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2022 (6) TMI 121 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - HELD THAT - It is observed that no income exempt under tax was actually earned by the assessee during the year under consideration and there was thus no exemption claimed by the assessee in respect of any income in the return of income filed for the year under consideration. This being the undisputed position, we find that this issue is squarely covered in favour of the assessee by the decision of Hon ble Gujarat High Court in the case of Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it was held that no disallowance under Section 14A of the Act could be made when no exemption in respect of any income was actually claimed by the assessee. The learned CIT(A), in our opinion, was fully justified in deleting the disallowance made by the Assessing Officer under Section 14A r.w. Rule 8D by relying on the decision of Hon ble jurisdictional High Court in the case of Corrtech Energy Pvt. Ltd. (supra) and upholding his impugned order giving relief to the assessee on this issue, we dismiss Ground No.1 of the Revenue s appeal. Addition on account of Mark to Market Exchange Loss on Foreign Exchange Derivatives - As contended that the assessee-company by following the Principle of Prudence recognized M2M loss as at the end of the year on outstanding SWAP contract as per Accounting Standard-11 and this method was consistently followed by the assessee regarding Forex loss/gain from M2M - HELD THAT - We find merit in the contention raised by the learned Counsel for the assessee on this issue. Moreover, as pointed out by him, the issue under consideration is squarely covered in favour of the assessee, in addition to the judicial pronouncements referred to and relied upon by the learned CIT(A) in his impugned order, by the latest decision of the Coordinate Bench of this Tribunal rendered in other group case of M/s. Adani Hazira Port Pvt. Ltd 2022 (4) TMI 850 - ITAT AHMEDABAD wherein it is held that M2M loss on SWAP contract was allowable where loans were converted into foreign currency loan to take benefit of low interest rate and loss recognized on account of foreign exchange fluctuation as per notified Accounting Standard 11 was an accrued and subsisting liability and not merely a contingent or hypothetical liability. The learned DR, on the other hand, has not been able to cite any judicial pronouncement in support of the Revenue s case on this issue. We, therefore, find no infirmity in the impugned order of the learned CIT(A) allowing the claim of the assessee for deduction on account of Mark-to- Market Exchange Loss in respect of Foreign Currency Derivatives Contracts and upholding the same, we dismiss Ground No.3 of the Revenue s appeal. Addition on account of excess depreciation allegedly claimed by the assessee on office equipment - HELD THAT - As pointed out by the learned Counsel for the assessee, besides the decision of Hon ble Bombay High Court in the case of Park Devis (India) Ltd 1994 (12) TMI 46 - BOMBAY HIGH COURT relied upon by the learned CIT(A) in his impugned order to give relief to the assessee on this issue, the decision of Hon ble Gujarat High Court in the case of CIT vs. Tarun Commercial Mills Ltd. 1983 (9) TMI 23 - GUJARAT HIGH COURT is also in favour of the assessee wherein it was held that the air-conditioners and electric fans installed in the office premises are entitled to depreciation at the same rate as applicable to plant and machinery. Respectfully following the decision of Hon ble jurisdictional High Court, we uphold the impugned order of learned CIT(A) allowing the claim of the assessee for deprecation at a higher rate of 15% on office equipments which were installed at site and formed integral part of plant and machinery. Ground No.4 of the Revenue s appeal is accordingly dismissed. Excess depreciation allegedly claimed by the assessee on computer software - HELD THAT - It is observed that the claim of the assessee for depreciation @ 60% on computer software has been allowed by the CIT(A) vide his impugned order by relying on the decisions of Co-ordinate Bench of this Tribunal in the cases of M/s. Voltamp Transformers Ltd 2013 (3) TMI 804 - ITAT AHMEDABAD and Zydus Infrastructure (P) Ltd 2016 (8) TMI 696 - ITAT AHMEDABAD wherein a similar issue has been decided by the Tribunal in favour of the assessee. At the time of hearing, learned DR has not cited any case law which is in favour of the Revenue on this issue. We, therefore, respectfully follow the decisions uphold the impugned order of the learned CIT(A) allowing the claim of the assessee for depreciation @ 60% on computer software. Ground No.5 of the Revenue s appeal is accordingly dismissed. Loss arising from difference in rates of Forex - Sum debited by the assessee on account of exchange difference - HELD THAT - As relevant details and documents to support and substantiate this explanation were not furnished by the assessee either before the Assessing Officer during the course of assessment proceedings or even before the learned CIT(A) during the course of appellate proceedings. In the absence of the same, the nature of the relevant transactions could not be ascertained by the authorities below and the claim of the assessee for the loss in question as a revenue loss was disallowed by them. Even before the Tribunal the assesse has not been able to produce the relevant details and documents to explain the exact nature of relevant transactions and to establish that the loss in question is in the nature of revenue loss. The learned Counsel for the assessee, however, has made an alternative claim that the loss in question having been held to be capital in nature, the same may be added to the cost of relevant fixed asset and depreciation thereon may be allowed. We are inclined to accept this alternative contention of the learned Counsel for the assessee and since the learned DR has not raised any objection in this regard, we direct the Assessing Officer to allow the alternative claim of the assessee for depreciation after necessary verification. Ground No. 1 of the assessee s appeal is accordingly treated as partly allowed. Disallowance u/s 14A - HELD THAT - Insofar as the disallowance made by the Assessing Officer on account of interest is concerned, the learned CIT(A) found from the relevant financial statement of the assessee-company that the assessee had sufficient own funds at the relevant time to make the corresponding investments. At the time of hearing before us, the learned DR has not been able to bring anything on record to dispute this finding of facts recorded by the learned CIT(A). We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) deleting the disallowance made by the Assessing Officer on account of interest under Section 14A r.w. Rule 8D. Disallowance made on account of common administrative expenses under Section 14A r.w. Rule 8D(2)(iii) - Since this issue is covered in favour of the assessee by various judicial pronouncements cited by the learned Counsel for the assessee, we modify the impugned order of the learned CIT(A) on this issue and direct the Assessing Officer to re-compute the disallowance on account of common administrative expenses as per Rule 8D(2)(iii) by taking into consideration only those investments from which dividend income was actually earned by the assessee in the year under consideration. Disallowance under Section 14A while computing the book profit under Section 115JB - HELD THAT - As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of M/s. Mazda Limited 2020 (4) TMI 251 - ITAT AHMEDABAD we respectfully follow the decision rendered by the Co-ordinate Bench in the said case and sustain the disallowance made by the Assessing Officer on account of expenses incurred in relation to the exempt income while computing the book profit under Section 115JB of the Act to the extend of Rs.43,266/- being 1% of the exempt income actually received by the assessee in the year under consideration. Addition as penalty paid by the assessee to the Ministry of Railways as compensation for overloading of cargo in railway racks - HELD THAT - As decided in the case of M/s. Taurian Iron Steel Co. Pvt Ltd. 2011 (12) TMI 410 - ITAT, MUMBAI punitive charges paid to Railways for overloading of the wagons is compensatory in nature and the same therefore cannot be disallowed by invoking Explanation to Section 37(1) of the Act. Since the issue involved in the present case as well as all the material facts relevant thereto are similar to M/s Taurian Iron Steel Co. Pvt. Ltd. (supra) decided by Bombay Bench of this Tribunal, we respectfully follow the decision of the Tribunal rendered in the said case and uphold the impugned order of the learned CIT(A) deleting the addition. Depreciation on staff quarters - claim of the assessee for depreciation @ 10% on staff quarters was restricted by the Assessing Officer at 5% treating the same as building as upheld by CIT-A - HELD THAT - CIT(A) upheld the action of the Assessing Officer on this issue observing that the depreciation allowed by the Assessing Officer on staff quarters being building was as per the prescribed rate given in the relevant rules. At the time of hearing before the Tribunal, the learned Counsel for the assessee has not raised any material contention to challenge the impugned order of the learned CIT(A) on this issue. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) on this issue whereby depreciation @ 5% was allowed on staff quarters as per the prescribed rate applicable to the building.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Disallowance under Section 14A while computing book profit under Section 115JB. 3. Mark to Market Exchange Loss on Foreign Exchange Derivatives. 4. Excess depreciation claimed on office equipment. 5. Excess depreciation claimed on computer software. 6. Addition on account of loss arising from difference in rates of Forex. 7. Addition on account of penalty paid to the Ministry of Railways as compensation for overloading of cargo in railway racks. 8. Disallowance under Section 35D. 9. Disallowance of depreciation on staff quarters. Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: - AY 2012-13: The CIT(A) deleted the disallowance of Rs. 29,03,478/- made by the Assessing Officer under Section 14A read with Rule 8D, as no exempt income was earned by the assessee during the year. This decision was upheld by the Tribunal, relying on the Gujarat High Court decision in CIT vs. Corrtech Energy Pvt. Ltd. - AY 2013-14: The CIT(A) reduced the disallowance to Rs. 6,83,250/- from Rs. 73,46,940/-, finding that the assessee had sufficient own funds. The Tribunal directed the Assessing Officer to recompute the disallowance on common administrative expenses by considering only those investments that fetched dividend income. - AY 2014-15: Following the same rationale as for AY 2013-14, the Tribunal upheld the CIT(A)’s decision to reduce the disallowance to Rs. 8,66,500/-. 2. Disallowance under Section 14A while computing book profit under Section 115JB: - AY 2012-13: The issue was dismissed as infructuous since the book profit was negative. - AY 2013-14 & 2014-15: The Tribunal followed the decision in M/s. Mazda Limited, directing the Assessing Officer to sustain the disallowance to the extent of 1% of the exempt income actually received. 3. Mark to Market Exchange Loss on Foreign Exchange Derivatives: - AY 2012-13: The CIT(A) deleted the disallowance of Rs. 32,50,27,494/- made by the Assessing Officer, treating it as a business expenditure under Section 37(1) and not a contingent loss. The Tribunal upheld this decision, citing various judicial pronouncements. - AY 2013-14: The CIT(A) deleted the addition of Rs. 11,40,31,000/- on similar grounds, which was upheld by the Tribunal. - AY 2014-15: Following the same rationale, the Tribunal upheld the CIT(A)’s deletion of Rs. 28,44,60,000/-. 4. Excess depreciation claimed on office equipment: - AY 2012-13: The CIT(A) allowed depreciation at 15% as against 10% restricted by the Assessing Officer, treating the equipment as part of plant and machinery. The Tribunal upheld this decision. - AY 2013-14 & 2014-15: The Tribunal followed the same rationale and upheld the CIT(A)’s decision to allow depreciation at 15%. 5. Excess depreciation claimed on computer software: - AY 2012-13: The CIT(A) allowed depreciation at 60% as per the Income-Tax Rules, which was upheld by the Tribunal. - AY 2013-14 & 2014-15: The Tribunal followed the same rationale and upheld the CIT(A)’s decision to allow depreciation at 60%. 6. Addition on account of loss arising from difference in rates of Forex: - AY 2012-13: The CIT(A) confirmed the disallowance of Rs. 1,71,60,343/- due to lack of supporting evidence. The Tribunal accepted the alternative claim to add the loss to the cost of fixed assets and allow depreciation. - AY 2013-14 & 2014-15: Not specifically mentioned, but similar rationale likely applied. 7. Addition on account of penalty paid to the Ministry of Railways as compensation for overloading of cargo in railway racks: - AY 2013-14: The CIT(A) deleted the addition of Rs. 7,93,042/-, treating the penalty as compensatory and not disallowable under Explanation to Section 37(1). The Tribunal upheld this decision. 8. Disallowance under Section 35D: - AY 2012-13 & 2013-14: The assessee did not press this ground, and it was dismissed as not pressed. 9. Disallowance of depreciation on staff quarters: - AY 2013-14 & 2014-15: The CIT(A) upheld the Assessing Officer’s decision to allow depreciation at 5% as per the prescribed rate for buildings. The Tribunal found no reason to interfere with this decision. Conclusion: - AY 2012-13: Revenue’s appeal dismissed; assessee’s appeal partly allowed. - AY 2013-14 & 2014-15: Both Revenue’s appeals and assessee’s Cross-objections partly allowed.
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