2013 (1) TMI 967 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of disallowance made u/s 36(1)(iii) of the IT Act.
2. Deletion of disallowance made u/s 14A read with Rule 8D of the IT Rules.
3. Disallowance of depreciation claimed on Power Evacuation Facility (PEF) and transmission lines used with wind Turbine Generator.

Summary:

Issue 1: Deletion of Disallowance u/s 36(1)(iii)
The Revenue appealed against the deletion of disallowance of Rs. 56,98,192/- made u/s 36(1)(iii) of the IT Act. The assessee had invested Rs. 4.75 crores in agricultural land, with Rs. 4.70 crores invested in preceding years and Rs. 5 lacs during the year under consideration. The Assessing Officer (AO) disallowed the interest, claiming the investment was for non-business purposes. The CIT (Appeals) found the investment was made out of the assessee's own funds, not borrowed funds, and deleted the disallowance. The Tribunal upheld this decision, citing the Hon'ble Supreme Court's ruling in Munjal Sales Corporation Vs. CIT, which reversed the Punjab & Haryana High Court's decision in a similar case.

Issue 2: Deletion of Disallowance u/s 14A read with Rule 8D
The Revenue challenged the deletion of Rs. 42,68,522/- disallowance made u/s 14A read with Rule 8D, while the assessee cross-appealed against the disallowance of Rs. 5 lacs. The assessee had shown total investments in shares and mutual funds and claimed the investments were made out of its own funds. The AO invoked Rule 8D and disallowed Rs. 47,68,522/-. The CIT (Appeals) found most investments were made out of own funds and reduced the disallowance to Rs. 5 lacs. The Tribunal found merit in the assessee's claim, noting that the investments were made out of own funds, and directed the AO to disallow Rs. 10,49,851/- as interest relatable to exempt income. The adhoc disallowance of Rs. 5 lacs by the CIT (Appeals) was found to be without merit and was dismissed.

Issue 3: Disallowance of Depreciation on PEF and Transmission Lines
The Revenue contested the CIT (Appeals)'s decision to allow 80% depreciation on PEF and transmission lines, which the AO had limited to 15%. The CIT (Appeals) found that PEF and transmission lines were integral to the windmill's operation, and ownership was transferred to the assessee. The Tribunal upheld this view, referencing decisions from various Tribunal Benches which held that such facilities are part of the windmill and eligible for higher depreciation.

Conclusion:
The Tribunal partly allowed the Revenue's appeal regarding disallowance u/s 14A read with Rule 8D and dismissed the appeal concerning disallowance u/s 36(1)(iii) and depreciation on PEF and transmission lines. The Cross Objection filed by the assessee was allowed.