2018 (6) TMI 415 - AT - Income Tax

Disallowance of deduction u/s 80P(2)(d) - Held that - AO has not examined availability of the funds with an analytical process. Rather, he made reference to the gross-figure of various years. He has to identify the availability of funds in this year. The assessee has specifically submitted the details, exhibiting nexus between the availability of funds vis- -vis its investment. It has demonstrated that interest free funds were more than the investment, and therefore, no disallowance could be made with help of section 14A out of deduction income and interest income earned by it for claiming dividend income under section 80P(2)(d). Respectfully following the order of the ITAT, which has been upheld by the Hon ble High Court in the assessment year 2009-10, we do not find any merit in this ground of appeal. Disallowance of additional depreciation - Held that - A perusal of the order of the ld.CIT(A) would indicate that there is no distinction between the expression plant for allowing normal depreciation vis- -vis additional depreciation on that item. AO has created an artificial distinction on that ground. After going through the order of the CIT(A) we are satisfied that the ld.CIT(A) has examined the issue with all possible angle, and thereafter held that depreciation is admissible to the assessee. Therefore, we do not find any merit in this ground of appeal Additional depreciation on account of non-user of the machinery over a period of 180 days - Held that - Assessee had earned the benefit as soon as he had purchased the new plant and machinery in full but it is restricted to 50% in that particular year on account of period of usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s 32(1) (iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of plant machinery. We set aside the orders of the authorities below and direct to extend the benefit.

Summary

Issues Involved:
1. Deletion of disallowance of deduction under section 80P(2)(d) of the Income Tax Act, 1961.
2. Deletion of disallowance of additional depreciation on milk cans.
3. Deletion of disallowance of additional depreciation for plant and machinery used for less than 180 days in the preceding year.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Deduction under Section 80P(2)(d) of the Income Tax Act, 1961:
The Revenue contended that the CIT(A) erred in deleting the disallowance of deduction under section 80P(2)(d) amounting to ?2,15,52,068/-. The assessee had claimed this deduction for interest and dividend income earned from investments with other cooperative societies. The AO disallowed this deduction, suspecting that the assessee used interest-bearing funds for these investments, thus invoking section 14A to disallow expenses attributable to earning exempt income. The CIT(A) deleted the disallowance, following a similar precedent from the assessee's case in the Asstt.Year 2009-10, which was upheld by the ITAT and the Hon’ble Gujarat High Court. The Tribunal noted that the AO failed to identify specific expenditures attributable to earning the interest and dividend income. The assessee demonstrated sufficient interest-free funds to cover the investments, thus no disallowance under section 14A was warranted. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal.

2. Deletion of Disallowance of Additional Depreciation on Milk Cans:
The Revenue challenged the CIT(A)'s decision to delete the disallowance of additional depreciation of ?33,80,446/- on milk cans. The AO had disallowed this claim, arguing that milk cans used for transporting milk did not qualify as plant and machinery. However, the CIT(A) observed that the AO allowed normal depreciation at 15% on these milk cans, recognizing them as plant. The CIT(A) referred to the definition of "plant" in section 43(3) and concluded that milk cans qualify for additional depreciation as well. The Tribunal agreed with the CIT(A), noting no distinction between normal and additional depreciation for items classified as plant. The Revenue's appeal on this ground was dismissed.

3. Deletion of Disallowance of Additional Depreciation for Plant and Machinery Used for Less than 180 Days in the Preceding Year:
The Revenue disputed the CIT(A)'s decision to allow additional depreciation of ?1,12,73,290/- for plant and machinery used for less than 180 days in the preceding year. The AO disallowed this claim, asserting that additional depreciation is a one-time benefit that should have been claimed in the year of installation. The CIT(A) relied on an ITAT decision, which held that additional depreciation for assets used for less than 180 days can be claimed in the subsequent year. The Tribunal upheld this view, emphasizing that the incentive for additional depreciation is earned in the year of acquisition but can be claimed in subsequent years if usage restrictions apply. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to grant the remaining additional depreciation in the current assessment year.

Conclusion:
The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions to delete the disallowances related to deductions under section 80P(2)(d) and additional depreciation claims. The Tribunal emphasized the importance of following precedents and correctly interpreting statutory provisions to ensure fair and consistent application of tax laws.