2017 (10) TMI 1503 - AT - Income Tax

Additional depreciation u/s 32(1)(iia) - HELD THAT - Issue squarely covered in favour of the assessee inter alia by the decision of coordinate benches of this Tribunal in the case of M. Satish Kumar (supra) and Hutti Gold Mines Co. Ltd. 2012 (11) TMI 215 - ITAT CHENNAI as well as by the decision of Hon ble Madras High Court in the case Hi Tech Arai Ltd. 2009 (9) TMI 60 - MADRAS HIGH COURT and that of Hon ble Karnataka High Court Gold Co. Ltd. 2014 (9) TMI 1115 - KARNATAKA HIGH COURT . The learned DR, on the other hand, has not been able to bring to our notice any judicial pronouncements on this issue either of the Hon ble Jurisdictional High Court or any other High Court which is in favour of the revenue. We, therefore, respectfully follow the aforesaid judicial pronouncements cited by the learned counsel for the assessee which are in favour of the assessee and delete the disallowance made by the AO and confirmed by the Ld. CIT (A) on account of assessee s claim for additional depreciation under section 32(1)(iia). Ground no 1 2 of the assessee s appeal for A.Y. 2011-12 are accordingly allowed. Disallowance u/s 14A - HELD THAT - Provision of sub-section (2) of section 14A which stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed (Rule 8D) if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. AO thus was required to record his dissatisfaction with the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income before invoking Rule 8D and since there was no such dissatisfaction recorded by the AO as agreed even by the Ld. DR, we find merit in the contention of the learned counsel for the assessee that the disallowance under section 14A made by applying Rule 8D is not sustainable. We, therefore, delete the disallowance made by the A.O. under section 14A read with Rule 8D and sustained by the Ld. CIT (A) Disallowance u/s 40(a)(ia) on account of payment of ERPC charges without deduction of tax at source - HELD THAT - This issue thus now stands squarely covered in favour of the assessee by the decision of this Tribunal in assessee s own case for A.Y. 2008-09 2016 (5) TMI 1104 - ITAT KOLKATA and respectfully following the same, we uphold the impugned order of the Ld. CIT (A) deleting the disallowance made by the A.O. under section 40(a)(ia) on account of payment of ERPC charges

Summary

Issues Involved:
1. Disallowance of additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Income Tax Act read with Rule 8D.
3. Disallowance under section 40(a)(ia) on account of payment of ERPC charges without deduction of tax at source.

Detailed Analysis:

1. Disallowance of Additional Depreciation under Section 32(1)(iia):

Background:
The assessee, engaged in the business of generation and distribution of electricity, claimed additional depreciation amounting to ?34,02,72,223/- under section 32(1)(iia). The AO disallowed this claim, stating that the assessee was not engaged in manufacturing or production activities but merely in transmission of electricity.

Assessee's Argument:
The assessee argued that the generation of electricity constitutes 'manufacture' or 'production' as per various judicial pronouncements, including those of the Hon'ble Supreme Court and High Courts. They cited definitions and interpretations of 'manufacture' and 'production' from multiple legal sources, asserting that their activities qualify under these terms.

CIT (A)'s Decision:
The CIT (A) upheld the AO’s disallowance, noting that the term 'manufacture or production' did not include generation of electricity until an amendment in 2012. The amendment was seen as an expansion of the benefit to power generation companies effective from 01.04.2012.

Tribunal's Decision:
The Tribunal, relying on various judicial precedents, including decisions of the Hon'ble Supreme Court and High Courts, concluded that the generation of electricity is akin to manufacturing a new product. The Tribunal referred to the decisions in cases like M. Satish Kumar and Hutti Gold Mines Co. Ltd., which held that generation of electricity is a manufacturing activity. Consequently, the Tribunal deleted the disallowance of additional depreciation, allowing the assessee's appeal on this ground.

2. Disallowance under Section 14A read with Rule 8D:

Background:
The AO disallowed ?50,16,000/- under section 14A, stating that the assessee incurred expenditure related to earning exempt dividend income of ?25,46,900/-. The CIT (A) reduced this disallowance to ?4,87,500/-.

Assessee's Argument:
The assessee contended that no expenditure was incurred to earn the dividend income, which was received through a single cheque. They argued that the AO did not record any dissatisfaction with their claim before invoking Rule 8D, as required under section 14A(2).

Tribunal's Decision:
The Tribunal agreed with the assessee, noting that the AO did not record any dissatisfaction with the assessee's claim before applying Rule 8D. Hence, the disallowance under section 14A was not sustainable. The Tribunal deleted the disallowance, allowing the assessee's appeal on this ground and dismissing the revenue's appeal.

3. Disallowance under Section 40(a)(ia) on Account of Payment of ERPC Charges:

Background:
The AO disallowed payments made towards ERPC charges without deduction of tax at source. The CIT (A) deleted this disallowance based on a similar decision in the assessee's case for A.Y. 2008-09, which was upheld by the Tribunal.

Tribunal's Decision:
The Tribunal noted that the issue was covered by its earlier decision in the assessee's favor for A.Y. 2008-09. Following the precedent, the Tribunal upheld the CIT (A)'s order deleting the disallowance under section 40(a)(ia), dismissing the revenue's appeal on this ground.

Conclusion:
In summary, the Tribunal allowed the assessee's appeals regarding additional depreciation under section 32(1)(iia) and disallowance under section 14A, while dismissing the revenue's appeals on both these issues and the disallowance under section 40(a)(ia) for payment of ERPC charges. The Tribunal's decision was pronounced in the open court on 31st October 2017.