2019 (4) TMI 978 - HC - Income Tax

Assessment u/s 14A r.w.r. 8D - HELD THAT - Disallowance is made in terms of Rule 8D, the Tribunal cannot provide for an ad hoc formula. We, however, notice that the amount involved is not substantial and the discussion contained in the Judgment of the Tribunal would essentially point to the fact whether such disallowance at all was justified in view of sub Section (2) of Section 14A of the Act. This question is, therefore, not considered. Additional depreciation of installation of windmill in terms of Section 32(1)(iia) - Assessee being engaged in manufacture of articles and things, such additional depreciation would be admissible, whether the installation of plant and machinery was in connection with such business or not - according to the Revenue, generation of electricity amounts to production of goods - HELD THAT - Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh, Indore Vs. Madhya Pradesh Electricity Board, Jabalpur 1968 (11) TMI 85 - SUPREME COURT OF INDIA has held that electricity is goods within the meaning of the Sales Tax Act and the Excise Act. We do not find any reason to interfere with the view of the Tribunal. We make is clear that we have not examined the first contention of the Assessee in this respect namely additional depreciation under Section 32(1)(iia) would be available on installation of new plant and machinery, whether the same is for the purpose of Assessee s manufacturing business as long as the Assesse is engaged in such activity.

Summary

Issues:
1. Disallowance of expenditure under Section 14A read with Rule 8D of the Income Tax Rules.
2. Claim of additional depreciation for the installation of a windmill under Section 32(1)(iia) of the Income Tax Act.

Issue 1 - Disallowance of Expenditure:
The Revenue appealed against the Income Tax Appellate Tribunal's judgment, questioning the justification of restricting the disallowance under Rule 8D(2)(iii) to a specific amount without following the prescribed method. The Tribunal's decision to retain only a portion of the disallowance was challenged by the Revenue, arguing that the Tribunal cannot adopt an ad-hoc formula once disallowance is made under Rule 8D. However, the Court noted that the amount involved was not significant, and the Tribunal's discussion focused on whether the disallowance was justified under Section 14A(2) of the Act. The Court decided not to consider this question, ultimately dismissing the Revenue's appeal on this issue.

Issue 2 - Claim of Additional Depreciation:
The second issue revolved around the Assessee's claim for additional depreciation for installing a windmill under Section 32(1)(iia) of the Act. The Assessee argued that as they were engaged in manufacturing activities, the additional depreciation should be allowed regardless of whether the plant and machinery installation was directly related to the business. The Revenue contended that electricity generation constitutes production of goods. The Court referenced a Supreme Court judgment stating that electricity qualifies as goods under relevant tax laws. The Court upheld the Tribunal's decision, clarifying that they did not assess the first contention regarding additional depreciation for new plant and machinery installation related to the Assessee's manufacturing business. Consequently, the Court dismissed the Income Tax Appeal on this issue.

In conclusion, the High Court of Bombay dismissed the Income Tax Appeal, upholding the Tribunal's decisions on both issues regarding the disallowance of expenditure and the claim of additional depreciation for windmill installation.