M/s Chowgule and company (Salt) Pvt. Ltd, Mormugao V. The ACIT, Circle - 2, Margao

ITA 390/PAN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 3360 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: WT(D)
• Assessment Year: 2012-2013
• Appeal Filed On: 27-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Additional evidence; TDS; Rule 8D
• Section: 147; 145; 271(1)(c); 15; 143(3); 142(1); 14A; 115JB; 143(1); 250; 251; 143(2); 13; 22

Judgement Text

ITAT-Panaji Page 1 of 23 आयकर अपीलीय न्यायाधिकरण, पणजी न्यायपीठ, पणजी में। IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI (Through Virtual Court at Raipur) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D. BATTULL, ACCOUNTANT MEMBER आयकर अपील स ं . / ITA No. : 390/PAN/2017 करधििाारण वर्ा / Assessment Year : 2012-2013 M/s Chowgule and Company (Salt) Pvt Ltd., Chowgule House, Mormugao Harbour, Goa – 403803. PAN: AABCC 5595 J . . . . . . . अपीलार्थी / Appellant बिाम / V/s Asstt. Commissioner of Income Tax, Circle-2, Margao, Goa. . . . . . . . प्रत्यर्थी / Respondent द्वारा / Appearances Assessee by : Ms Hiral Sejpal Revenue by : Shri Sourabh Nayak स ु नवाई की तारीख / Date of conclusive Hearing : 24/02/2022 घोषणा की तारीख / Date of Pronouncement : 29/04/2022 आदेश / ORDER PER JAMLAPPA D BATTULL AM; The present appeal filed by the appellant assessee is directed against the order of Commissioner of Income Tax- Appeals, Panaji-1 [for short “CIT(A)”] dt. 09/10/2017 passed u/s 250 of the Income-tax Act, 1961 [for short “the Act”], which in turn tousled out of order of assessment of Assistant Commissioner of Income Tax-Circle-2, Margoa [for short “AO”] dt. 27/07/2014 passed u/s 143(3) of the Act, for the assessment year [for short “AY”] 2012-2013. M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 2 of 23 2. The present litigation seeks adjudication on threefold issues, as to whether disallowance u/s 14A can triggered in the absence of exempt income, secondly whether diesel generator qualify as renewable energy device entitling higher depreciation and whether a provision for Leave Encashment is unascertained liability to trigger adjustment in computing book profit u/s 115JB. 3. Before advancing the matter on facts for adjudication, it is essential to reproduce grounds of grievance assailed by the appellant company as under; “I. Disallowance u/s. 14A of the Income Tax Act: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer as regards disallowance u/s 14A read with rule 8D made to the taxable income as also the Book profit u/s 115JB of the Income Tax Act. 2) The Learned CIT(A) has erred in not passing a speaking order on the grounds whether addition u/s 14A can at all be made to the book profit u/s 115JB for various arguments adduced in the appeal filed before him. 3) The Learned CIT(A) has erred in not passing a speaking order on the grounds whether disallowance u/s 14A rw rule 8D2(ii) can be made when the appellant is having sufficient free reserves to cover the investment made. 4) The Learned CIT(A) has erred in not passing a speaking order distinguishing the various favourable judgements of jurisdictional High Courts on the issues covered by impugned order. M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 3 of 23 5) The Learned CIT(A) has failed to appreciate that the appellant has not incurred any expenditure in earning the dividend income which is claimed as exempt u/s 10(35) of the I.T. Act. 6) The Learned CIT(A) has erred in interpreting that Section 14A mandates maintenance of separate books of account relating to investments. He has also erred in observing that the books of accounts and other documentary evidence relating to the investment and expenditure was not produced before the Learned Assessing Officer. 7) The Learned CIT(A) has erred in holding the disallowance u/s 14A on the basis of presumptions and surmises of expenditure having been incurred for earning of exempt income when no facts have been brought on record to show that the expenditure was actually incurred in relation to earning of exempt income. 8) The Learned CIT(A) failed to note that in Section 14A(1) the words used in provision “expenditure incurred by the Assessee in relation to Income” assume importance and in its absence the provisions of section 14A cannot be invoked. 9) The Learned CIT(A) erred in confirming the invocation of section 14A rw rule 8D without verifying the records/submission that there are no direct or indirect expenditure incurred for earning exempt income. 10) The Learned CIT(A) has erred in upholding that the appellant has failed to establish how exempt income is earned without incurring expenditure when in fact the circumstances in which such income is earned is already submitted on record. M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 4 of 23 II. Disallowance of 80% depreciation claimed on Diesel Generators: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer in disallowing depreciation claimed @80% on Diesel Generators being Energy Saving Device. 2) The Learned CIT(A) has failed to appreciate that the as Diesel Generators are energy saving devices as per clause III(8)(xiii)(m) of the Depreciation New Appendix-I in the Income Tax Rules. 3) The Learned CIT(A) has erred in appreciating that the clause III(8)(xiii)(m) electric generators purchased on or before 1-4-2012 are eligible for depreciation @80% as per the Income Tax (Eight Amendment) Rules. 4) The Learned CIT(A) has erred in relying on the decision of the ITAT Chennai Bench in the case of “Shriram Chits & Investment Vs ACIT [2004] 2 SOT 857 (CHENNAI)(SB) When the Rajasthan High Court in the case of CIT Vs Agrawal Transformers (P) Ltd. (2002) 174 CTR (Raj) 103 : (2002) 258 ITR 251 (Raj) already held that condition “running on wind energy” is only attached to the word ‘pump’ and not to the electric generators. 5) The Learned CIT(A) has erred in not following the decision of the Hon’ble High Court of Orissa in the case of industrial Development Corporation of Orissa Ltd. Vs CIT reported in 268 ITR 130 (Ori) and in [2015] 56 taxmann.com 337 (Madras) 6) The Learned CIT(A) ought to have appreciated that the Direct Taxes ready Reckoner mentions at Para 48.3 that “Plant and machinery – Energy saving devices, renewal energy devices, windmills, electric M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 5 of 23 generators / pumps running on wind energy, rollers in flour mills, sugar works and steel industry are eligible for depreciation @80% 7) Without prejudice, presumption but not admitting that the impugned devices are not energy saving devices, the Learned Assessing Officer ought to have allowed depreciation on UPS @60% as peripheral devices attached to computers. III. Disallowance of the provision for leave encashment: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer in making addition of the leave encashment amount to the book profit u/s 115JB of the Income Tax Act by holding the same to be a provision for liabilities other than ascertained liabilities. 2) The Learned CIT(A) has failed to appreciate that the provision is made based on actuarial calculations worked out and certified by an actuary towards ascertained liabilities after considering method as prescribed in AS-15 issued. 3) The Learned CIT(A) has made factually erroneous observation that the provision for leave encashment is not in the nature of salary, that the same is not taxable in the hands of the employee and no TDS has been deducted thereon and by virtue of the non-taxability and non- deduction of TDS thereon, it cannot be treated as an ascertained liability on account of employee emoluments. 4) The Learned CIT(A) has failed to appreciate that the section 115JB is complete code in itself and it overrides all other provisions of the Act. The book profit is deemed to be total income of the assessee and M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 6 of 23 provides mechanism for computing such book profit and consequential tax liabilities thereon. The appellant craves leave to add/amend/alter or modify the above grounds. (Emphasis supplied) 4. Having laid the grounds of appeal, before setting the ball rolling, let us cite the facts pithily stated as; 4.1 The appellant a resident, limited company incorporated under the erstwhile Companies Act, 1956 and engaged in the business of manufacturing / production and export of Industrial Salt and trading in Iron ore. For the AY 2012-2013, the assessee filed its Return of Income [for short “ITR/ROI”] declaring total income of ₹1,25,76,339/- which was summarily processed u/s 143(1) of the Act. Later by service of statutory notice u/s 143(2) the assessment in the case of the assessee was subjected to scrutiny. Considering the submission laid by the assessee company with respect to its claim of incurring no expenditure towards earning exempt dividend income, diesel generator as renewable energy device and leave encashment being ascertained liability, the assessment was culminated with three additions assessing the total income at ₹1,45,82,301/- under normal taxing provision vis-à- vis at ₹2,82,43,958/- u/s 115JB of the Act, and which further triggered initiation of consequential penalty proceedings u/s 271(1)(c) of the Act. 4.2 The aforementioned order passed by the Ld. AO dislodging the claims of the assessee, was unsuccessfully challenged before the first appellate authority, and being aggrieved by the orders of tax M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 7 of 23 authorities, the appellant company filed the present appeal before the Income Tax Appellate Tribunal [for short “Tribunal”] with the grounds assailed herein before at foregoing paragraph 3. 5. After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue. 6. It is evidently noticeable form the records that; 6.1 The controversy is threefold, as to whether provisions of section 14A of the Act, r.w.r. 8D of Income Tax Rules, 1962 [for short “IT-Rules”] are applicable where the assessee claimed to have incurred no expenditure for earning exempt income, secondly whether a diesel generator falls within the sweep of “renewable energy device” and thirdly whether leave encashment is an ascertained liability to qualify deduction. 6.2 It is palpable from the records that, the assessee company for the AY 2012-2013 filed its return of income on 06/09/2012 with a returned income of ₹1,25,76,339/- which was initially accepted u/s 143(1) of the Act, and subsequently subjected to scrutiny by service of statutory notice dt. 07/08/2013 u/s 143(2) of the Act. By issue of further notices dt. 05/05/2014 & 21/05/2014 u/s 142(1) of the Act, the information in the form of questionnaire as regards to expenditure incurred in relation to exempt income earned, claim of depreciation @80% on diesel generation treating as “energy saving device” and leave encashment M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 8 of 23 treating as ascertained liability eligible for deduction were sought. In reply thereof, the assessee through its authorised representative [for short “AR”] filed submission substantiating its claim on the issues in question. 6.3 During the assessment proceeding, the Ld. AO observed firstly that, for year under consideration the assessee derived an exempt dividend income of ₹27,98,176/- and claimed to have incurred no expenditure whatsoever in earning such exempt dividend income, whereas on the other hand the assessee found debited an interest on borrowing to the Profit & Loss Account [for short “P&L”] to the tune of ₹1,29,679/-. In response to specific query, the assessee submitted before the Ld. AO that, no expenditure (including interest) is incurred in earning the exempt dividend income for the reasons that, the investment were exclusively handled by an independent advisory without any fees or charges, and such investment were made out of its own fund involving no borrowed funds. It is further submitted that, all the expenditure debited to P&L are exclusively relating to normal business operation, hence the disallowance u/s 14A is not attracted. The submission did not impress the Ld. AO for the reasons of failure on the part of assessee to substantiate the claim in the light of tangible evidence that, no borrowed funds indeed applied in earning exempt income, consequently recording the satisfaction invoked the provisions of section 14A r.w.r. 8D and carried out the total addition of ₹8,70,012/- which comprised of an addition u/r 8D(2)(ii) for ₹51,414/- toward interest expended and u/r 8D(2)(iii) for ₹8,18,598/- towards M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 9 of 23 administrative expense computed @0.5% of average investment deployed. The said disallowance was also imputed by addition into the computation of book profit under the MAT provisions of section 115JB. 6.4 Secondly, the appellant in its return claimed a depreciation @80% on diesel generator newly added to the block treating it as “renewable energy device” in terms of Entry III(8)(ix)(m) of Appendix-I of IT-Rules. Ld. AO in the light of judicial precedents, disapproved the classification of diesel generator as “renewable energy device” for the reasons that the diesel generator was meant to run on electricity and not on wind energy, consequently the claim of depreciation was restricted classifying into the block of Plant & Machinery carrying 15% rate of depreciation, and accordingly disallowed the difference of claim of ₹11,35,950/-. 6.5 Thirdly, the Ld. AO called upon the assessee to explain why the provision towards the leave encashment of ₹32,026/- debited to P&L should not be added back in computing the book profit u/s 115JB of the Act, as unascertained liability. In support of its claim as ascertained liability, the assessee company submitted the copy of audit report in the Form No 29B establishing the correctness of computation of book profit, and to buttress warranting no further adjustments. Au contraire, on the strength of clause 1 to explanation 1 to section 115JB(1) of the Act, the Ld. AO rejecting the claim of the assessee, added the amount of provision for leave encashment in computing the book profit u/s 115JB of the Act treating it as unascertained liability and not deductible. M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 10 of 23 7. Aggrieved, in an appeal before first appellate authority, the assessee company through its authorised representative [for short “AR”] filed analogous submission and reiterated its contention in assailing all three additions / disallowance carried out by the Ld. AO. During the course of first appellate proceedings, Ld. CIT(A) figuring out the absence of tangible material showcasing the incurring of interest expenditure not relating to earning of exempt income, and in absentia of separate accounts distinguishing the expenditure incurred in earning taxable income vis-à- vis exempt income and placing reliance on circular dt. 11/02/2014 issued by the Central Board of Direct Taxes [for short “CBDT”] as well on reliance on catena of judicial pronouncement, consensus ad idem confirmed the first disallowance of expenditure u/s 14A of the Act. Insofar as the entitlement of depreciation @80% on the diesel generator is concerned, the Ld. CIT(A) echoed the views of Ld. AO relying on the decision of Hon’ble Gujarat High Court in the case of “CIT Vs Anang Polyfil Pvt. Ltd.” reported at 267 ITR 266. And as per as the addition of leave encashment is concerned, the Ld. CIT(A) dislodged the submission of assessee holding it to be an unascertained liability on the grounds that, the same cannot be allowed as “expenditure” in hands of the assessee company unless it is chargeable to tax in the hands of employees in terms of section 15 of the Act. While holding so, Ld. CIT(A) also of the view that, since leave encashment has not been taxable in the hand of employees, the character remains as unascertained liability in the hands of assessee employer, consequently held as liable for disallowance and accordingly added for M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 11 of 23 computing the book profit for minimum alternate taxation u/s 115JB of the Act. 8. Aggrieved, appellant company in an appeal is before us alleging the action of both the tax authorities as factually incorrect & bad in law. 9. During the virtual hearing, the Ld. AR at the outset adverting to the written submission and additional evidence laid u/r 29 Income Tax Appellate Tribunal Rules, 1963 [for short “Rules”] in sum and substance contended that, the tax authorities below were entranced by the pro- revenue judicial precedents and ignoring the submission laid before them, have carried out the addition u/s 14A of the Act, disapproved the classification relying on inapplicable decision of Hon’ble Gujarat High Court in the case of “CIT Vs Anang Polyfil Pvt. Ltd.” (Supra) and misconceived the provisions of section 115JB etc. Au contraire, learned departmental representative for the Revenue [for short “DR”] opposing the admission of additional evidence submitted before the Tribunal u/r 29 of the Rules, vehemently supported the orders of tax authorities in toto. 10. Before we ride the horse, its apt to adjudicate on the admission of additional evidence laid suo-moto by the appellant company u/r 29 of the Rules, which prima-facie consist of details of interest expended towards discounting of bill/invoices and guarantee commission, detailed working of investment earning exempt income and copy of actuarial report to support of its claim of allowability of leave encashment expenditure. Insofar as the admission of additional evidence is concerned, the Hon’ble Delhi High Court while dealing with the similar matter on admissibility of M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 12 of 23 additional evidence before the Tribunal laid by the assessee suo-moto u/r 29 Rules, have categorically held in “CIT Vs Text Hundred India Pvt Ltd” that; “The law clearly lays down a neat principle of law that, the discretion lies with the Tribunal to admit additional evidence in the interest of justice, once the Tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect.” (Empasis supplied) Since the adjudication of addition pertaining to disallowance of expenditure for earning exempt income requires the details of interest expenditure incurred by the appellant company and the reconciliation class of investment earning exempt income to substantiate the alternate computation for disallowances and the report of actuarial being factual position, such additional evidence after a thoughtful consideration M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 13 of 23 merits admission for the reason of substantial justice, ergo we admit the additional evidence placed on our record u/r 29 of the Rules, as supportive in nature. 11. We shall now deal with the ground number “I” and its counter parts pertaining to disallowance of expenditure u/s 14A of the Act r.w.r. 8D of the Rules and to do so, it necessitates the reproduction of relevant provision of law as; 11.1 Section 14A Expenditure incurred in relation to income not includible in total income (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 14 of 23 for any assessment year beginning on or before the 1st day of April, 2001. (Emphasis Supplied) 11.2 Method for determining amount of expenditure in relation to income not includible in total income has been specified in rule 8D of the rules, which is as under; 8D(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with— (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:— (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income : Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. (Emphasis Supplied) 11.3 In the light of aforestated provision, and on a careful perusal of assessment record, it exhibits an admitted fact that, the appellant company on one hand was in receipt of exempt dividend income for sum of ₹27,98,176/- and on the other hand had incurred an interest M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 15 of 23 expenditure to the tune of ₹1,29,679/-. The Ld. AO in the absence of material showcasing the bifurcation, the interest expenditure relating to borrowed capital utilized for investments, worked out the corresponding figure of disallowance of ₹51,414/- u/r 8D(2)(ii) of the IT-Rules taking into account the average value of investment vis-à-vis average size of total assets deployed by the appellant. It is apparent that, before arriving so, the Ld. AO not only failed to vouch and appreciate the nature & purpose of interest / finance charges incurred and debited to P&L account by the appellant, but also failed to verify the nature of funds deployed in earning exempt income. From the additional evidence adduced in the course of hearing (page 1-9), it is evinced that, the interest / finance charges expenditure debited to P&L was merely pertaining to discounting of trade bills and guarantee commission which has been duly supported by the copies of bank advice issued by the bankers, which per se discretely leads to an undisputed conclusion that there was no interest expenditure for the year under consideration. Further, the perusal of audited financial statement placed at page 16-46 of paper book revealed that, the appellant had not only the sufficient capital & reserved funds at its disposal, but raised a short term interest- free borrowings from its holding company, and both these facts patently ignored while carrying out the impugned disallowance. In the absence of outside borrowing vis-à-vis absence of interest expenditure on any borrowed capital, the appellant claims that, no interest expenditure was indeed incurred for earning exempt dividend income stands tall and de fact remained uncontroverted by the Ld. DR, consequently the M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 16 of 23 disallowance made u/r 8D(2)(ii) remained baseless on records, hence it deserves to be deleted, accordingly we direct as such. 11.4 Insofar as the disallowance for indirect administrative expenditure u/r 8D(2)(iii) is concern, the computation was carried out based on gross total average investment of the appellant company, without same being bifurcated into value of investment earning exempt income and the value of investment earning taxable income. It remained an undisputed fact that, the appellant had investment into three classes, such as (a) investment into dividend earning fund (b) investment into growth fund and (c) investment into fixed maturity plan. However, it is noticed that, while computing the disallowance u/r 8D(2)(iii) of the IT- Rules, the Ld. AO could not cause the bifurcation of value of investment in the absence of reconciliation statement. Per contra, during the course of virtual hearing, the Ld. AR adverting to page 10 of additional evidence taken us through the reconciliation / bifurcation of value of investment made by the appellant and submitted that, computation should have been carried out excluding value of investment earning or capable of earning taxable income only. The Ld. DR after going through the details of additional evidence, conceded to the revised computation of the appellant regarding the amount of disallowance worked out u/r 8D(2)(iii), consequently the disallowance on this count is restricted to ₹1,92,200/- which is worked out on the basis of average investment into the class of dividend earning fund. Insofar as the adjustment of such disallowance to computation of book profit u/s 115JB is concerned, we are of the considered view that, section 115JB(1) of the Act provides the M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 17 of 23 mode of computation of the total income and tax payable by the assessee u/s 115JB of the Act. Section 115JB(5) of the Act provides that, “save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section”, therefore, if any expenditure relatable to earning of income exempt is disallowed u/s 14A of the Act and is added back to book profit under clause (f) of section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., sub-sections (1) and (5) of section 115JB of the Act. It is also pertinent to mention here that, the amounts mentioned in clauses (a) to (i) of Explanation to section 115JB(2) of the Act are debited to the statement of profit and loss account, then only the provisions of section 115JB of the Act would apply. lex lata, the disallowance u/s. 14A of the Act is a notional disallowance and therefore, by taking recourse to section 14A of the Act, the amount cannot be added back to book profit under clause (f) of section 115JB of the Act, and same can find force in the decision of Hon’ble Apex Court in the case of “Ajanta Pharma Ltd Vs CIT” reported in 327 ITR 305 (SC) Hon’ble Karnataka High Court in “Sobha Developers Ltd. V/s DCIT”, & “CIT Vs Gokaldas Images (P) Ltd.” reported at 429 ITR 526 (Kar), and a similar view has been taken by the Hon’ble Jurisdictional High Court of Bombay in the case of “CIT Vs Bengal Finance & Investments (P) Ltd.”, (ITA 337 of 2013), further the decision of special bench of the Tribunal in the case of “ACIT V/s Vireet Investment (P) Ltd.” reported in 165 ITD 27 (Del). Thus, the ground “I” and its counter parts stands partly allowed. M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 18 of 23 12. Now coming to disallowance of claim of depreciation made u/s 32 on diesel generator as “renewable energy device”. It is an admitted fact that, during the financial year relevant to assessment under consideration, the appellant company has on 20/03/2012 purchased an Diesel Generator Set for sum of ₹34,95,230/- and added to its block as “Plant & Machinery” and claimed 80% rate of depreciation treating it to be an renewable energy devices under an Entry No. III(8)(xiii)(m) (New) Appendix-I r.w.r 5 of IT-Rules, which reads as under; NEW APPENDIX I [Effective from assessment year 2006-07 onwards] [See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE III. Machinery and Plant (8) (xiii) Renewable energy devices being — (m) Any special devices including electric generators and pumps running on wind energy [installed on or after the 1st day of April, 2014] The claim of the appellant that, the diesel generators are helpful in saving the electricity power and itself generates electric power for its use, as such is sufficient to hold as renewable energy devices. However, the claim of the appellant failed to testify the entitlement under aforesaid class which is exclusively meant for devices running on wind energy. Further the contention of the appellant that, the condition “running on wind energy” is attached to pump and not to the electric generators is contrary to the rules of construction. Before we cite the rule of construction, we are mindful to quote the general dictionary meaning of the word “renewable energy” under the head (xiii) the items (m) falls, which means “an energy M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 19 of 23 from a source that is not depleted when used, such as wind or solar power.” In our considered view according to the rules of construction, where two or more words which are susceptible of analogous meaning are coupled together noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general, thus the word electric generator must be construed as ejusdem generis. The diesel generator per se runs on fuel i.e. diesel and being an conventional energy, therefore ab extra to the class of renewable energy devices, as it is different from devices which runs on wind energy, which falls within the renewable energy devices. In support of claim for higher rate of depreciation, the Ld. AR relied upon the decision of Hon’ble Orissa High Court in the case of “Industrial Development Corporation Ltd. Vs CIT” reported in 268 ITR 130 (Ori), however the decision was restricted to subject matter related to depreciation on machinery meant as "instrumentation and monitoring systems for monitoring energy flows" entitled to 100 per cent depreciation under rule 5, Appendix-I, Part-III (3)(iii) B of the Income Tax Rules, 1962, thus the facts under consideration are dissimilar and distinguishable, hence the decision relied upon is of no help to the assessee. The assessee further placed reliance on the decision of Hon’ble Rajasthan High Court in “CIT Vs Agrawal Transformers Pvt. Ltd.” reported at 258 ITR 251, however it would again not be of any support to the appellant as the decision was rendered in context of pre-amended Appendix-I entry of clause (xiii) of item (10A). A careful consideration of appendix-I reveals that, all the sub- M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 20 of 23 items of renewable energy devices, i.e., devices for generating non- conventional energy qualify for higher rate of depreciation. An item number (m) specifies ”Any special devices including electric generators and pumps running on wind energy." Although, at the first blush it may appear that this entry (m) includes electric generators and, therefore, diesel sets for generating electrical energy may fall under this sub-item, but on proper scrutiny it would appear that, what is contemplated is electric generators running on wind energy and pumps running on wind energy. Hence, generator sets running on diesel would not fall under an entry (m) of sub-item (xiii). In view of the above analysis of III(8)(xiii)(m) in the table in Part A of Appendix I to the Income Tax Rules, 1962, we are of the clear view that, the diesel generator sets do not fall under entry number (m) so as to entitle the assessee to claim depreciation at the higher rate of 80% per cent. Thus, since the item of diesel generator does not find its place in the enumerated list of class (xiii) of clause entry 8 of block III of New Appendix-I r.w.s. 5 of the IT-Rules, the action of Ld. AO in not allowing the depreciation in the class of Plant & Machinery carrying 80% rate of depreciation is sustained, consequently the ground “II” and its counter parts are dismissed. 13. Ex nunc, we shall adjudicate the final ground number “III” and its counter parts, which relates to disallowance of leave encashment as unascertained liability. Nota bene, under the contract of employment between the employer and employee, the employee earns credit of leave entitlement by accumulation, and the assessee employer incurres the liability towards such entitlement on periodic basis, consequently the M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 21 of 23 employer accounts for the liability on the basis of quantification in the form of actuarial report, however such liability becomes due and payable at a future date. Ad litem, the appellant is a company maintaining its books of accounts following mercantile system of accounting both under the Companies Act, 1956 as well under Income Tax Act, 1961 and the income u/c IV-D under the head Profits & Gains of Business or Profession is commutated adhering to the mercantile system of accounting in compliance of section 145 of the Act, which remain undisputed. The mercantile or accrual system of accounting mandates the appellant to record all the expenditure either incurred or accrued, irrespective of whether they are due for payment or paid in actual, consequently the liability incurred toward leave encashment has been accounted as ascertained & as quantified by the experts through actuarial report, hence it shall be incorrect to state that liability since payable at future date has not incurred for the year under consideration. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of “Bharat Earth Movers Vs CIT” 245 ITR 428 (SC)., wherein the Hon’ble Lordship have observed that, what should be certain is the incurring of the liability and the fact that the same is capable of being estimated with reasonable certainty, although the actual quantification may not be possible and if the aforesaid requirements were satisfied, then the liability could not be held as a contingent liability. Although the liability is in praesenti though it is to be discharged at a future date, it would not make any difference if the future date on which the liability is to be discharged is not certain. In the backdrop of aforesaid observations, the Hon‘ble M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 22 of 23 Supreme Court had concluded that the provision made by an assessee for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling of accumulation as applicable on the relevant date would be entitled to deduction for the accounting year during which the provision is made for the said liability. On the basis of our aforesaid discussion fumus boni iuris, and we are of the considered view, that as the provision for leave encashment has been made by the appellant on actuarial basis, therefore, the same being in the nature of an ascertained liability could not have been added for the purpose of determining the “book profit‟ u/s 115JB of the Act, ergo ground number III and all its counter parts of appeal raised by the assessee are allowed. 14. Resultantly, the appeal of the assessee is partly allowed in terms of aforesaid observation. Order pronounced in Open Court on this Friday 29 th day of April, 2022. -S/d- -S/d- RAVISH SOOD JAMLAPPA D BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER पणजी / PANAJI; दिना ां क / Dated : 29 th April, 2022 M/s Chowgule and Company (Salt) Pvt Ltd ITA No.: 390/PAN/2017, AY : 2012-2013, AABCC5595J ITAT-Panaji Page 23 of 23 आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT (Appeals), Panaji (Goa) 4. The Pr. CIT, Panaji (Goa) 5. दवभागीय प्रदतदनदि,आयकर अपीलीय न्यायादिकरण, पणजी / DR, ITAT, Panaji Bench, Panaji. 6. गार्डफ़ाइल / Guard File. आिेशान ु सार / BY ORDER, दनजीसदिव / Private Secretary