2021 (9) TMI 167 - AT - Income Tax

Disallowance on proportionate basis u/s 14A - assessee company received divided income on various investments made in earlier years which was claimed as exempt income - suo motu disallowance made by assessee - HELD THAT - As in OSWAL WOOLEN MILLS LTD. 2019 (7) TMI 1601 - ITAT CHANDIGARH decided the said issue in favour of the assessee holding that there is no defect in the suo motu disallowance computed by the assessee on proportionate basis except certain portion of tax relating to the personal expenditure and allowances which were not taken into consideration. Since the coordinate Bench has allowed the identical ground of appeal in the group company case, we do not find any reason to take a different view. However, in our considered view, the computation submitted by the assessee in this case needs to be verified by the AO to ascertain whether the assessee has computed the same in accordance with the observations made by the coordinate Bench in the said case and in case any defect is found to determine the same afresh after affording a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Additional depreciation - number of days asset put to use - addition being balance 10% on the cost of machinery which was put to use for less than 180 days - AO rejected the claim of the assessee holding that there is no provision in the statute regarding carry forward of the additional depreciation - HELD THAT - Tribunal has decided the identical issue in favour of the assessee in the case of ACIT vs. M/s Nahar Spinning Mills Ltd. 2020 (11) TMI 1010 - ITAT CHANDIGARH allowing the claim of additional depreciation to be carried forward which had not been claimed in the return of income. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Rule 8D for disallowance under Section 14A of the Income Tax Act.
2. Non-allowance of additional depreciation on machinery used for less than 180 days in the preceding year.

Issue-wise Detailed Analysis:

1. Applicability of Rule 8D for disallowance under Section 14A of the Income Tax Act:

The assessee, a Private Ltd. Company, filed its return declaring a significant loss and claimed exempt income from dividends. The Assessing Officer (AO) made an addition under Section 14A read with Rule 8D, disallowing expenses related to earning this exempt income. The assessee argued that it had already made a proportionate disallowance on its own, which should be accepted. The CIT(A) restricted the disallowance to the exempt income earned but upheld the AO's application of Rule 8D.

The Tribunal noted that the AO had not recorded any dissatisfaction with the assessee's accounts, which is a prerequisite for applying Rule 8D as per the judgments in "Godrej & Boyce Manufacturing Co." and "CIT vs. Taikisha Engineering India Ltd." The Tribunal referenced a similar case involving the group company M/s Oswal Woolen Mills Ltd., where the suo motu disallowance by the assessee was accepted. Consequently, the Tribunal directed the AO to verify the assessee's computation and accept it if found in order, setting aside the CIT(A)'s findings.

2. Non-allowance of additional depreciation on machinery used for less than 180 days in the preceding year:

The assessee claimed additional depreciation carried forward from the previous year for machinery used for less than 180 days. The AO rejected this claim, stating that the statute does not provide for such carry forward. The CIT(A) upheld this decision.

The Tribunal referred to a precedent in the group company case of M/s Nahar Spinning Mills Ltd., where the identical issue was decided in favor of the assessee. The Tribunal noted that the appellate authorities have the jurisdiction to allow such claims even if not made in the original return, as supported by the Supreme Court's decision in "Goetze (India) Ltd. vs. CIT." Therefore, the Tribunal allowed the assessee's claim for additional depreciation, following the decision in the group company case.

Conclusion:

The Tribunal partly allowed the appeal for statistical purposes, directing the AO to verify and accept the assessee's computation regarding disallowance under Section 14A if found in order, and allowed the claim for additional depreciation on machinery used for less than 180 days in the preceding year. The judgment emphasized adherence to precedents and proper recording of dissatisfaction by the AO when applying Rule 8D.