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2018 (5) TMI 420 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - sufficiency of own funds - Held that - We find that the own funds of the assessee are sufficient to make the cost of the investments which yielded exempt income. The A.O. has not brought anything on record which proves that the investment was made out of the borrowed funds. We are, therefore, of the view that the investment made out of the assessee s own funds and accordingly the addition made by the A.O. and confirmed by the Ld. CIT(A) under section 14A read with rule 8D(2)(ii) is to be deleted Disallowance made under rule 8D(2)(iii)- Held that - Remand this issue to the file of A.O. with the direction to consider only the investment which yielded dividend income to the assessee for computing the disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. Also after re-working the gross disallowance of Rule 8D in terms of the discussion and direction given above, the A.O. shall reduce the sum of ₹ 10,00,000/- already suo-moto disallowed by the assessee under section 14A and the net sum so computed alone shall be added back to the total income. However, in case the revised disallowance under section 14A work out at a sum lower than the amount of ₹ 10,00,000/- suo-moto disallowed by the assessee, then the A.O. shall restrict the disallowance under section 14A to ₹ 10,00,000/-. - Decided partly in favour of assessee for statistical purposes. Addition on account of advances written off - Held that - We note that the issue under dispute is squarely covered by the decision of this Tribunal in assessee s own case for A.Y. 2005-06 2016 (3) TMI 731 - ITAT KOLKATA as held that the deposits and advances were given in the ordinary course of business and were lying in the books of the assessee company for quite a long time. The some were considered irrecoverable by the assessee and had written off the same in Asst Year 2005-06 and hence the same is to be considered as a trading loss u/s 28 of the Act. We hold that the Learned CITA) had rightly deleted the addition made in this regard - Decided against revenue Allowance of further depreciation u/s 32 - application under section 154 rejected - Held that - Decision of this Tribunal in A.Y. 2000-01 to 2002-03 wherein allowed the claim and directed the A.O. to grant depreciation on such enhanced WDV of the block of assets, we find no infirmity in the order of the Ld. CIT(A) in following the decision of this Tribunal deleting the disallowance of depreciation. Ground No. 2 of the Revenue s appeal is dismissed. Claim for considering the market value of electricity for the purpose of section 80IA - whether it should be the average landed cost of electricity at which the assessee procured electricity from the respective State Electricity Boards - Held that - Following Gujarat High Court case of CIT Vs Milton Laminates Ltd (2013 (3) TMI 192 - GUJARAT HIGH COURT ) we direct the A.O. to allow the deduction under section 80IA(4) by adopting the weighted average landed cost of electricity at the rates of ₹ 6.35, ₹ 3.72 and ₹ 4.90 in respect of CPPs at Karnataka, Orissa and West Bengal respectively. The A.O. shall compute gross sale / transfer price of CPP, taking into account foregoing rates and accordingly re-work the profitability of each CPP and thereafter allow the deduction under section 80IA of the Act. Before the A.O. works out the deduction permissible, an opportunity of being heard shall be afforded to the assessee. Power of CIT(A) to entertain revised claim or an additional claim - CIT-A restricting the claim of deduction u/s 80IA to the extent as claimed in the return filed u/s 139(1) - A.O. in his remand report relied on the provisions of Section 80AC to deny the benefit of higher quantum of deduction u/s 80IA - Held that - As far as the power of CIT(A) to entertain revised claim or an additional claim raised by the assessee is concerned, we find that the law is now well settled that the appellate authorities have the power to entertain a new claim by the assessee even in the absence of a revised return of income. The decision of Calcutta High Court in the case of CIT Vs Britannia Industries Ltd (2017 (7) TMI 502 - CALCUTTA HIGH COURT) squarely supports the assessee s case. Once the procedural requirement of Section 80AC was satisfied and the return of income was filed within the time limit in Section 139(1), then not only the AO but even the assessee was legally entitled to revise or for that matter re-compute the eligible deduction under Section 80IA so to arrive at the correct sum permissible in law. The sum so recomputed can be a figure higher or lower than the sum claimed in the return of income. Section 80AC therefore had no application in quantification of the deduction permissible under Section 80IA of the Act quantum of which the AO was legally obliged to determine keeping in view applicable legal provisions and decisions of the judicial precedents on the subject. CIT(A)-17 erred in holding that his predecessor did not direct the A.O. to allow the deduction u/s 80 IA at a sum higher than the one claimed in the return furnished u/s 139(1). Once the Ld. CIT(A)-VI s order specifically laid down the manner and mode of calculation of selling rate of power and also annexed the computation sheets to the appellate order, subject to verification of figures by the A.O. with reference to original bills; in our considered view the A.O. was legally obliged to carry out such directions in letter & spirit. CIT(A) erred in upholding the order u/s 250/143(3) of the A.O by restricting the claim of deduction u/s 80IA to the extent as claimed in the return filed u/s 139(1). We are of the considered view that there is no estoppel in law that the assessed income cannot go below the income returned by the assessee. We therefore direct the A.O to modify the deduction allowable u/s 80IA by re-computing the income /profits of the eligible power generating undertakings by adopting power tariff /rates as specified Claim of depreciation on the plant & machinery which was put to trial run during the year - Held that - he assets of the Clinker plant were used to conduct trial run on 12th March 2009. The disclosure of such fact was made in the audited accounts. The assessee also furnished relevant details and documents supporting purchase of the plant and machinery before the A.O. and also substantiated that the said plant was used for conducting trial run on 12th March 2009. The A.O. has not shown any infirmity in the factual matrix. In the A.O. s opinion however the use of clinker plant for conducting trial run did not satisfy the condition of the asset being used for business purpose as provided in S 32 of the Act. We however find that the view canvassed by the A.O. was contrary to the views expressed by Hon ble jurisdictional Calcutta High Court in the case of CIT Vs Union Carbide (I) Ltd (2002 (2) TMI 95 - CALCUTTA High Court ) wherein allowed the depreciation claims of the assessee even though the plant and machineries were used during the relevant previous year only for the purpose of conducting trial runs and commercial production had not begun during the relevant previous years. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Disallowance of advances written off. 3. Allowance of further depreciation under Section 32. 4. Determination of market value of electricity for Section 80IA benefits. 5. Deduction of leave encashment under Section 43B(f). 6. Depreciation on plant and machinery put to trial run. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: The assessee contested the disallowance of ?61,47,311/- under Section 14A read with Rule 8D. The assessee argued that investments were made from its own funds, not borrowed funds. The Tribunal noted that the assessee had sufficient own funds to cover the investments and relied on judgments from the Calcutta High Court (CIT vs Rasoi Ltd.) and Bombay High Court (CIT vs HDFC Bank). The Tribunal concluded that the investments were made from the assessee’s own funds and deleted the disallowance of ?41,66,919/- under Rule 8D(2)(ii). The disallowance under Rule 8D(2)(iii) was remanded to the A.O. to consider only the dividend-bearing investments. 2. Disallowance of advances written off: The assessee wrote off advances aggregating to ?1,65,748/- as irrecoverable. The A.O. disallowed the claim, stating that these were not trading debts. The Tribunal upheld the CIT(A)'s decision, which followed the Tribunal's earlier ruling in the assessee's case for A.Y. 2005-06, allowing the write-off as a trading loss under Section 28. 3. Allowance of further depreciation under Section 32: The assessee claimed additional depreciation of ?1,15,41,587/- on assets for which depreciation was not claimed in earlier years. The A.O. disallowed the claim, but the CIT(A) allowed it, following the Tribunal's earlier orders. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by earlier Tribunal orders in the assessee's favor for A.Y. 2001-02 to 2007-08. 4. Determination of market value of electricity for Section 80IA benefits: The A.O. reworked the profitability of the assessee’s captive power plants (CPPs) by substituting the value of electricity with lower figures, arguing that the market value should be the rate at which SEBs procured power. The CIT(A) and Tribunal upheld the assessee’s method of using the average landed cost of electricity from SEBs, excluding duties and cess. The Tribunal also allowed the assessee’s plea under Rule 27 to include electricity duty and cess in the computation, following the Gujarat High Court's ruling in Pr. CIT vs Gujarat Alkalis and Chemicals Ltd. 5. Deduction of leave encashment under Section 43B(f): The assessee claimed a deduction for leave encashment of ?2,55,74,457/- under Section 43B(f). The Tribunal remanded the issue to the A.O. for verification of actual payment and directed that the deduction be allowed if the claim was found to be correct. 6. Depreciation on plant and machinery put to trial run: The assessee claimed depreciation on a clinker plant put to trial run on 12th March 2009. The A.O. disallowed the claim, stating that the plant was not capitalized in the books. The CIT(A) allowed the claim, noting that the plant was used for business purposes during the trial run. The Tribunal upheld the CIT(A)'s decision, relying on the Calcutta High Court's ruling in CIT vs Union Carbide (I) Ltd and the Bombay High Court's ruling in CIT vs Larsen & Toubro Ltd, which allowed depreciation for assets used in trial runs. Conclusion: - The Tribunal allowed the assessee's appeals on disallowance under Section 14A, advances written off, further depreciation under Section 32, and market value of electricity for Section 80IA benefits, while remanding certain issues for re-computation. - The Tribunal dismissed the revenue's appeals on similar grounds and upheld the CIT(A)'s decisions favoring the assessee.
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