2018 (8) TMI 1639 - AT - Income Tax

Disallowance made towards leave encashment u/s 43B(f) - Held that - We find that though the Hon ble Calcutta High Court in the case of Exide Industries Ltd vs Union of India reported in 2007 (6) TMI 175 - CALCUTTA HIGH COURT had struck down the provisions of section 43B(f) of the Act as unconstitutional, the revenue had carried the matter further to the Hon ble Supreme Court 2008 (9) TMI 921 - SUPREME COURT . Hon ble Supreme Court had not stayed the judgement of the Calcutta High Court during Leave proceedings. But the Hon ble Supreme Court had only passed an interim order on the impugned issue. Hence we deem it fit and appropriate , in the interest of justice and fair play, to remand this issue to the file of the ld AO to pass orders based on the outcome of the main appeal on merits by the Hon ble Supreme Court as stated supra. Accordingly the ground no. 1 raised by the assessee in this regard is allowed for statistical purposes Disallowance made u/s 14A read with Rule 8D of the Rules both under normal provisions of the Act as well as u/s 115JB - Held that - Co-ordinate Bench of this Tribunal in the case of REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA had held that only those investments which had yielded dividend income to the assessee are to be considered for the purpose of computing disallowance under third limb of Rule 8D(2) of the Rules. Accordingly, we direct the ld. AO to re-compute the disallowance in the light of above mentioned decision of this Tribunal for the purpose of normal computation of income under the Act. Disallowance u/s 14A read with Rule 8D of the Rule while computing the book profits u/s 115JB we find that this issue has been decided by the Hon ble Special Bench of Delhi Tribunal in ACIT vs. Vireet Investment Pvt. Ltd 2017 (6) TMI 1124 - ITAT DELHI held that the computation under clause (f) explanation (1) to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D - in the present case assessee had not furnished the workings and the basis of arriving on the disallowance figure of ₹ 24,000/- u/s 14A before us. Hence AO is directed to examine the accounts of the assessee and the workings for ₹ 24,000/- disallowed u/s 14A by the assessee and decide the issue afresh in accordance with law. Disallowance of remaining portion of 50% of additional depreciation u/s 32(1)(iia) of the Act on plant and machinery put to use for a period of less than 180 days during the financial year 2008-09 relevant to assessment year 2009-10 - Held that - We find that this issue is no longer res integra in view of the decision of Hon ble Madras High Court in the case of CIT vs. Shri T. P. Textiles Pvt. Ltd. 2017 (3) TMI 739 - MADRAS HIGH COURT as held he manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more - upon a plain reading of the unamended provision, it could not be said that the Assessee could not claim balance depreciation in the A. Y. , which follows the A. Y. , in which, the machinery had been bought and used, albeit, for less than 180 days. - decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of leave encashment under Section 43B(f) of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D for normal provisions and under Section 115JB of the Income Tax Act.
3. Disallowance of remaining 50% of additional depreciation under Section 32(1)(iia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Leave Encashment under Section 43B(f) of the Income Tax Act:
The first issue pertains to whether the CIT(A) was justified in upholding the disallowance of leave encashment under Section 43B(f). The assessee had made a provision for leave encashment amounting to ?38,50,798/- and claimed it as a deduction based on the Calcutta High Court's decision in Exide Industries Ltd. The AO disallowed this provision as it was not paid within the due date of filing the return, referring to the Supreme Court's stay on the Calcutta High Court's decision. The Tribunal noted that the Supreme Court had not stayed the Calcutta High Court's judgment but had only passed an interim order. Therefore, the Tribunal remanded the issue back to the AO to pass orders based on the Supreme Court's final decision on the matter. This ground was allowed for statistical purposes.

2. Disallowance under Section 14A read with Rule 8D:
The second issue concerns the disallowance under Section 14A read with Rule 8D both under normal provisions and Section 115JB. The AO observed that the assessee earned tax-exempt dividend income of ?46,42,000/- and disallowed ?24,000/- under Section 14A. However, the AO computed a disallowance of ?6,41,255/- under Rule 8D(2)(iii), which was upheld by the CIT(A). The Tribunal directed the AO to re-compute the disallowance considering only those investments that yielded dividend income, as per the REI Agro Ltd. decision. This ground was allowed for statistical purposes.

Regarding the disallowance under Section 14A while computing book profits under Section 115JB, the Tribunal referred to the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., which held that the computation under clause (f) explanation (1) to Section 115JB(2) should be made without resorting to Section 14A read with Rule 8D. The AO was directed to examine the assessee's accounts and the basis for the ?24,000/- disallowed under Section 14A and decide the issue afresh. This ground was also allowed for statistical purposes.

3. Disallowance of Remaining 50% of Additional Depreciation under Section 32(1)(iia):
The third issue is whether the CIT(A) was justified in upholding the disallowance of the remaining 50% of additional depreciation on plant and machinery used for less than 180 days in the financial year 2008-09. The AO disallowed the claim of ?1,43,24,748/- for the assessment year 2010-11, which was upheld by the CIT(A). The Tribunal referred to the Madras High Court's decision in CIT vs. Shri T.P. Textiles Pvt. Ltd., which held that the balance 50% of additional depreciation could be claimed in the succeeding assessment year. The Tribunal granted relief to the assessee for the additional depreciation claim. This ground was allowed.

General Grounds:
Grounds 3(b) and 4 raised by the assessee were general in nature and did not require specific adjudication.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, with specific directions for re-examination and re-computation by the AO based on the Tribunal's findings and relevant judicial precedents. The order was pronounced in the Court on 24.08.2018.