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2017 (2) TMI 578 - AT - Income TaxDisallowance u/s.14A - Held that - As the suo motu disallowance made by the assessee is far more than the exempt income earned by it, so,in our opinion there was no justification for making any further disallowance. Reversing the order of the FAA,we decide first ground of appeal in favour of the assessee. Disallowance of additional depreciation - Held that - As decided in AY.2008-09 in assessee;s own case the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY.. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. . We hold that the assessee was entitled to claim 10% additional depreciation during the year under appeal. Reversing the order of the FAA, we decide the second ground of appeal in favour of the assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of additional depreciation under Section 32(1)(iia) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The first effective ground of appeal concerns the disallowance under Section 14A of the Income Tax Act, amounting to ?6.28 lakhs. During the assessment proceedings, the Assessing Officer (AO) found that the assessee had received a dividend income of ?50,944, which was claimed as exempt from tax under Section 10(34) of the Act. The AO directed the assessee to submit details of the expenditure incurred in relation to the exempt income and to file the working of disallowance as per Section 14A read with Rule 8D of the Income Tax Rules, 1962. The AO made a disallowance of ?8.28 lakhs, which was later restricted to ?6.28 lakhs after considering the assessee's own disallowance of ?2 lakhs. Aggrieved by the AO's order, the assessee appealed before the First Appellate Authority (FAA), arguing that no expenditure was incurred to earn the exempt income and that the disallowance should be limited to the exempt income earned. The FAA upheld the AO's order, citing the applicability of Section 14A read with Rule 8D and the presence of mixed funds without separate accounts for investment and business. The FAA referred to various case laws to support the decision. During the hearing before the Tribunal, the assessee's representative argued that no interest disallowance should be made under Section 14A as the assessee had sufficient own funds to cover the investments. The representative cited several case laws, including Reliance Utilities Ltd and HDFC Bank Ltd, to support the argument that disallowance should be restricted to the exempt income earned. The Tribunal found that the assessee had sufficient own funds (?141.09 crores) to make the investment of ?21.37 crores and that the disallowance should be limited to the exempt income earned. The Tribunal cited the case of Reliance Utilities, where it was held that if there were sufficient interest-free funds available, it could be presumed that investments were made from these funds. The Tribunal also referred to the judgment in Joint Investments, which stated that Section 14A or Rule 8D could not be interpreted to mean that the entire exempt income should be disallowed. As the suo motu disallowance made by the assessee was more than the exempt income earned, the Tribunal reversed the FAA's order and decided the first ground of appeal in favor of the assessee. 2. Disallowance of Additional Depreciation under Section 32(1)(iia) of the Income Tax Act: The second ground of appeal concerns the disallowance of additional depreciation of ?1.31 crores. During the assessment proceedings, the AO found that the assessee had claimed additional depreciation of ?1.85 crores, which was 10% of the additional depreciation since the assets were put to use for less than six months. The AO held that the assessee was not entitled to claim such deduction as per the provisions of Section 32(1)(iia) of the Act. During the appellate proceedings before the FAA, the assessee contended that additional depreciation was mandatory and could be claimed even if the assets were put to use for less than 180 days. The FAA upheld the AO's order, stating that additional depreciation could only be claimed in the year of acquisition and not in later years. The FAA referred to the case of Brakes India Ltd to support the decision. Before the Tribunal, the assessee's representative argued that the amended provisions regarding additional depreciation were not considered by the FAA and that the assessee was entitled to claim 50% of the additional depreciation during the year under consideration. The representative relied on the case of Rittal India Pvt. Ltd. The Tribunal found that the FAA had disallowed the claim based on the opinion that additional depreciation was available only in the initial year. The Tribunal referred to the judgment in Rittal India Pvt. Ltd., where it was held that additional depreciation could be claimed in the subsequent year if the machinery was used for less than 180 days in the initial year. The Tribunal held that the assessee was entitled to claim 10% additional depreciation during the year under appeal and reversed the FAA's order, deciding the second ground of appeal in favor of the assessee. For AY 2011-12: The first ground of appeal concerns the disallowance of ?32.61 lakhs and ?10.66 lakhs under the heads of interest expenditure and administrative expenses as per the provisions of Section 14A read with Rule 8D. Considering the facts that the exempt income earned was ?73,557, the assessee had made a disallowance of ?2 lakhs on its own, and the own funds amounted to ?156.51 crores, the Tribunal held that the FAA was not justified in confirming the disallowance made by the AO. The Tribunal followed its order for the earlier year and decided the first ground in favor of the assessee. The second ground concerns the disallowance of additional depreciation of ?91.01 lakhs as per the provisions of Section 32(1)(iia) for the machineries put to use in the earlier years. The Tribunal followed its decision for the previous year and decided the second ground in favor of the assessee. Conclusion: As a result, the appeals filed by the assessee for both the assessment years were allowed. The order was pronounced in the open court on 10th February 2017.
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