2023 (2) TMI 1144 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Assessee has received dividend income which was claimed as exempt u/s 10(34) - suo moto addition by assessee - AO disallowed interest expenditure attributable to income which does not form part of the total income - HELD THAT - In the instant case amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year was Rs. 40,19,403/- as can be deciphered from the table. With regard to B C of the Formula the AO is directed to take into consideration the dividend yielding investments while computing the disallowance. The appeal of the assessee on this ground is allowed for statistical purposes. Additional depreciation on new plant and machinery - AO found that the assessee claimed depreciation @20% on though the machinery was put to use for less than 180 days and hence, depreciation as well as additional depreciation was allowed @ 50% of the allowable amount in accordance with section 32(1)(iia) - HELD THAT - A concurrent reading of provisions of section 32(1) and 32(1)(iia) we hold that the assessee is eligible for 50% of depreciation allowance and additional depreciation on the plant and machinery procured. Disallowances of Prior period expenses - In the current year there is a prior period income is adjusted against prior period expenses and his practice has been consistently followed by assessee since inception duly accepted by the department also in all its earlier orders for A.Y. 2007-08 2008-09 2010-11 - HELD THAT - Having perused the issue, in the absence of any change in the factual content and the legal proposition we decline to interfere with the order of the ld CIT(A) which was rightly based on the earlier order of the Tribunal. Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Claim for additional depreciation under Section 32(1)(iia).
3. Raising of demand ignoring BIFR order.
4. Taxability of income from the sale of FSI.
5. Disallowance of prior period expenditure.

Detailed Analysis:

Disallowance under Section 14A read with Rule 8D:
The AO disallowed Rs. 30,84,050/- under Section 14A read with Rule 8D, attributing interest expenditure to income not forming part of total income. The assessee had received dividend income of Rs. 7,02,91,580/- and disallowed Rs. 905,915/- suo moto under Section 14A. The AO's disallowance included interest expenditure of Rs. 29,20,847/-. The CIT(A) was provided with detailed interest expenses totaling Rs. 48,67,65,130/-. The provisions of Rule 8D were discussed, and the AO was directed to consider "dividend yielding investments" while computing the disallowance. The appeal on this ground was allowed for statistical purposes.

Claim for Additional Depreciation under Section 32(1)(iia):
The assessee claimed additional depreciation on new plant and machinery installed during the year. The AO found that the machinery was used for less than 180 days, allowing only 50% of the allowable depreciation. The Tribunal held that the assessee is eligible for 50% of depreciation allowance and additional depreciation on the plant and machinery procured, as per Section 32(1) and 32(1)(iia).

Raising of Demand Ignoring BIFR Order:
The issue of raising a demand of Rs. 36,41,59,287/- against the assessee while ignoring the BIFR order was not elaborated upon in the judgment. Therefore, no specific analysis was provided.

Taxability of Income from the Sale of FSI:
The assessee argued that the capital gains from the sale of FSI amounting to Rs. 2,24,00,00,000/- should not be taxable, citing the Bombay High Court's decision in CIT Vs. Sambhaji Nagar Coop Hsg Society Ltd., which held that the sale of FSI is not taxable. The CIT(A) noted that the Bombay High Court's order did not lay down any principle that would help the assessee's case. The Tribunal remanded the matter back to the CIT(A) for fresh adjudication, allowing the assessee another opportunity to present their case.

Disallowance of Prior Period Expenditure:
The revenue's appeal pertained to the disallowance of prior period expenses amounting to Rs. 2,85,98,000/-. The Tribunal found that this issue was consistently decided in favor of the assessee in earlier assessment years (2008-09, 2009-10). The assessee had a practice of netting prior period income with prior period expenses, which was accepted by the department in previous years. The Tribunal upheld the CIT(A)'s decision, based on the principle of consistency, and dismissed the revenue's appeal.

Conclusion:
The appeal of the assessee was partly allowed, specifically on the issue of disallowance under Section 14A for statistical purposes and the remand of the FSI sale issue. The appeal of the revenue was dismissed, upholding the CIT(A)'s decision on the disallowance of prior period expenses. The order was pronounced in the open court on 07/02/2023.