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2019 (1) TMI 599 - HC - Income TaxExpenditure relating to setting up of new unit at Sriperumbudur - nature of expenditure - revenue expenditure OR capital expenditure - Held that - Tribunal rightly followed the judgment of this Court in the case of CIT Vs. Rane (Madras) Limited 2007 (6) TMI 25 - HIGH COURT, MADRAS and CIT Vs. Sakthi Sugars Limited 2010 (8) TMI 456 - MADRAS HIGH COURT in concluding that the expenditure incurred by the assessee has to be treated as a revenue expenditure. Unabsorbed depreciation for the previous years - Revenue contends before us that the eight years limitation in respect of carry forward of the depreciation had expired and therefore, the assessee was not permitted to carry forward - Held that - This issue relating to unabsorbed depreciation has to be reconsidered by the Tribunal after due opportunity to the Revenue and the assessee to enable them to place all the decisions on this point. Accordingly, the finding rendered by the Tribunal with regard to carry forward of the unabsorbed depreciation relating to the assessment year 1997-98 is set aside and the matters are remanded to the Tribunal for a fresh decision on merits and in accordance with law. Disallowance under Section 14A - Held that - The disallowance under Section 14A has been a point of dispute in several cases. Therefore, we opine that the Tribunal shall reconsider the said issue factually taking note of the precedents relied upon by both the Revenue as well as the assessee and take a reasoned decision so that they could be applied in future cases as well. Considering the above, we are of the view that substantial question raised by the Revenue i.e. the issue pertaining to disallowance under Section 14A of the Act for all the assessment years requires to be redone.
Issues Involved:
1. Classification of expenditure for setting up a new unit as revenue or capital expenditure. 2. Carry forward of unabsorbed depreciation beyond eight assessment years. 3. Disallowance under Section 14A of the Income Tax Act. 4. Inclusion of disallowance under Section 14A in the calculation of book profit under Section 115J. Detailed Analysis: 1. Classification of Expenditure for Setting Up a New Unit: The first issue pertains to whether the expenditure incurred by the assessee for establishing their unit at Sriperumbudur should be treated as revenue expenditure or capital expenditure for the assessment year 2008-09. The Tribunal, following the judgments in CIT Vs. Rane (Madras) Limited and CIT Vs. Sakthi Sugars Limited, concluded that the expenditure should be treated as revenue expenditure. The High Court confirmed the Tribunal's finding, thus answering the substantial question of law against the Revenue. 2. Carry Forward of Unabsorbed Depreciation: The second issue involves the carry forward of unabsorbed depreciation beyond the eight-year limitation. The Revenue argued that the eight-year limitation had expired, and thus, the assessee could not carry forward the depreciation. The Tribunal's decision, which relied on the High Court of Gujarat's rulings in CIT Vs. Gujarat Themis Biosyn Limited and General Motors India (P) Ltd. Vs. DCIT, was questioned for not considering the Supreme Court's decision in Peerless General Finance and Investment Company Limited. The High Court found that the Tribunal did not sufficiently justify its reliance on the Gujarat High Court's decisions over the jurisdictional High Court's ruling. Consequently, the matter was remanded to the Tribunal for reconsideration, leaving the substantial question of law open. 3. Disallowance Under Section 14A: The third and fourth issues concern the disallowance under Section 14A of the Act. The Tribunal had directed the Assessing Officer to restrict the disallowance by applying Rule 8D to the extent of exempt income, based on the Delhi High Court's decision in M/s. Joint Investments Private Limited Vs. CIT. The Revenue contended that the Tribunal erred in its direction without considering the onus on the assessee to maintain accounts regarding its investments. The assessee argued that disallowance should only be on actual expenditure incurred and not on a notional basis, citing the Supreme Court's ruling in Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT and other High Court decisions. The High Court opined that the Tribunal should reconsider the issue factually, taking into account the precedents cited by both parties. Consequently, the matter was remanded to the Tribunal for a fresh decision, leaving the substantial questions of law open. Conclusion: The appeals filed by both the Revenue and the assessee were allowed, with the matters remanded to the Tribunal for fresh decisions on the issues of unabsorbed depreciation and disallowance under Section 14A. The Tribunal is directed to provide sufficient opportunity to both parties and consider all relevant decisions. The substantial questions of law on these issues were left open for reconsideration. The appeals were partly allowed, and no costs were imposed, with connected CMPs closed.
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