2021 (7) TMI 1123 - AT - Income Tax

Additional depreciation on the machinery installed at various collection centers - Assessee is into business of pathological testing diagnostic laboratories is the main business of the assessee blood tests etc on collection samples at diagnostic tests at the central facilities can be carried out - According to the CIT - A these collection centers do not produce any article or thing and therefore are in the nature of office premises hence he disallowed the additional depreciation on these assets but allowed the additional depreciation on the assets which are used in the diagnostic centre and report making central facilities - HELD THAT - We find that the collection centers are also integral part of the whole process of the business of diagnostic and report making central facilities and therefore there is no reason that additional depreciation on those facilities should not be allowed to the assessee when revenue has already accepted the claim that assessee is entitled to additional depreciation on the assets installed by it. The past assessment record also stated to be acceptance of this claim of assessee which is not negated by revenue. In view of this solitary ground raised by the assessee is allowed and the learned assessing officer is directed to grant claim of additional depreciation to the assessee which was restricted by the learned CIT - A. Accordingly ground number 1 - 3 of the appeal are allowed. Tax credit - HELD THAT - As assessee is eligible for the tax credit of the income, which is been included in the return of income of the merged entities. Therefore, we direct the assessee to approach the assessing officer with the requisite claim, the AO is directed to verify the same and grant the credit in accordance with the law. Accordingly, the additional ground raised by the assessee is allowed with above direction. Deduction of education cess paid by the assessee on the total income - HELD THAT - The issue of deduction of education cess as an allowable deduction is covered in favour of the assessee by the decision of the honourable Bombay High Court in Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT and therefore we direct the learned assessing officer to grant the deduction of the same. Claim of the dividend distribution tax - HELD THAT - We find that same is not an expenses incurred by the assessee wholly and exclusively incurred for the purposes of the business and therefore same is not allowable to the assessee u/s. 37 (1) of the act. The learned authorized representative also could not show us any other provisions of the income tax act where the expenditure is allowable to the assessee. In the result, the claim of the deduction of dividend distribution tax made by the assessee in this additional ground is rejected.

Issues Involved:

1. Eligibility for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961.
2. Disallowance under Section 14A read with Rule 8D.
3. Admission and merits of additional grounds for TDS credit of merged entities.
4. Deduction of education cess and dividend distribution tax.

Detailed Analysis:

1. Eligibility for Additional Depreciation under Section 32(1)(iia):

The primary issue was whether the assessee was entitled to additional depreciation on assets used in collection centers and other facilities. The CIT(A) allowed additional depreciation only for assets used in central diagnostic and report-making facilities, denying it for assets in collection centers. The assessee contended that collection centers are integral to the business and should qualify for additional depreciation.

The Tribunal noted that the business of pathological testing and diagnostic laboratories involves interconnected operations, including collection centers. It found no reason to differentiate between assets at collection centers and those at central facilities for additional depreciation. The Tribunal allowed the assessee's claim for additional depreciation on all assets, including those at collection centers, directing the AO to grant the claim of ?2,333,715/-.

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

The AO initially made a disallowance under Section 14A read with Rule 8D, which was partly contested by the assessee. The CIT(A) directed the AO to reconsider the disallowance based on the assessee's submissions, particularly regarding investments in foreign subsidiaries and the actual exempt income received.

The Tribunal did not provide a detailed analysis of this issue in the final judgment, as the primary focus was on the additional depreciation and other grounds raised by the assessee.

3. Admission and Merits of Additional Grounds for TDS Credit of Merged Entities:

The assessee raised an additional ground for TDS credit related to entities merged with the appellant company. The Tribunal admitted this ground, noting that the facts were already on record and involved a purely legal issue. The Tribunal directed the AO to verify the claim and grant the TDS credit in accordance with the law, acknowledging that the appellant company is entitled to the credit for taxes deducted on its receipts, which were erroneously attributed to the merging entities.

4. Deduction of Education Cess and Dividend Distribution Tax:

The assessee also raised an additional ground for the deduction of education cess and dividend distribution tax. The Tribunal admitted this ground, noting that no fresh facts were required. On the merits, the Tribunal found that the deduction of education cess is covered in favor of the assessee by the Bombay High Court's decision in Sesa Goa Ltd. and directed the AO to grant this deduction.

However, the Tribunal rejected the claim for the deduction of dividend distribution tax, stating that it is not an expense incurred wholly and exclusively for business purposes under Section 37(1) of the Act.

Conclusion:

The appeals were partly allowed, with the Tribunal granting the following reliefs:
1. Additional depreciation on all assets, including those at collection centers.
2. Admission and direction for verification of TDS credit claims related to merged entities.
3. Deduction of education cess as an expense.
4. Rejection of the deduction claim for dividend distribution tax.

The Tribunal's decision ensures that the assessee's claims for additional depreciation and education cess are upheld, while also providing a pathway for the resolution of TDS credit issues related to merged entities.

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