FIXED ASSETS FOLLOW ING STRAIGHT LINE METHOD. HOWEVER, THE ASSESSING OFFICER TOOK VIEW THAT DEPRECIATION IS AVAILABLE ONLY ON THE BASIS OF WRITTEN DOWN VAL UE METHOD. ITA NOS.306 TO 309 & 340-343/18 :- 4 -: ACCORDINGLY, DISALLOWED EXCESS CLAIM OF DEPRECIATI ON OF H4,54,60,597/-. THE ASSESSING OFFICER ALSO MADE A D ISALLOWANCE OF H4,05,32,067/- INVOKING THE PROVISIONS OF SECTION 1 4A R.W.R.8D ON NOTICING THAT ASSESSEE COMPANY HAD EARNED DIVIDEND INCOME OF H2,50,116/-. THE ASSESSING OFFICER ALSO DISALLOWED A SUM OF H46,48,867/- ON ACCOUNT OF CORPORATE SHARE EXPENSE S FOR WANT OF EVIDENCE. 5. BEING AGGRIEVED BY THE ABOVE ADDITIONS, THE ASSESS EE- COMPANY PREFERRED AN APPEAL BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDER SET ASIDE THE ISSUE OF LOSS ON FOREIGN EXCH ANGE DERIVATIVE TRANSACTION WITH DIRECTION TO VERIFY WHETHER THE LOSS ON ACCOUNT OF CANCELLATION OF FORWARD CONTRACT OF 18,78,80,250/- WAS INCURRED DURING THE COURSE OF BUSINESS OF THE ASSESSEE OR N OT. IN RESPECT OF THE DISALLOWANCE OF EXCESS DEPRECIATION ON THE ASSETS OF AMALGAMATED COMPANIES, THE LD. CIT(A) PLACING RELIANCE ON THE D ECISION OF CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SES IN ITA NO.1469/MDS/2009, ITA NO.2019/MDS/2010, ITA NO.12/ MDS/2011, ITA NO.560/MDS/2011 AND ITA NO.256/MDS/2015, DATED 19.12.2016 FOR THE ASSESSMENT YEARS 2004-05 TO 2008-2009, DIR ECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION BY ADOPTIN G STRAIGHT LINE METHOD. AS REGARD TO ADDITION U/S. 14A OF THE ACT, THE LD. CIT(A) HAD CONFIRMED THE APPLICABILITY OF PROVISIONS OF SECTIO N 14A OF THE ACT. ITA NOS.306 TO 309 & 340-343/18 :- 5 -: HOWEVER, DIRECTED THE ASSESSING OFFICER FOR THE PUR POSE OF COMPUTING THE AMOUNT OF DISALLOWANCE UNDER THE PROVISIONS OF RULE 8D(2)(II) OF THE INCOME TAX RULES TO EXCLUDE THE AMOUNT BORROWED FOR SPECIFIC PURPOSE. LD. CIT(A) CONFIRMED THE DISALLOWANCE OF CORPORATE SHARE OF EXPENSES FOR WANT OF ANY EVIDENCE. THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE U/S.14 A OF THE ACT FROM THE BOOK PROFIT WHILE COMPUTING TAX LIABILITY UNDER PROVISIONS OF SECTION 115JB OF THE ACT. 6. AGGRIEVED BY THAT PART OF THE LD. CIT(A) ORDER, WHI CH IS AGAINST ASSESSEE-COMPANY, THE ASSESSEE COMPANY IS IN APPEAL IN ITA NO.340/CHNY/2018, WHEREAS THE REVENUE IS IN AP PEAL IN ITA NO.306/CHNY/2018 ON THE GROUNDS WHICH ARE DECIDED I N FAVOUR OF THE ASSESSEE COMPANY. 7. FIRST WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.340/CHNY/2018 FOR ASSESSMENT YEAR 2009-2010 FOR ADJUDICATION. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL . 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IS CONTRARY TO LAW FACTS AND CIRCUMSTANCES OF THE CASE . 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(III) BY TAKING INTO CONSIDERATION EVEN T HE AVERAGE VALUE OF INVESTMENTS WHICH HAVE NOT YIELDED DIVIDEN D INCOME IN THE YEAR UNDER CONSIDERATION ITA NOS.306 TO 309 & 340-343/18 :- 6 -: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT WHERE THE PRIMARY OBJECT OF INVESTMENT W AS TO ACQUIRE CONTROLLING STAKE IN GROUP COMPANIES AND NO T FOR EARNING INCOME OUT OF THAT INVESTMENT, PROVISIONS O F SECTION 14A COULD NOT BE INVOKED. 2.2 THE APPELLANT SUBMITS THAT INVESTMENTS IN SUBSI DIARIES ARE FOR STRATEGIC PURPOSES AND NOT FOR EARNING DIVI DEND AND SO THE EXPENDITURE CANNOT BE DISALLOWED AS HELD BY ITAT LUCKNOW IN U.P.ELECTRONICS CORPORATION LTD VS DCIT 2.3 IN ANY EVENT THE APPELLANT HAD SUFFICIENT OWN F UNDS FOR MAKING THE INVESTMENTS IN THE RESPECTIVE YEARS IN W HICH THE INVESTMENTS WERE MADE. 3. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING. 8. ALL THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE VOLVES AROUND ISSUE OF APPLICABILITY OF SECTION 14A OF THE ACT. DURING THE COURSE OF HEARING OF APPEAL, COUNSEL FOR THE ASSESS EE SHRI. R. VIJAYARAGHAVAN, SUBMITTED THAT AMOUNT OF DISALLOWA NCE MAY BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME. IN THI S CONNECTION, HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PR. CIT VS. M/S. MODERATE LEASING AND CAPITAL SE RVICES PVT LTD. 2018-TIOL-431-HON'BLE SUPREME COURT-IT, WHERE THE HON'BLE SUPREME COURT CONCURRED WITH THE VIEW OF HONBLE DE LHI HIGH COURT IN THE CASE JOINT INVESTMENTS P. LTD VS. CIT 372 ITR 694 , HOLDING THAT AMOUNT OF DISALLOWANCE U/S.14A OF THE ACT MUST BE R ESTRICTED TO THE ITA NOS.306 TO 309 & 340-343/18 :- 7 -: QUANTUM OF EXEMPT INCOME EARNED DURING THE YEAR UN DER CONSIDERATION. 9. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT HE HAS NO OBJECTION TO PROPOSITION CANVASSED BY THE LD. AUTHORISED REPRESENTATIVE. 10. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD . WE ARE OF THE CONSIDERED OPINION THAT THE MAXIMUM DISALLOWANCE THAT COULD HAVE BEEN MADE BY THE ASSES SING OFFICER IS ONLY TO THE EXTENT OF EXEMPT INCOME CLAIMED BY THE ASSESSEE. WE THEREFORE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME . ALL OTHER GROUNDS OF APPEAL APPLICABILITY OF PROVISIONS OF SECTION 1 4A OF THE ACT WERE NOT PRESSED DURING THE COURSE OF HEARING AND DISMI SSED AS SUCH. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.340/CHNY/2018, FOR ASSESSMENT YEAR 2009-2010 IS PARTLY ALLOWED. 12. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.306/CHNY/2018, FOR ASSESSMENT YEAR 2009-2010. 13. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL. ITA NOS.306 TO 309 & 340-343/18 :- 8 -: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2 THE LD. CIT(A) HAS ERRED IN ALLOWING THAT THE DEP RECIATION ON ASSETS ACQUIRED BY WAY OF AMALGAMATION OF SUBSIDIAR Y COMPANIES ARE TO BE CALCULATED ON COST AND NOT ON W RITTEN DOWN VALUE OF SUCH ASSETS IN SPITE OF THE FACT THAT EXPL .(2) TO SEC. 46(6) PROVIDES FOR THE CONTRARY. 3 THE LD. CIT(A) HAS ERRED IN HOLDING THAT EXPL. 7 TO SEC. 43(1) OPERATE IN SUCH CIRCUMSTANCES AND NOT EXPL.2 TO SEC .43(6) IN SPITE OF THE NON OBSTANTE CLAUSE IN EXPL.2 TO SEC.4 3(6) WHEREIN OPERATION OF SECTION 43(1) IS SPECIFICALLY EXCLUDED . 4.FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 14. THE GROUNDS OF APPEAL NO.1, & 4 ARE GENERAL IN NATU RE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 15. IN GROUND NO. 2 & 3 REVENUE CHALLENGES THE DECISION OF THE LD. CIT(A) IN DIRECTING THE ASSESSING OFFICER TO A LLOW DEPRECIATION ON THE ASSETS OF AMALGAMATED COMPANIES ON STRAIGHT LIN E METHOD. 16. THE ISSUE NOW SETTLED BY THE DECISION OF CO-ORDINAT E OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1469/MDS/ 2009, ITA NO.2019/MDS/2010, ITA NO.12/MDS/2011, ITA NO.560/MD S/2011 AND ITA NO.256/MDS/2015, DATED 19.12.2016 FOR THE ASSES SMENT YEARS 2004-05 TO 2008-2009, WHEREIN IT WAS HELD AS FOLLOWS: ITA NOS.306 TO 309 & 340-343/18 :- 9 -: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ASSESSEE-COMPANY ACQUIRED CER TAIN FIXED ASSETS FROM ITS SUBSIDIARY COMPANY THROUGH AMALGAMA TION, WHICH INCLUDES CERTAIN POWER PLANT EQUIPMENTS. IN CASE OF POWER PLANT EQUIPMENTS, DEPRECIATION TO BE CONSIDERED IN TERMS OF SEC.32(1)(I) OF THE ACT, WHICH PRESCRIBES DEPRECIATION AT CERTAI N PERCENTAGE ON ACTUAL COST THEREOF, IN RESPECT OF UNDERTAKING ENGA GED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER. THE AO APPLIES EXPLANATION-2 TO SEC.43(6) OF THE ACT. THIS IS A GENERAL PROVISION. THERE IS A SPECIFIC PROVISION IN RESPECT OF ASSESSEE ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTIO N OF POWER, I.E EXPLANATION-7 TO SEC.43(1) READ WITH RULE-5(1A) OF THE INCOME TAX RULES. BEING SO, LD.CIT(A) DIRECTED THE AO TO A PPLY EXPLANATION-7 TO SEC.43(6) OF THE ACT TO GRANT DEPR ECIATION ON ACTUAL COST TO ASSESSEE AND WE DO NOT FIND ANY INFI RMITY IN APPLYING THIS PROVISIONS TO THIS SECTION AND RULE-5 (1A) GIVING OPTION TO THE ASSESSEE TO ADOPT ACTUAL COST TO CLAI M THE DEPRECIATION ON THE AMALGAMATION. THE LD. CIT(A) ONLY FOLLOWED THE DECISION OF CO-ORD INATE IN ASSESSEES OWN CASE, WHICH IS BASED ON PLAIN PROVISIONS OF EXP LANATION 7 TO SECTION 43(1) R.W.R. 5(1A) AND EXPLANATION 7 TO SEC TION 43(6) OF THE ACT. WE DO NOT FIND ANY PERVERSITY IN THE FINDING S OF THE LD. CIT(A). ACCORDINGLY, THE APPEAL FILED BY THE REVENUE IS DIS MISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.306/CHNY/2018 FOR ASSESSMENT YEAR 2009-2010 IS D ISMISSED. 18. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.307/CHNY/2018, FOR ASSESSMENT YEAR 2010-2011. TH E ISSUE IN THE PRESENT GROUNDS OF APPEAL IS DECIDED AGAINST THE R EVENUE AND IN ITA NOS.306 TO 309 & 340-343/18 :- 10 -: FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 -2010 IN ITA NO.306/CHN/2019. RESPECTFULLY FOLLOWING THE DECISI ON, WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.307/CHNY/2018 FOR ASSESSMENT YEAR 2010-2011 IS D ISMISSED. 20. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO.341/CHNY/2018, FOR ASSESSMENT YEAR 2010-2011. TH E SAME GROUNDS OF APPEAL HAS ALREADY BEEN ADJUDICATED IN A SSESSEES APPEAL FOR ASSESSMENT YEAR 2009-2010 IN ITA NO.340/CHNY/20 18, WHEREIN THE GROUNDS WERE PARTLY ALLOWED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.341/CHNY/2018 FOR ASSESSMENT YEAR 2010-2011 IS P ARTLY ALLOWED. 22. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.342/CHNY/2018, FOR ASSESSMENT YEAR 2011-2012. 23. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(III) BY TAKING INTO CONSIDERATION EVEN T HE AVERAGE VALUE OF INVESTMENTS WHICH HAVE NOT YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION ITA NOS.306 TO 309 & 340-343/18 :- 11 -: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT WHERE THE PRIMARY OBJECT OF INVESTMENT W AS TO ACQUIRE CONTROLLING STAKE IN GROUP COMPANIES AND NO T FOR EARNING INCOME OUT OF THAT INVESTMENT, PROVISIONS O F SECTION 14A COULD NOT BE INVOKED. 2.2 THE APPELLANT SUBMITS THAT INVESTMENTS IN SUBSI DIARIES ARE FOR STRATEGIC PURPOSES AND NOT FOR EARNING DIVI DEND AND SO THE EXPENDITURE CANNOT BE DISALLOWED AS HELD BY ITAT LUCKNOW IN U.P.ELECTRONICS CORPORATION LTD VS DCIT 2.3 IN ANY EVENT THE APPELLANT HAD SUFFICIENT OWN F UNDS FOR MAKING THE INVESTMENTS IN THE RESPECTIVE YEARS IN W HICH THE INVESTMENTS WERE MADE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT THE ASSESSEE WAS NOT ELIGIBLE FOR T HE CLAIM FOR ADDITIONAL DEPRECIATION UNDER SEC. 32(1)(IIA) I N RESPECT OF ADDITIONS TO PLANT & MACHINERY OF ITS POWER DIVI SION 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT PROVISION FOR WEALTH TAX OR WEALTH TAX ACTUALLY PAID IS TO BE ADDED TO THE BOOK PROFITS CO MPUTED U/S 115JB 5. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N UPLOADING THE ADDITION OF DEFERRED TAX OF RS.17 ,36 ,97 ,698 /- WHICH THE APPELLANT ITSELF ADDED BACK IN ITS INC OME TAX RETURN WHILE ARRIVING AT BOOK PROFIT, RESULTING IN ADDITION OF SAME ITEM TWICE. 6. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING. 24. T HE GROUNDS OF APPEAL NO.1 & 6 ARE GENERAL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. ITA NOS.306 TO 309 & 340-343/18 :- 12 -: 25. GROUND NO.2 CHALLENGES THE APPLICABILITY OF PROVIS IONS OF SECTION 14A OF THE ACT IN THE PRECEDING ASSESSMENT YEARS, IT HAS BEEN HELD BY US THAT THE AMOUNT OF DISALLOWANCE SHOULD B E RESTRICTED TO THE EXTENT OF EXEMPT INCOME FOLLOWING THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF M/S. MODERATE LEASING AND CAPITAL SERVICES PVT LTD. (SUPRA ). RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE D IRECT THE ASSESSING OFFICER TO RESTRICT THE AMOUNT OF DISALLO WANCE TO THE EXTENT OF EXEMPT INCOME. THUS, THE GROUNDS OF APPEAL NO.2 OF THE ASSESSEE IS PARTLY ALLOWED. 26. GROUND NO.3 CHALLENGES THE DISALLOWANCE OF CLAIM F OR ADDITIONAL DEPRECIATION UNDER THE PROVISIONS OF SE CTION 32(1) (IIA) OF THE ACT IN RESPECT OF ADDITION MADE TO THE PLANT AN D MACHINERY OF POWER DIVISION. 27. ASSESSEE MADE A CLAIM FOR ADDITIONAL DEPRECIATION OF H2,13,676/- IN RESPECT OF ADDITION OF FIXED ASSETS OF POWER DIVISION. THE ASSESSING OFFICER DENIED THE CLAIM ON THE GROU ND THAT IT IS ONLY FROM THE ASSESSMENT YEAR 2013-2014, UNITS WHICH ARE ENGAGED IN THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUT ION OF POWER ARE ENTITLED FOR ADDITIONAL DEPRECIATION. ACCORDINGLY, FOR THE YEAR UNDER CONSIDERATION, THE CLAIM WAS DISALLOWED AND EVEN T HE LD. CIT(A) CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. ITA NOS.306 TO 309 & 340-343/18 :- 13 -: 28. BEING AGGRIEVED, THE APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT GROUNDS OF APPEAL. IT IS CONTENDED THAT TH IS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE COMPANY BY THE D ECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. V TM LTD, (2009) 319 ITR 0336, CIT VS. TEXMO PRECISION CASTINGS, (2010) 321 ITR 0481 AND CIT VS. HI TECH ARAI LTD, (2010) 321 ITR 0477. 29. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOW ER AUTHORITIES. 30. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WHETHER OR NOT, ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATI ON ON THE ADDITION MADE TO THE PLANT AND MACHINERY OF POWER GENERATION UNIT. FROM THE PERUSAL OF THE PROVISIONS OF SECTION 32(1) (IIA) OF THE ACT, IT IS CLEAR THAT ASSESSEE WHICH HAD ACQUIR ED / INSTALLED ANY PLANT AND MACHINERY AFTER 31 ST MARCH, 2005, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION ARE E LIGIBLE FOR ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT. IT IS ALSO CLEAR FROM THE PRO VISIONS THAT ANY UNITS WHICH ARE ENGAGED IN THE BUSINESS OF GENERAT ION O R GENERATION AND DISTRIBUTION OF POWER ARE ALSO MADE ELIGIBLE FOR ITA NOS.306 TO 309 & 340-343/18 :- 14 -: ADDITIONAL DEPRECIATION W.E.F. 01.04.2013 BY VIRT UE OF THE AMENDMENT INSERTED BY FINANCE ACT, 2012. THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASES OF VTM LTD, (SUPRA), TEXMO PRECISION CA STINGS, (SUPRA) AND HI TECH ARAI LTD, (SUPRA) RULED THAT EVEN THE ADDIT IONS TO THE PLANT AND MACHINERY OF THE POWER GENERATION UNIT WHICH IS PAR T OF MANUFACTURING ACTIVITY IS ALSO ELIGIBLE FOR ADDITIONAL DEPRECIAT ION EVEN PRIOR TO ASSESSMENT YEAR 2013-2014. THE RATIO OF THESE DECI SIONS CANNOT BE APPLIED TO THE PRESENT CASE WHERE POWER GENERATION UNIT IS NOT A PART OF THE MAIN MANUFACTURING ACTIVITY. THERE IS NO MA TERIAL ON RECORD INDICATING THAT POWER GENERATED IS USED FOR CAPTI VE CONSUMPTION OF THE MAIN MANUFACTURING ACTIVITY OF SUGAR MANUFACTUR ING. IN THE ABSENCES OF THIS MATERIAL EVIDENCE ON RECORD, THE C LAIM CANNOT BE ALLOWABLE. ACCORDINGLY, THIS GROUND OF APPEAL NO.3 FILED BY THE ASSESSEE IS DISMISSED. 31. GROUND NO.4, CHALLENGES THE DECISION OF THE LD. CIT (A) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN A DDING BACK TO THE PROVISIONS OF WEALTH TAX TO BOOK PROFIT FOR THE PU RPOSE OF COMPUTING THE TAX LIABILITY U/S.115JB OF THE ACT. 32. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBL E BOMBAY HIGH ITA NOS.306 TO 309 & 340-343/18 :- 15 -: COURT IN THE CASE OF CIT VS. ECHJAY FORGINGS (P) LTD, (2001) 251 ITR 0015 . 33. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOW ER AUTHORITIES. 34. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE WHETHER THE PROVISI ONS OF WEALTH TAX IS REQUIRED TO BE INCLUDED IN THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING THE TAX LIABILITY U/S.115JB OF THE ACT . CLAUSE (A) OF EXPLANATION 1 TO SUB SECTION (2) OF SECTION 115JB OF THE ACT PROVIDES THAT ONLY THE AMOUNT OF INCOME TAX PAID OR PAYABLE AND THE PROVISIONS FOR INCOME TAX IS REQUIRED TO BE I NCLUDED IN THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING TAX LIABIL ITY U/S.115JB OF THE ACT. THE AMOUNT OF WEALTH TAX IS NOT A PART OF INCOME TAX. THEREFORE NOT REQUIRED TO BE INCLUDED IN THE BOOK P ROFIT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER NOT TO INCLUDE THE PROVISIONS OF WEALTH TAX IN THE BOOK PROFIT FOR TH E PURPOSE OF CALCULATING TAX LIABILITY U/S.115JB OF THE ACT. ACC ORDINGLY, THE GROUNDS OF APPEAL NO.4 OF THE ASSESSEE IS ALLOWED. 35. GROUND NO.5, CHALLENGES THE DECISION OF THE LD. CI T(A) IN CONFIRMING THE ADDITION OF DEFERRED TAX OF H17,36,9 7,698/-. WE DO NOT ITA NOS.306 TO 309 & 340-343/18 :- 16 -: FIND ANY MERITS IN THIS GROUND AS THE ASSESSEE IS NOT AGGRIEVED BY ADDING BACK THE PROVISION OF TAXES TO BOOK PROFIT AS ASSESSEE HIMSELF ADDED THE PROVISIONS OF TAXES TO BOOK PROFITS. HEN CE GROUNDS OF APPEAL NO.5 RAISED BY THE ASSESSEE IS DISMISSED. 36. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.342/CHNY/2018 FOR ASSESSMENT YEAR 2011-2012 IS P ARTLY ALLOWED. 37. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.308/CHNY/2018, FOR ASSESSMENT YEAR 2011-2012. 38. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LEARNED CLT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2 THE LD. CIT(A) HAS ERRED IN ALLOWING THAT THE DEP RECIATION ON ASSETS ACQUIRED BY WAY OF AMALGAMATION OF SUBSIDIAR Y COMPANIES ARE TO BE CALCULATED ON COST AND NOT ON W RITTEN DOWN VALUE OF SUCH ASSETS IN SPITE OF THE FACT THAT EXPL .(2) TO SEC. 46(6) PROVIDES FOR THE CONTRARY. 3 THE LD. CIT(A) HAS ERRED IN HOLDING THAT EXPL. 7 TO SEC. 43(1) OPERATE IN SUCH CIRCUMSTANCES AND NOT EXPL.2 TO SEC .43(6) IN SPITE OF THE NON OBSTANTE CLAUSE IN EXPL.2 TO SEC.4 3(6) WHEREIN OPERATION OF SECTION 43(1) IS SPECIFICALLY EXCLUDED . 4 THE ID. CIT(A) HAS FAILED TO APPRECIATE THE RULIN GS IN THE CASE OF DCLT, CENTRAL CIRCLE 18 AND 19, MUMBAI VS VIRAJ PROFILES LIMITED IN 64 TAXMANN.COM 52(2015)(MUMBAI - TRIB) W HEREIN IT WAS HELD THAT AO HAS RIGHTLY DISALLOWED THE EXPENDI TURE U/S,14A OF THE ACT READ WITH RULE 80 OF INCOME TAX RULES, 1 962, FOR COMPUTING BOOK PROFIT U/S.115JB(2) OF THE ACT READ WITH CLAUSE (F) TO EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT . ITA NOS.306 TO 309 & 340-343/18 :- 17 -: 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 39. T HE GROUNDS OF APPEAL NO.1 & 5 ARE GENERAL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 40. GROUNDS 2 & 3 CHALLENGES THE DIRECTION OF THE LD. CIT(A) TO ALLOW DEPRECIATION ON ASSETS OF AMALGAMATED COMPAN IES IN TERMS OF EXPLANATION 7 TO SECTION 43(1) OF THE ACT. THIS ISS UE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE IN ASSESS MENT YEAR 2009- 2010 IN ITA NO.306/CHNY/2018. THUS GROUNDS OF APPEA L NO.2 & 3 OF THE REVENUE ARE DISMISSED. 41. GROUND NO.4 CHALLENGES THE DIRECTION OF THE LD. CIT (A) NOT TO ADD BACK THE AMOUNT OF DISALLOWANCE U/S.14A OF THE ACT OF BOOK PROFIT FOR THE PURPOSE OF COMPUTING TAX LIABILITY U/S.115J B OF THE ACT FOLLOWING THE DECISION OF DELHI SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT. LTD, 2017-TIOL-923-ITAT- DEL-SB. THE DECISION OF THE LD. CIT(A) IS BASED ON THE DECISION OF DELHI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE VIREET INVESTMENT PVT. LTD (SUPRA). THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL PREVA ILS OVER THE DECISION OF DIVISION BENCH OF THE TRIBUNAL. ACCOR DINGLY, WE UPHOLD THE ITA NOS.306 TO 309 & 340-343/18 :- 18 -: ORDER OF THE LD. CIT(A). THE GROUNDS OF APPEAL NO. 4 OF THE REVENUE IS DISMISSED. 42. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.308/CHNY/2018 FOR ASSESSMENT YEAR 2011-2012 IS D ISMISSED. 43. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.343/CHNY/2018, FOR ASSESSMENT YEAR 2012-2013. 44. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(III) BY TAKING INTO CONSIDERATION EVEN T HE AVERAGE VALUE OF INVESTMENTS WHICH HAVE NOT YIELDED DIVIDEND INCOME IN THE YEAR UNDER CONSIDERATION. 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) SHOULD HAVE FOUND THAT WHERE THE PRIMARY OBJECT OF INVESTMENT W AS TO ACQUIRE CONTROLLING STAKE IN GROUP COMPANIES AND NO T FOR EARNING INCOME OUT OF THAT INVESTMENT, PROVISIONS O F SECTION 14A COULD NOT BE INVOKED. 2.2 THE APPELLANT SUBMITS THAT INVESTMENTS IN SUBSI DIARIES ARE FOR STRATEGIC PURPOSES AND NOT FOR EARNING DIVI DEND AND SO THE EXPENDITURE CANNOT BE DISALLOWED AS HELD BY ITAT LUCKNOW IN U.P.ELECTRONICS CORPORATION LTD VS DCIT 2.3 IN ANY EVENT THE APPELLANT HAD SUFFICIENT OWN F UNDS FOR MAKING THE INVESTMENTS IN THE RESPECTIVE YEARS IN W HICH THE INVESTMENTS WERE MADE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT THE ASSESSEE WAS NOT ELIGIBLE FOR T HE CLAIM FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1 )(II A) IN ITA NOS.306 TO 309 & 340-343/18 :- 19 -: RESPECT OF ADDITIONS TO PLANT 8: MACHINERY OF ITS P OWER DIVISION 4. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THAT PROVISION FOR WEALTH TAX OR WEALTH TAX ACTUALLY PAID IS TO BE ADDED TO THE BOOK PROFITS CO MPUTED U/S 115JB 5. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL EVIDENCE AT THE TIME OF HEARING. 45. T HE GROUNDS OF APPEAL NO.1 & 5 ARE GENERAL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 46. GROUND NO.2 CHALLENGES APPLICABILITY ON PROVISIONS OF SECTION 14A OF THE ACT. THIS ISSUE WAS DECIDED IN ITA NO. NO.340/CHNY/2018, FOR ASSESSMENT YEAR 2009-2010 WHE REIN WE HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT THE AMO UNT OF DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME WHILE UPHOLDING IN PRINCIPLE OF APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE ACT. ACCORDINGLY, ON THE SAME LINES THIS GROUND NO.2 OF THE ASSESSEE IS PARTLY ALLOWED. 47. GROUND NO. 3 CHALLENGES THE DECISION OF THE LD. CIT (A) CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIAT ION IN RESPECT OF ADDITION TO PLANT AND MACHINERY ON POWER DIVISION. THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE IN ITA NO.342/CHNY/201 8, FOR ASSESSMENT YEAR 2011-2012. ACCORDINGLY, THIS GROUN D OF APPEAL NO.3 FILED BY THE ASSESSEE IS DISMISSED. ITA NOS.306 TO 309 & 340-343/18 :- 20 -: 48. GROUND NO.4 CHALLENGES THE DECISION OF THE LD. CIT( A) CONFIRMING THE ACTION OF THE ASSESSING OFFICER ADDI NG BACK WEALTH TAX TO THE BOOK PROVISION. THIS ISSUE IS DECIDED IN FA VOUR OF THE ASSESSEE IN ITA NO.342/CHNY/2018, FOR ASSESSMENT YEAR 2011- 2012. ACCORDINGLY, GROUND NO.4 OF THE ASSESSEE IS ALLOWE D. 49. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.343/CHNY/2018 FOR ASSESSMENT YEAR 2012-13 IS PAR TLY ALLOWED. 50. NOW, WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.309/CHNY/2018, FOR ASSESSMENT YEAR 2012-2013. 51. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE ORDER OF THE LEARNED CLT(A) IS CONTRARY TO L AW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2 THE LD. CIT(A) HAS ERRED IN ALLOWING THAT THE DEPRECIATION ON ASSETS ACQUIRED BY WAY OF AMALGAMAT ION OF SUBSIDIARY COMPANIES ARE TO BE CALCULATED ON COST A ND NOT ON WRITTEN DOWN VALUE OF SUCH ASSETS IN SPITE OF TH E FACT THAT EXPL.(2) TO SEC. 46(6) PROVIDES FOR THE CONTRARY. 3 THE LD. CIT(A) HAS ERRED IN HOLDING THAT EXPL. 7 TO SEC. 43(1) OPERATE IN SUCH CIRCUMSTANCES AND NOT EXPL.2 TO SEC.43(6) IN SPITE OF THE NON OBSTANTE CLAUSE IN EX PL.2 TO SEC.43(6) WHEREIN OPERATION OF SECTION 43(1) IS SPE CIFICALLY EXCLUDED. 4 THE ID. CIT(A) HAS FAILED TO APPRECIATE THE RULIN GS IN THE CASE OF DCLT, CENTRAL CIRCLE 18 AND 19, MUMBAI VS V IRAJ PROFILES LIMITED IN 64 TAXMANN.COM 52(2015)(MUMBAI - TRIB) WHEREIN IT WAS HELD THAT AO HAS RIGHTLY DISAL LOWED THE EXPENDITURE U/S,14A OF THE ACT READ WITH RULE 8 0 OF INCOME TAX RULES, 1962, FOR COMPUTING BOOK PROFIT ITA NOS.306 TO 309 & 340-343/18 :- 21 -: U/S.115JB(2) OF THE ACT READ WITH CLAUSE (F) TO EXP LANATION 1 TO SECTION 115JB(2) OF THE ACT. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. 52. T HE GROUNDS OF APPEAL NO.1 & 5 ARE GENERAL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 53. GROUND NOS. 2 & 3 CHALLENGES THE DECISION OF THE L D. CIT(A) IN ALLOWING DEPRECIATION ON ASSETS OF AMALGAMATED COMPANIES ON STRAIGHT LINE METHOD. THIS ISSUE IS DECIDED AGAIN ST THE REVENUE IN ITA NO.306/CHNY/2018, FOR ASSESSMENT YEAR 2009-2010 . ACCORDINGLY, GROUNDS 2 & 3 OF THE REVENUE ARE DISMISSED. 54. GROUND NO.4 CHALLENGES THE DECISION OF LD. CIT(A) IN NOT ADDING BACK THE AMOUNT OF DISALLOWANCE U/S.14A OF THE BOOK PROFIT. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE I N ITA NO.342/CHNY/2018, FOR ASSESSMENT YEAR 2011-2012. AC CORDINGLY, GROUND NO.4 OF THE REVENUE IS DISMISSED. 55. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.309/CHNY/2018, FOR ASSESSMENT YEAR 2012-2013 IS DISMISSED. ITA NOS.306 TO 309 & 340-343/18 :- 22 -: 56. TO SUMMARIZE THE RESULTS, THE APPEALS OF THE ASSES SEE IN ITA NOS.340, 341, 342 AND 343/CHNY/2018, FOR ASSESS MENT YEARS 2009-10, 2010-11, 2011-12 AND 2012-2013 ARE PARTL Y ALLOWED WHEREAS THE APPEALS OF THE REVENUE IN ITA NOS. 306, 307, 308 AND 309/CHNY/2018 FOR ASSESSMENT YEARS 2009-10, 2010-1 1, 2011-12 AND 2012-2013 ARE DISMISSED. ORDER PRONOUNCED ON 25TH DAY OF JUNE, 2019, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER ( # / CHENNAI ) / DATED:25TH JUNE, 2019 KV $ +%,- .-!% / COPY TO: 1 . /0 / APPELLANT 3. ' 1% () / CIT(A) 5. -4 +%5 / DR 2. +6 /0 / RESPONDENT 4. ' 1% / CIT 6. 7 8# / GF