2014 (1) TMI 33 - AT - Income Tax

Additional depreciation u/s 32(1)(iia) Held that - Following DCIT vs Cosmo Films Ltd 2012 (9) TMI 281 - ITAT DELHI As per provisions of section 32(1)(iia) and proviso to section 321)(ii) of the Act - 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 machinery and plant - When there is no restriction in the Act to deny the benefit of balance 50%, the assessee is entitled for the balance additional depreciation in the subsequent assessment year Decided in favour of assessee. Share issue expenditure Held that - It was not claimed before the lower authority that the expenditure was incurred in respect of issue of shares and fees paid to Registrar of Companies It was not clear to the lower authorities that the capital was raised for augumentation of the working capital or increase in share capital - The Tribunal is of the opinion that the matter needs to be reconsidered by the assessing officer The matter was restored for fresh adjudication to find out whether, funds raised by the assessee and utilization thereof was for the purpose of acquiring a capital asset by way of its expansion or it is for the working capital of the existing business. Disallowance of investment written off Held that - Since the departmental appeal is already pending before the High Court against the order of this Tribunal for assessment year 2002- 03, reference to larger bench will not serve any purpose - Following the order of this Tribunal for the assessment year 2002-03, the order of assessing officer is set aside and the assessing officer is directed to allow 10% of the remaining investment written off as business loss as held by the earlier bench. Disallowance of loss on the loan to subsidiary company Held that - If the money was advanced for the purpose of acquiring a capital interest which is enduring in nature, then the loss or profit suffered in that process has to be treated in the capital field. The loss / profit was not earned / received in the process of earning profit. The loss is suffered in the course of acquiring a capital asset for expansion of the profit earning apparatus - The assessing officer had rightly found that there is no loss suffered by the assessee in conversion of loan into preferential shares of the Mauritius subsidiary company and the loss shown is only a book loss Even if it is assumed that it is a loss acquiring capital asset, such capital loss cannot be considered for computing total income - Decided against assessee. Disallowance of depreciation u/s 38(2) - Let out portion of the corporate office building Held that - Following assessee s own case for the A.Y. 2006-07 - The assessee is not entitled for depreciation on the Gurgaon office premises - Decided against assessee. Interest on advance to associated enterprise Held that - Following Siva Industries & Holdings Ltd vs ACIT ITA No.2148/Mds/2148 2011 (5) TMI 451 - ITAT, CHENNAI - The loan was given in foreign currency - The transaction was an international transaction, commercial principle with regard to international transaction has to be applied - The Tribunal found that the prime lending rate in domestic market has no application and international market rate fixed by LIBOR would come into play - LIBOR should be applied - The assessee charged interest at 7.5% which is higher than the LIBOR rate of interest during that period 5.39% per annum - The assessing officer is not justified in rejecting the LIBOR rate of interest by determining the arm s length price in respect of loan advanced to associate enterprise Decided in favour of assessee. Deduction u/s 80IA Held that - Following assessee s own case for the A.Y. 2055-06 - Diesel power generation unit for captive consumption is also eligible for deduction u/s 80IA of the Act - In respect of gas turbine power generation unit, the issue was remanded back to the file of the assessing officer since the same was raised before this Tribunal as an additional ground Partly decided in favour of assessee. Additional deduction of 50% expenditure on in-house research and development u/s 35(2AB) Held that - The issue was remanded back to the file of the assessing officer as the assessee failed to claim the same before the assessing officer The issue was restored for fresh adjudication.

Issues Involved:
1. Additional depreciation under Section 32(1)(iia) of the Income Tax Act.
2. Share issue expenditure and fees paid to the Registrar of Companies.
3. Write-off of investment in shares of Gujarat Perstop Electroniks Ltd.
4. Loss on loan advanced to subsidiary converted into preference shares.
5. Disallowance of depreciation under Section 38(2) of the Income Tax Act.
6. Addition on account of interest received from associated enterprise and reimbursement of expenses.
7. Deduction under Section 80IA for diesel and gas turbine power generation units.
8. Additional deduction for in-house research and development under Section 35(2AB) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Additional Depreciation under Section 32(1)(iia):
The assessee claimed additional depreciation on new machinery acquired after 30-09-2005, which was partly allowed in the previous year due to usage for less than 180 days. The remaining depreciation was claimed in the current year. The Tribunal held that Section 32(1)(iia) does not restrict the year in which additional depreciation must be claimed. Therefore, the balance 50% additional depreciation should be allowed in the subsequent year.

2. Share Issue Expenditure and Fees Paid to Registrar of Companies:
The assessee incurred expenses on issuing shares to Qualified Institutional Buyers and fees for increasing authorized share capital, claiming amortization under Section 35D. The Tribunal noted that the lower authorities did not examine whether the expenses were for share issuance and fees. The matter was remanded to the Assessing Officer to verify the nature of the expenses and reconsider the claim.

3. Write-off of Investment in Shares of Gujarat Perstop Electroniks Ltd:
The assessee wrote off 90% of its investment in a sick company in a previous year, which was allowed as a business loss by the Tribunal. The remaining 10% was written off in the current year. Following the earlier decision, the Tribunal allowed the write-off as a business loss, despite reservations about the correctness of the earlier decision.

4. Loss on Loan Advanced to Subsidiary Converted into Preference Shares:
The assessee advanced a loan to its subsidiary for acquiring a company in South Africa, which was later converted into preference shares, resulting in a foreign exchange loss. The Tribunal held that the loan was for acquiring a capital asset, and the loss due to foreign exchange fluctuation was a capital loss, not allowable as a revenue loss.

5. Disallowance of Depreciation under Section 38(2):
The Tribunal upheld the disallowance of depreciation on a let-out portion of the corporate office building, following its earlier decision in the assessee's case for the previous year.

6. Addition on Account of Interest Received from Associated Enterprise and Reimbursement of Expenses:
The assessee advanced a loan to a Mauritian subsidiary and charged interest at a rate higher than the LIBOR rate. The Tribunal held that LIBOR should be used for benchmarking international transactions, setting aside the lower authorities' orders and directing the Assessing Officer to reconsider using LIBOR.

7. Deduction under Section 80IA for Diesel and Gas Turbine Power Generation Units:
The Tribunal directed the Assessing Officer to allow deduction under Section 80IA for captive power generation using diesel units, following its earlier decision. The issue regarding gas turbine units was remanded for reconsideration on merit.

8. Additional Deduction for In-house Research and Development under Section 35(2AB):
The Tribunal remanded the issue back to the Assessing Officer for reconsideration, as the assessee failed to claim the deduction before the Assessing Officer in the original proceedings.

Conclusion:
The appeal was partly allowed, with several issues remanded for reconsideration by the Assessing Officer, and some claims were upheld based on earlier Tribunal decisions.

← Previous Next →