2023 (5) TMI 507 - AT - Income Tax

Disallowance of depreciation - investment made in Wing Turbine Generation (WTG) cannot be equated with activities in the nature of trade or business or adventure - principle of resjudicata or principles of consistency - HELD THAT - As per the main object clause the company invests or provides finance to companies engaged in generating power and that investment in own power generation unit (i.e. windmill) should also get covered within such object clause - assessee had acquired the windmill in the financial year 2009-10 relevant to AY 2010-11 and income from generation of power and sale of such power was offered to tax as business income which has been accepted by the predecessor AO in the preceding year. As AO rejected the explanation of the assessee by saying that the principle of resjudicata does not apply to income tax proceedings. No doubt the principle of res-judicata does not apply to tax proceedings but this rule is subject to the expectation of consistency where there are no fresh facts as held in several judgements including the judgment of CIT vs. Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT AO has overlooked the rule of consistency despite there being no fresh facts. We, therefore, do not find any substance in the argument advanced by the Ld. DR. Disallowance u/s 14A - HELD THAT - The investments were out of assessee s own funds and no borrowed funds were used to acquire investments. There was no interest expenditure which could be directly or indirectly attributable to the exempt income - investments were strategic investment as per the assessee and the same should be excluded for calculating disallowance under Rule 8D. As per Rule 8D(2)(i), the assessee made disallowance under the head strategic investment and has taken 20% of employee cost and 5% of administrative cost. Thus, the findings given by the CIT (A) is just and proper. Assessee had borrowed funds which was used for business purposes and was paying interest on these funds and this fact was not controverted through any of the documents on the record by the Assessing Officer as well as by the Revenue at the time of hearing before us. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
The issues involved in the judgment are the deletion of additions related to disallowance of depreciation on investment in Wing Turbine Generation (WTG) and disallowance under section 14A of the Income Tax Act for Assessment Year 2011-12.

Disallowance of Depreciation:
The Revenue appealed against the Ld. CIT(A)'s deletion of the additions of Rs. 14,26,44,143 made by disallowing depreciation on the investment in WTG, arguing that the investment cannot be equated with trade or business activities. The Ld. CIT(A) restricted the disallowance to Rs. 14,26,414, differing from the original amount of Rs. 23,80,59,197. The assessee, a Non-Banking Financial Company (NBFC), engaged in energy value chain projects, argued that the investment in WTG aligns with its main object clause, covering power generation and sale activities. The Tribunal found that the Ld. AO overlooked the principle of consistency in tax proceedings and upheld the Ld. CIT(A)'s decision based on previous findings and legal precedents.

Disallowance under Section 14A:
The Ld. CIT(A) also deleted the disallowance under section 14A made by the Ld. AO. The Ld. DR contended that the disallowance was justified, but the Ld. AR argued that the issues were previously addressed in the assessee's case for AY 2010-11, where the Tribunal and the Hon'ble Delhi High Court ruled in favor of the assessee. The Tribunal, following the precedent set in the previous year's judgment, dismissed both grounds of appeal raised by the Revenue, maintaining consistency with the earlier decisions.

Separate Judgment by Judges:
The judgment was pronounced by SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and MS. ASTHA CHANDRA, JUDICIAL MEMBER, with the order being pronounced in the open court on 14th March, 2023.