Universal Cables Ltd., Kolkata V. DCIT, Circle - 6, Kolkata, Kolkata

ITA 4/KOL/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9055 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2012
• Court: TRIBUNAL
• Department Lawyers: PIYUSH MUKHERJEE
• Assessee Lawyers: J P KHAITAN
• Keywords: Depreciation; Additional depreciation; Earning of tax free income
• Section: 14A; 6

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 04 /KOL/201 2 / ASSESSMENT YEAR : 200 7 - 0 8 UNIVERSAL CABLES LTD. VS. DEPUTY COMMISSIONER OF INCOME - TAX, (PAN:AAACU3547P) CIRCLE - 6, KOLKATA ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 14 . 01 .201 5 DATE OF PRONOUNCEMENT: 14 . 01 .201 5 FOR THE APPELLANT: SHRI J. P. KHAITAN, SR. ADVOCATE FOR THE RESPONDENT: SHRI PIYUSH MUKHERJEE, SR. DR / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - VI , KOLKATA IN APPEAL NO. 863/CIT(A)/VI/KOL/CIRCLE6/2009 - 10 DATED 1 0 . 0 9 .201 1 . ASSESSMENT WAS FRAMED BY J CIT, RANGE - 6 , KOLKATA U/S. 1 43(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 7 - 0 8 VIDE HIS ORDER DATED 3 1 . 1 2 .20 0 9 . 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF AO IN REGARD TO DISALLOWANCE OF BALANCE 50% ADDITIONAL DEPRECIATION U/S. 32(1)(II ) (A) OF THE ACT IN RESPECT OF NEW PLANT AND MACHINERY PURCHASED AND PUT TO USE FOR LESS THAN 180 DAYS IN THE IMMEDIATELY PRECEDING YEAR. THE RELEVANT GROUND NO.1 READS AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT DIRECTING THE AO TO ALLOW BALAN CE 50% OF INITIAL DEPRECIATION TO THE EXTENT OF RS.2828430 U/S. 32(1)(II) ON PLANT & MACHINERY PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS DURING THE FINANCIAL YEAR 2005 - 06 RELEVANT TO ASSESSMENT YEAR 2006 - 07. 3. BRIEF FACTS ARE THAT DURING FINANCIAL Y EAR 2005 - 06 RELEVANT TO AY 2006 - 07, THE ASSESSEE PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING UNIT. SUCH PLANT AND MACHINERY WAS PUT TO USE FOR A PERIOD LESS THAN 180 DAYS DURING THE AFORESAID FINANCIAL YEAR AND CLAIMED BALANCE 50% OF ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT IN VIEW OF THE SECOND PROVISO TO SEC. 32(1) OF THE ACT. DURING THE CURRENT FINANCIAL YEAR 2006 - 07 RELEVANT TO AY 2007 - 08, THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED ADDITIONAL 2 ITA NO. 04 /K/20 1 2 UNIVERSAL CABLES LTD. AY 200 7 - 0 8 DEPRECIATION (BALA NCE 50%) ON THE SAME PLANT AND MACHINERY AS IT WAS ENTITLED TO GET BALANCE ADDITIONAL DEPRECIATION THIS YEAR ALSO. THE AO DISALLOWED THE CLAIM BY OBSERVING THAT HOWEVER, CONTESTING TO THE ASSESSEE CLAIM, IT CAN BE SAID THAT NOWHERE IN THE ACT IT HAS BEEN PROVIDED THAT BALANCE 50% OF FURTHER DEPRECIATION CAN BE CLAIMED IN THE SUBSEQUENT YEAR IF THE ASSESSEE HAD CLAIMED INITIAL 50% OF FURTHER DEPRECIATION IN THE YEAR OF PURCHASED BECAUSE OF USED FOR LESS 180 DAYS IN TERMS OF PROVISO TO SEC. 32(1). ACCORDINGL Y THE CLAIM FOR FURTHER DEPRECIATION TO THE EXTENT OF RS.28,28,430/ - PERTAINING TO ADDITIONS MADE DURING ASSESSMENT YEAR 2006 - 07 AND USED FOR PERIOD OF LESS THAN 180 DAYS IS NOT ACCEPTED. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO CONFIRMED T HE ACTION OF AO. AGGRIEVED, ASSESSEE CAME IN APPEAL BEFORE US. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SHRI J. P. KHAITAN, ADVOCATE SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF COORDINATE BENCH IN THE CASE OF BIRLA CORPORATION LIMITED VS . DCIT, ITA NO. 683/K/2011 & DCIT VS. BIRLA CORPORATION LIMITED, ITA NO. 581/K/2011 FOR AY 2007 - 08 DATED 08.12.2014, WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 15. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FA CTS ARE ADMITTED AND THERE IS NO DISPUTE ON THE FACTS. ONLY ISSUE FOR ADJUDICATION IS WHETHER THE ASSESSEE IS ENTITLED FOR THE BALANCE 50% ADDITIONAL DEPRECIATION IN VIEW OF SEC. 32(1)(IIA) OF THE ACT IN THE NEXT ASSESSMENT YEAR FOR REMAINING UNUTILIZED A DDITIONAL DEPRECIATION. WE HAVE GONE THROUGH THE RELEVANT PROVISIONS OF SECOND PROVISO TO SECTION 32(1)(II) AND 32(1)(IIA) OF THE ACT. IN THE PRESENT CASE BEFORE US, THE ASSESSEE HAS PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING U NIT AND PUT TO USE FOR A PERIOD OF LESS THAN I.E. 180 DAYS, DURING THE FY 2005 - 06 RELEVANT TO AY 2006 - 07 AND CLAIMED 50% ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT IN VIEW OF THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. FURTHER, THE BALANCE 50% OF ADDITIONAL DEPRECIATION ON SUCH PLANT AND MACHINERY HAS BEEN CLAIMED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION I.E. THE FY 2006 - 07 RELEVANT TO THIS ASSESSMENT YEAR 2007 - 08. A BARE READING OF CLAUSE (IIA) OF SECTION 32(1) OF THE A CT W.E.F. THE AY 2006 - 07, PROVIDES FOR ALLOWANCE OF ADDITIONAL DEPRECIATION EQUAL TO 20% OF ACTUAL COST OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER MARCH, 31 ST 2005 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTI CLE OR THING. SUCH ADDITIONAL DEPRECIATION IS TO BE ALLOWED AS DEDUCTION U/S. 32(1)(IIA) OF THE ACT BUT SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS THE ALLOWANCE OF DEPRECIATION AT 50%, IF THE PLANT AND MACHINERY IS ACQUIRED DURING THE PREVIOUS YEAR IS PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS IN THAT PREVIOUS YEAR. THE SECOND PROVISO SPECIFICALLY MAKES A REFERENCE TO AN ASSET REFERRED TO IN CLAUSE (IIA) OF THE SAID SECTION 32(1) OF THE ACT. AND IT IS BECAUSE OF THE SECOND PROVISO ASSESSEE CLAIMED ONLY 50% ADDITIONAL DEPRECIATION FOR AY 2006 - 07 AND ACCORDINGLY, CLAIMED THE BALANCE AMOUNT OF ADDITIONAL DEPRECIATION IN THE IMMEDIATELY SUBSEQUENT YEAR I.E. THE YEAR UNDER CONSIDERATION AY 2007 - 08. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF SHRI J. P . KHAITAN, SENIOR ADVOCATE THAT A BARE READING OF SECTION 32(1)(IIA) CLEARLY SHOWS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION IN CASE THE NEW MACHINERY AND PLANT WAS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005. THERE IS NO RESTRICTIVE CONDITION IN THE CLAUSE FOR THE ELIGIBILITY OF THE ASSESSEE TO CLAIM ADDITIONAL DEPRECIATION. WHEN THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION @ 20%, IN THE ABSENCE OF ANY SPECIFIC PROVISION, THE AO CANNOT CUT DOWN THE SCOPE OF DEDUCTION 3 ITA NO. 04 /K/20 1 2 UNIVERSAL CABLES LTD. AY 200 7 - 0 8 BY REFERRING TO SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. HE ALSO POINTED OUT THAT EVEN IF THERE IS ANY CONTRADICTION BETWEEN SECTIONS 32(1)(IIA) AND SECOND PROVISO TO SECTION 32(1)(II), IT HAS TO BE RECONCILED SO AS TO GIVE HARMONIOUS EFFECT TO THE LEGISLATIVE INTENT. THE BENEFI TS CONFERRED ON THE ASSESSEE BY WAY OF INCENTIVE PROVISION CANNOT BE TAKEN AWAY BY ADOPTING AN IMPLIED MEANING TO SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. SINCE THE SECOND PROVISO TO SECTION 32(1)(II) DOES NOT EXPRESSLY PROHIBIT THE ALLOWANCE OF THE BALANCE 50% DEPRECIATION IN THE SUBSEQUENT YEAR, SECOND PROVISO TO SECTION 32(1)(II) SHALL NOT BE INTERPRETED TO MEAN THAT IT IMPLIEDLY RESTRICT THE ADDITIONAL DEPRECIATION TO BE ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. WE ARE OF THE VIEW THAT THE ASSE SSEE NOW IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION, BECAUSE IN THE YEAR IN WHICH THE MACHINERY WAS FIRST PUT TO USE THE ASSESSEE CLAIMED ONLY 50% OF ADDITIONAL DEPRECIATION FOR THE REASON THAT THE SAME WAS PUT TO USE FOR LESS THAN 180 DAYS, IN THIS ASSES SMENT YEAR FOR THE BALANCE OF DEPRECIATION. IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE ORDER OF COORDINATE BENCH, CITED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION U/S. 32(1)(IIA) OF THE ACT I N THIS ASSESSMENT YEAR. WE DIRECT THE AO ACCORDINGLY. 5. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN DISALLOWING 1% OF THE EXEMPT INCOME IN A MECHANICAL MANNER. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2: 2. TH AT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DISALLOWING 1% OF DIVIDEND INCOME IN A MECHANICAL MANNER WITHOUT APPRECIATING THE FACTS AND SUBMISSION MADE BY THE APPELLANT COMPANY IN THE MATTER. 6. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME I.E. DIVIDEND INCOME AMOUNTING TO RS.7,56,642/ - . THE AO APPLIED RULE 8D(2)(III) OF THE I. T. RULES, 1962 AND ESTIMATED THE DISALLOWANCE I.E. AVERAGE OF THE VALUE OF INVESTMENT AT 1% AT RS.14,16,710/ - U/S. 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE I. T. RULES, 1962. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO FOLLOWING THE DECISION OF COORDINATE BENCH OF ITAT C BENCH, KOLKATA IN ITA NO.954/KOL/2010 DATED 29.04.2011 RESTRICTED THE DISALLOWANCE TO 1% OF DIVIDEND INCOME. RELEVANT PORTION OF HIS ORDER READS AS UNDER: 16. THE HON BLE ITAT C BENCH, KOLKATA IN THE CASE OF ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 IN ITA NO. 954/KOL /2010 DATED 29.4.2011 HAS HELD AS FOLLOWS: IN VIEW OF FACTS OF THIS CASE AND THE PRINCIPLE LAID DOWN BY HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. (SUPRA), THAT RULE 8D IS APPLICABLE FOR AND FROM ASSESSMENT YEAR 2008 - 09 AND PR IOR TO THAT THE ASSESSING OFFICER CAN MAKE ESTIMATE IN THE GIVEN FACTS AND CIRCUMSTANCES. HENCE, WE RESTRICT THE DISALLOWANCE TO 1% OF DIVIDEND INCOME AND DIRECT THE ASSESSING OFFICER TO CALCULATE THE EXPENDITURE ON THAT BASIS. THIS GROUND OF ASSESSEE S APPEAL IS PARTLY ALLOWED. 4 ITA NO. 04 /K/20 1 2 UNIVERSAL CABLES LTD. AY 200 7 - 0 8 17. FOLLOWING THE DECISION OF THE HON BLE ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07, THE DISALLOWANCE IS RESTRICTED TO 1% OF DIVIDEND INCOME. HENCE, THE DISALLOWANCE IS RESTRICTED TO RS.7,566/ - ONLY AGAINST T HE DISALLOWANCE OF R S.15,16,710/ - . THIS GROUND OF APPEAL IS PARTLY ALLOWED. SINCE CIT(A) RESTRICTED THE DISALLOWANCE TO 1% BY FOLLOWING THE DECISION OF ITAT C BENCH, KOLKATA, CITED SUPRA, WE FIND NO INFIRMITY IN HIS ORDER AND THE SAME IS UPHELD. THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 7 . IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED . 8 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 4 . 0 1 . 2 0 1 5 . S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 4 T H JANUARY , 201 5 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT UNIVERSAL CABLES LTD., BIRLA BUILDING, 4 TH FLOOR, 9/1, R. N. MUKHERJEE ROAD, KOLKATA - 700 001. 2 / RESPONDENT DCIT, CIRCLE - 6, KOLKATA. 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .