2016 (9) TMI 1457 - AT - Income Tax

Disallowance under Sec. 14A r.w.Rule 8D(2) - investments in sister company and the contention that own funds are generated out of business and no borrowed funds were utilized for the purpose of investments - Held that - The assessee company made investments on Business expediency and no income has been generated by sister/group company. The provisions of Sec. 14A r.w.r. 8D are mandatorily applicable from assessment year 2008-09 but while calculating the disallowance u/sec. Rule 8D(2) the ld. Assessing Officer shall consider that the investments in group/ sister company are made in ordinary course of business. See case of DCIT vs. M/s. Regen Powertech (P) Ltd. 2016 (10) TMI 522 - ITAT CHENNAI We remit the disputed issue to the file of the ld. Assessing Officer to verify and exclude the investments in group companies for the purposes of calculation of disallowance under Sec. 14A r.w.Rule 8D(2) and the assessee should be provided adequate opportunity of being heard before passing the order on merits. The ground of the Revenue is allowed for statistical purpose. Additional depreciation on Plant and Machinery disallowed - no manufacturing activity - Held that - We perused the order of ld. Assessing Officer and activity of the assessee company engaged in the Business of manufacturing of readymix concrete and once the raw material is mixed which cannot be reconverted in shape. Hon ble Apex Court in the case of CIT vs. N.C. Budharaja & Company (1993 (9) TMI 6 - SUPREME COURT) has held that readymade mixed concrete cannot be in the nature of manufacture - decided in favour of revenue Claim of deduction under Section 80-IA in respect of windmills - contention of the Department before the Tribunal that the Revenue has not accepted the judgment of Madras High Court and an appeal has already been filed along with Special Leave Petition and the same is pending before the Apex Court - Held that - This Tribunal is of the considered opinion that mere pendency of Special Leave Petition before the Apex Court cannot be a reason to take a different view. The judgment of Madras High Court is binding on all the authorities in the State of Tamil Nadu and Union Territory of Pondicherry. Therefore the Commissioner of Income Tax (Appeals) has rightly allowed the claim of the assessee by following the binding judgment of Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd (2010 (3) TMI 860 - MADRAS HIGH COURT ). - decided against revenue

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Additional depreciation on plant and machinery.
3. Deduction under Section 80IA of the Income Tax Act for windmills.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The Revenue challenged the deletion of disallowance made under Section 14A amounting to ?35,00,000/-. The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted this disallowance, relying on the jurisdictional ITAT's decision in the case of EIH Associated Hotels, which stated that investments in subsidiary companies made for business expediency should not be considered for disallowance under Section 14A. The Revenue argued that the CIT(A) overlooked the Board's Circular No. 5/2014, which allows disallowance under Section 14A even if no exempt income is received. The Tribunal, after considering rival submissions and judicial precedents, remitted the issue back to the Assessing Officer to verify and exclude investments in group companies for the purpose of disallowance under Section 14A, providing the assessee an opportunity to be heard.

2. Additional Depreciation on Plant and Machinery:
The Revenue contested the deletion of additional depreciation on plant and machinery amounting to ?62,63,733/-. The CIT(A) allowed the depreciation, relying on the previous year's order, stating that the assessee's activity of manufacturing ready-mix concrete qualifies for additional depreciation. However, the Tribunal found that the activity of producing ready-mix concrete does not amount to manufacturing as per the Apex Court's decision in CIT vs. N.C. Budharaja & Company and other judicial precedents. The Tribunal set aside the CIT(A)'s order and allowed the Revenue's ground, denying the additional depreciation.

3. Deduction under Section 80IA of the Income Tax Act for Windmills:
The Revenue challenged the CIT(A)'s decision to allow the deduction under Section 80IA amounting to ?34,30,895/-, which was denied by the Assessing Officer by notionally setting off brought forward losses. The CIT(A) allowed the deduction, following the jurisdictional High Court's decision in CIT vs. Velayuthasamy Spinning Mills. The Tribunal upheld the CIT(A)'s order, stating that the judgment of the Madras High Court is binding and the mere pendency of a Special Leave Petition before the Supreme Court cannot be a reason to take a different view. Thus, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground.

Conclusion:
The Tribunal partly allowed the Revenue's appeal. The issue of disallowance under Section 14A was remitted back to the Assessing Officer for reconsideration, the additional depreciation on plant and machinery was denied, and the deduction under Section 80IA for windmills was upheld. The order was pronounced on September 8, 2016, at Chennai.