2015 (8) TMI 407 - AT - Income Tax

Disallowance of balance 50% additional depreciation u/s. 32(1)(ii)(a) - new plant and machinery purchased and put to use for less than 180 days in the immediately preceding year - Held that - The assessee is entitled for additional depreciation u/s. 32(1)(iia) of the Act in this assessment year as relying on case of Birla Corporation Limited Vs. DCIT 2014 (12) TMI 436 - ITAT KOLKATA wherein held he assessee is eligible for additional depreciation in case the new machinery and plant was acquired and installed after 31-03-2005 - benefits 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) - 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 AY - the assessee 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 assessment year for the balance of depreciation - Decided in favour of assessee. Disallowing 1% of dividend income in a mechanical manner u/s 14A - Held that - The Hon ble ITAT C Bench, Kolkata in the case of assessee for assessment year 2006-07 2011 (4) TMI 1283 - ITAT KOLKATA 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. (2010 (8) TMI 77 - BOMBAY HIGH COURT), that Rule 8D is applicable for and from assessment year 2008-09 and prior 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. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of balance 50% additional depreciation u/s. 32(1)(ii)(a) of the Income-tax Act.
2. Disallowance of 1% of exempt income in a mechanical manner.

Issue 1: Disallowance of balance 50% additional depreciation u/s. 32(1)(ii)(a) of the Income-tax Act:
The appeal pertains to the disallowance of balance 50% additional depreciation under section 32(1)(ii)(a) of the Income-tax Act. The assessee had purchased new plant and machinery during the financial year 2005-06, put it to use for less than 180 days, and claimed the balance 50% of additional depreciation for Assessment Year 2006-07. However, for the subsequent year, the AO disallowed the claim stating that there was no provision allowing the balance 50% depreciation in the following year. The CIT(A) upheld the AO's decision. The assessee contended that they were entitled to the balance 50% additional depreciation based on a decision of a Coordinate bench in a similar case. The Coordinate bench held that the assessee was eligible for the balance 50% depreciation as per section 32(1)(iia) of the Act. The Tribunal agreed with the Coordinate bench's decision and directed the AO to allow the additional depreciation for the assessment year in question.

Issue 2: Disallowance of 1% of exempt income in a mechanical manner:
The second issue revolves around the disallowance of 1% of dividend income in a mechanical manner under Rule 8D(2)(iii) of the Income-tax Rules, 1962. The AO estimated the disallowance at 1.5% of the average value of investments under section 14A of the Act. The CIT(A), following a decision of the ITAT "C" Bench, Kolkata, restricted the disallowance to 1% of the dividend income. The ITAT upheld the CIT(A)'s decision based on the precedent set by the ITAT "C" Bench, Kolkata, and allowed the appeal partly, limiting the disallowance to 1% of the dividend income.

In conclusion, the ITAT Kolkata ruled in favor of the assessee on the first issue, directing the AO to allow the balance 50% additional depreciation as per section 32(1)(iia) of the Act. On the second issue, the ITAT upheld the CIT(A)'s decision to restrict the disallowance of 1% of exempt income to the dividend income. The appeal of the assessee was partly allowed in both issues.