RAMU S. DEORA, MUMBAI V. ASST CIT RG 12(3), MUMBAI

ITA 7328/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2917 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 09-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NITIN R WAGHMODE
• Keywords: Depreciation; Additional depreciation; Earning of tax free income
• Section: 14A; 10; 154

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMB AI BEFORE SHRI B. R. BASKARAN, AM AND SHRI PAWAN SINGH, JM ./ I.T.A. NO. 7328/MUM/2014 ( / ASSESSMENT YEAR: 2011-12) RAM U S DEORA SAMBHAVA CHAMBERS, 4 TH FLOOR, SIR P.M. ROAD FORT, MUMBAI 400001 / VS. ASSISTANT COMMISSIONER OF INCOME TAX, RANGE 12(3), AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ./ ./PAN/GIR NO. AAPMD2141 H ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SH. VIPUL JOSHI AR / RESPONDENT BY : SH.NITIN R. WAGHMODE - DR / DATE OF HEARING : 11.07.2016 / DATE OF PRONOUNCEMENT : 14.09.2016 / O R D E R PER PAWAN SINGH, JM: 1. THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX APPEALS- 23, MUMBAI, DATED 15 OCTOBER 2014 FOR AY 2 01112. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE THAT WHO IS PROPRIETOR OF TWO CONCERNS VIZ., G. AMPHRAY LABORATORY AND M/S 4R MILLENNIUM SECURITIES DEALINGS OF SHARES AND SECURITIES. THE ASSESSEE ALSO CARRIES INVESTMENT ACTIVITY IN HI S INDIVIDUAL CAPACITY. THE ASSESSEE FILED HIS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YE AR ON 6 SEPTEMBER 2011. THE CASE WAS SELECTED FOR SCRUTINY. WHILE FRAMING THE ASSESSMENT ORDER THE AO DISALLOWED ADDITIONAL DEPRECIATION CLAIMED ON BY ASSESSEE ON WIND MILL OF RS.85,80,000/-UNDER SECTION 32(1)(IIA) AND ALSO DISALLOWED A SUM OF RS. 33,89,8 23/-UNDER SECTION 14 A OF THE ACT, IN THE ASSESSMENT ORDER DATED 31 ST JANUARY 2014. AGGRIEVED BY THE ORDER OF AO ASSESSE E FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX APPEAL S, WHEREIN BOTH THE DISALLOWANCE ITA NO.7328/M/2012 RAMU S DEORA WAS CONFIRMED IN IMPUGNED ORDER DATED 15 OCTOBER 20 14. IN THE APPELLATE PROCEEDINGS ASSESSEE ALSO PRAYED THAT WITH THE RETURN OF INCOME ASSESSEE FURNISHED DETAILS OF TDS OF RS. 7,08,225/-, HOWEVER, THE AO HAS ALLOWED A CREDIT OF RS. 4,76,056/- ONLY. THE PRAYER OF ASSESSEE WAS REJECTED BY LD CIT(A) HOLDING THAT NO DETAILS OF TDS HAS BEEN FURNISHED BEFORE HIM TO SHOW THAT THE CREDIT IF ANY WAS REQUI RED TO BE GIVEN TO THE ASSESSEE. HOWEVER, THE ASSESSEE WAS GIVEN LIBERTY TO APPROACH THE AO A S PER LAW UNDER THE RELEVANT PROVISION OF THE ACT, FOR SEEKING CREDIT OF THE TAX DEDUCTED AT SOURCE. THUS, AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US RAISING AS MANY AS 11 GROUNDS OF APPEAL. THOUGH TH E ASSESSEE HAS RAISED 11 GROUNDS OF APPEAL BUT AS PER OUR CONSIDERED OPINION ONLY 3 SUB STANTIAL GROUNDS ARISES IN THE PRESENT APPEAL FOR OUR CONSIDERATION WHICH ARE AS UNDER; (A) IF THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOW ANCE OF ADDITIONAL DEPRECIATION OF RS.85,80,000/-IN RESPECT OF PLANT AND MACHINERY INS TALLED IN WINDMILL PROJECT. (B) IF LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS. 35,32,795/- UNDER SECTION 14 A, READ WITH RULE 8D. (C) IF THE LEARNED CIT(A) OUGHT TO HAVE GIVEN THE DIREC TION IN RESPECT OF SHORT CREDIT OF TDS. 3. FIRST GROUND OF APPEAL FOR OUR CONSIDERATION IS WIT H REGARD TO DISALLOWANCE OF ADDITIONAL DEPRECIATION IN RESPECT OF PLANT AND MAC HINERY INSTALLED IN WINDMILL PROJECT. WE HAVE HEARD LD AR OF ASSESSEE AND LD DR FOR REVENUE AND FURTHER PERUSED THE MATERIAL AVAILABLE ON RECORD. LD AR OF ASSESSEE ARGUED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INSTALLED A WINDMILL AT JAISALMER IN RAJASTHAN AND THE PRODUCTION WAS STARTED IN JANUARY 2011. THE ASSESSE E IS ENTITLED FOR ADDITIONAL DEPRECIATION AS THE SAME IS AVAILABLE TO ALL THE AS SESSEES WHO WERE IN THE BUSINESS OF MANUFACTURE OR ARTICLE OF THINGS. THE ASSESSEE IS I N THE BUSINESS OF MANUFACTURE OF PHARMACEUTICAL, CHEMICAL AND ALSO IN THE PRODUCTION OF POWER/ELECTRICITY. THE ADDITIONAL UNIT INSTALLED DURING THE YEAR IS THEREF ORE ELIGIBLE FOR ADDITIONAL DEPRECIATION. LD AR OF THE ASSESSEE FURTHER ARGUED THAT, IN FINANCE ACT, 2012 WHICH IS APPLICABLE FROM 1 ST OF APRIL 2013. THE LEGISLATURE HAD INSERTED THE FO LLOWING WORDS IN SECTION 32(1)(IIA) OF INCOME TAX; OR IN THE BUSINESS OF GENERATION OF GENERATION AND DISTRIBUTION OF POWER THE ASSESSEE WAS USING WIND ENERGY FOR GENERATING P OWER FOR ITS CAPITAL CONNECTION AS WELL AS FOR SELLING THE POWER GENERATED TO THE TAMI L NADU ELECTRICITY BOARD, THUS THE ASSESSEE WAS ENTITLED FOR ADDITIONAL DEPRECIATION C LAIMED. THE LEARNED AR OF ASSESSEE FURTHER RELIED UPON THE DECISIONS OF HONB LE MADRAS HIGH COURT IN CIT VS ITA NO.7328/M/2012 RAMU S DEORA VTM LTD REPORTED IN(2009) 319 ITR 336(MAD) AND CIT VS HI-TECH ARAI. LTD (2010) 321 ITR 447 (MAD). ON THE OTHER HAND LEARNED DR FO R REVENUE SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. LD DR FOR REVENUE ARGUED THAT THE BENEFITS OF THE SECTION WERE EXTENDED TO THOSE ASSESSEES WHO WERE ENGAGED I N THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER ONLY. THE MEMORANDUM EXPLAINI NG THE AFORESAID AMENDMENT CLEARLY BRINGS OUT THE DISTINCTION BETWEEN THE BUSI NESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING AND THE BUSINESS OF GENERAT ION UNDERESTIMATION OF POWER. THE ASSESSEE STARTED THE BUSINESS OF GENERATION AND DIS TRIBUTION OF POWER IN THE AY 2011- 12 AND, THE AMENDMENT IN THIS SECTION WAS ONLY WITH EFFECT FROM AY 201314, THUS THE BENEFIT OF THE AMENDMENT IN THE SECTION WOULD B E APPLICABLE FROM 2013-14 ONWARDS . 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES. THE AO DISALLOWED THE DEPRECIATION HOLDING THAT CLAUSE (IIA) OF SECTION 3 2(1) IS APPLICABLE ONLY ON THE NEW PLANT AND MACHINERY ACQUIRED BY THE ASSESSEE AND EN GAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION. AS THE ASSESSEE WAS NOT ENGAGED IN THE SAME LINE OF BUSINESS, THUS NOT ENTITLED FOR THE ADDITIONAL DEPR ECIATION. THE LD CIT(A) WHILE CONSIDERING THIS GROUND OF APPEAL OBSERVED THAT WIN DMILL IS A SEPARATE BUSINESS FROM THE BUSINESS OF PHARMACEUTICALS CARRIED OUT BY THE ASSESSEE. LD CIT(A) FURTHER OBSERVED THAT THE ASSESSEE CAN BE ENGAGED IN MORE T HAN ONE BUSINESS AT ANY GIVEN POINT OF TIME. HOWEVER, THE LD CIT(A) CONCLUDED THA T THE SAID PROVISION WOULD BE APPLICABLE IN CASE OF AN ASSESSEE ENGAGED IN THE BU SINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OF THINGS. AFTER THE AME NDMENT OF THE SAID SECTION WITH EFFECT FROM 01.04.2013, THE BENEFIT OF THE SECTION WAS EXTENDED TO AN ASSESSEE WHO WAS ENGAGED IN THE BUSINESS OF GENERATION AND DISTR IBUTION OF POWER. THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLES OR THING IS DIFFERENT FROM THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. THE LD CIT(A) FURTHER CONCLUDED THAT NO DOCUMENT OR EVIDENCE WAS BROUGHT ON RECORD TO SHOW THAT WINDMILL BUSINESS WAS SET UP AS A PART OF EXISTING BUSINESS BY THE ASSESSEE. SINCE, THE INDEPENDENT BUSINESS OF GENERATION OF ELECTRICITY WAS SET UP BY THE ASSESS EE IN AY 2011 12 AND NO BENEFIT OF INITIAL OR ADDITIONAL DEPRECIATION WAS AVAILABLE TO THE ASSESSEE DURING THE ASSESSMENT YEAR. LD AR OF THE ASSESSEE HAD ARGUED THAT THERE IS NO RESTRICTION IN THE PROVISION OF CLAUSE (IIA) OF SECTION 32(1), WHICH M AY RESTRICT THE ASSESSEE FROM CLAIMING ADDITIONAL DEPRECIATION ONLY BECAUSE THE A SSESSEE IS ALSO ENGAGED IN OTHER BUSINESS. ITA NO.7328/M/2012 RAMU S DEORA THE HONBLE MADRAS HIGH COURT IN VTM LTD (SUPRA) I N ALMOST OF IDENTICAL FACTS HELD THAT THE PROVISION DOES NOT RESTRICT THAT THE NEW P LANT AND MACHINERY SHOULD HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING TH AT WAS ALREADY MANUFACTURED BY THE ASSESSEE. FURTHER, THE HONBLE MADRAS HIGH COURT IN HI TECH ARAI LTD (SUPRA) HELD THAT SEC 32(1) (IIA) DOES NOT STATE THAT THE SETTING UP OF A NEW MACHINERY OR PLANT, WHICH WAS ACQUIRED AND INSTALLED, SHOULD HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURED BY THE ASSESSEE . IT COULD BE SAID THAT SETTING UP OF A WINDMILL WILL NOT FOR WITHIN THE EXPRESSION SE TTING UP OF A NEW MACHINERY OR PLANT. THUS, WE RESPECTFULLY FOLLOWING THE DECISION S OF MADRAS HIGH COURT ALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE. IN THE RE SULT THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IN THE PRESENT APPEAL IS ALLOWED. 5. SECOND GROUND OF APPEAL FOR OUR CONSIDERATION IS W ITH REGARD TO DISALLOWANCE UNDER SECTION 14 A OF THE ACT. LD AR OF ASSESSEE ARGUED T HAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF ASSESSEE, AS SIMILAR DISALLOWA NCE WAS MADE AGAINST THE ASSESSEE FOR AY 2009-10 AND THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL AND THE SAME WAS ALLOWED IN FAVOUR OF ASSESSEE VIDE ORDER DATED 07 NOV 2014 IN ITA NO 4860/M/2012, COPY OF WHICH IS ALREADY PLACED ON REC ORD. LEARNED DR FOR REVENUE NOT DISPUTED THE DECISION OF THIS TRIBUNAL FOR AY 2009- 10. 6. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND PERUSED THE ORDER OF THIS TRIBUNAL IN ITA NO. 4860/M/2012 WHEREIN, ON DISALL OWANCE U/S 14A THE FOLLOWING ORDER WAS PASSED. 4. ADMITTEDLY, THE ASSESSEE DID NOT CLAIM ANY EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT RELATING TO M/S 4R MILLENNIUM SECURITIES AND HIS PE RSONAL ACCOUNT EXCEPT AUDIT FEE REFERRED ABOVE. THE ASSESSEE HAS CREDITED THE EXEMP TED INCOME IN HIS CAPITAL ACCOUNT. ACCORDING TO LANDED AR THE EXPENDITURE CLAIMED IN T HE CHEMICAL DIVISION, ARE RELATED TO THE CHEMICAL BUSINESS ONLY AND THEY ARE NOT RELA TED TO INVESTMENT ACTIVITIES. WHEN A SPECIFIC QUARRY WAS ASKED AS TO WHETHER ALL THE 3 C ONCERN MAY BE OPERATING FROM DIFFERENT ADDRESSES, THE LEARNED AR SUBMITTED THAT THE SAID FACT NEEDS TO BE CONFIRMED. HOWEVER, IT IS A FACT THAT THE ASSESSING OFFICER HA S ACCEPTED FOR A NOMINAL DISALLOWANCE OF RS. 5,306/-IN THE IMMEDIATELY PRECE DING YEAR, MEANING THEREBY THE AO HAS ACCEPTED THAT THE RULE 8D CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE BLINDLY. AS SUBMITTED BY LANDED AR, THE ASSESSING O FFICER DID NOT ADDRESS VARIOUS CONTENTION OF THE ASSESSEE DURING THE YEAR UNDER CO NSIDERATION, BEFORE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) OF IT RULES, THA T IS, THE DISALLOWANCE RELATING TO A DEVASTATING EXPENSES COMPUTED AT 0.5% OF AVERAGE VA LUE OF INVESTMENTS. IT IS ALSO A FACT THAT THE AO DID NOT MAKE ANY DISALLOWANCE TOWA RD INTEREST EXPENDITURE. 5. FROM THE FOREGOING DISCUSSION, AND ON CONSIDERATION OF THE ACCOUNTS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE TAX AUTHORITIES WERE NO T JUSTIFIED IN APPLYING RULE 8D(2)(III) BY DISREGARDING THE ACCOUNTS AND CLAIMS OF THE ASSESSEE. ACCORDING TO THE ITA NO.7328/M/2012 RAMU S DEORA ASSESSEE, HE HAD MADE THE INVESTMENT IN THE EARLIER YEARS AND MAJOR PORTION OF EXEMPT INCOME FROM GOVERNMENT SECURITIES. HOWEVER, THE LD AR COULD NOT CONCLUSIVELY CLARIFY THAT THE DIFFERENT CONCERN ARE NOT OPERATING FROM D IFFERENT ADDRESSES. ACCORDINGLY, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THE DISALLOWANCE UNDER SECTION 14 A, MAY BE RESTRICTED TO RS.10,000/-AND THE SAME, IN OU R VIEW, WOULD MEET THE END OF JUSTICE. ACCORDINGLY, WE MODIFIED THE ORDER OF LD C IT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER SECTION 14 A OF THE ACT TO RS. 10,000/-. NOW, COMING TO THE FACTS OF THE RELEVANT ASSESSMEN T YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED TO HAVE EARNED DIVIDEND OF RS.1,47 ,24,682/- AND INTEREST ON TAX FREE BONDS OF RS. 2,24,91,102/- AS EXEMPT U/S 10 OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE SUBMITTED THAT AMOUNT OF RS.4,21,908/-CAN BE TAKEN FOR DISALLOWANCE UNDER SECTION 14 A. THE VOLU NTARY DISALLOWANCE WAS NOT ACCEPTED BY AO, AND AO WORKED OUT THE DISALLOWANCE AS PER THE PROCEDURE PRESCRIBED IN RULE 8D (2)(III) OF RS. 35,32,795/-AN D ADDED TO THE TOTAL INCOME OF ASSESSEE. THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE, RESTRICTED THE DISALLOWANCE UNDER SECTION 14A AT RS. 10,000/- ON LY AS REFERRED ABOVE. THUS, KEEPING IN VIEW THE ORDER OF THE TRIBUNAL FOR AY 20 09-10 THE DISALLOWANCE MADE BY AO FOR RS.35,32,795/- UNDER SECTION 14A IS DELETED . IN THE YEAR UNDER CONSIDERATION THE EXEMPT INCOME OF ASSESSEE CONSIST OF INCOME FRO M THE TAX FREE BONDS OF RS.2,24,91,102/-, DIVIDEND INCOME OF RS.1,47,24,682 /-, INTEREST ON PPF RS. 2,28,190/- AND LTCG OF RS.2,93,35,787/-. MAJOR INVESTMENTS WER E MADE IN EARLIER YEARS AND EXEMPT INCOME IS FROM GOVERNMENT SECURITIES. THE PA YMENTS OF INTEREST OF TAX FREE BONDS WERE CREDITED BY WAY OF ECS. BEFORE THE LOWER AUTHORITY THE ASSESSEE OFFERED DISALLOWANCE UNDER SECTION 14A OF RS. 4,21,908/- WH ICH WAS NOT ACCEPTED. THIS FACT IS AN ADDITIONAL FACT IN THE YEAR UNDER CONSIDERATI ON. NO SUCH FACT IS DISCERNABLE FROM THE ORDER OF TRIBUNAL FOR AY 2009-10. THUS WE ACC EPT THE VOLUNTARILY DISALLOWANCE OF RS.421,908/- OFFERED BY ASSESSEE U/S 14A OF THE ACT, BEFORE THE AUTHORITIES BELOW. WE ORDER ACCORDINGLY. THUS THIS GROUND OF APPEAL IS ALSO ALLOWED. 7. THIRD GROUND RAISED IN THE PRESENT APPEAL FOR OUR C ONSIDERATION IS WITH REGARD TO SHORT CREDIT OF TDS. LD AR OF THE ASSESSEE ARGUED THAT HE HAS ALREADY FILED AN APPLICATION BEFORE ASSESSING OFFICER UNDER SECTION 154 FOR RECT IFICATION OF MISTAKE FOR SHORT CREDIT OF TDS. LEARNED DR FOR REVENUE HAS NO OBJECTION IF APPROPRIATE DIRECTION IS GIVEN TO THE AO FOR GIVING THE CREDIT OF TDS. WE HAVE CONSID ERED THE RIVAL CONTENTION OF THE PARTIES. WE DIRECT THE AO TO PASS NECESSARY ORDER I N ACCORDANCE WITH LAW, AFTER PROPER VERIFICATION OF EVIDENCE RELATED WITH TDS FURNISHED BY ASSESSEE. THUS THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO.7328/M/2012 RAMU S DEORA 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED. ANNOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF SEPTEMBER 2 016. SD/- SD/- (B. R. BASKARAN) (PAWAN SINGH) ' / ACCOUNTANT MEMBER #$ ' / JUDICIAL MEMBER MUMBAI; $ DATED :14.09.2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ( ) / THE CIT(A) 4. ( / CIT - CONCERNED 5. + , + , / DR, ITAT, MUMBAI 6. ,- / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI