2019 (5) TMI 540 - AT - Income Tax

TDS u/s 195 - payment made to the non-residents - Disallowance u/s 40(a)(i) in respect of consultancy and supervision charges - HELD THAT - As decided in assessee's own case 2019 (5) TMI 458 - ITAT AHMEDABAD to be decided in favour of assessee Disallowance of additional depreciation - used less than 180 days - entire plant and machinery was on lease - HELD THAT - As decided in assessee's own case 2019 (5) TMI 458 - ITAT AHMEDABAD it is an undisputed fact that the assessee is engaged in the manufacturing business as well as in the business of leasing. Therefore the condition imposed under section 32(iia) of the Act gets fulfilled for claiming the additional depreciation. While claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering relevant provisions of Section 32(1)(iia) which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the ITAT by applying the ratio of decision of VTM Ltd. 2009 (9) TMI 35 - MADRAS HIGH COURT and Hi Tech Arai Ltd. 2009 (9) TMI 60 - MADRAS HIGH COURT has committed any error in deleting the additionon account of disallowance of additional depreciation of Wind Electric Generator. Disallowance on account of unutilized CENVAT credit - appellant has been following exclusive method for accounting CENVAT as against inclusive method mandated under section 145A - HELD THAT - T he identical issue has already been decided in the identical facts and circumstances of the case in the matter of CIT-vs-Bell Granito Ceramica Ltd. 2012 (6) TMI 879 - GUJARAT HIGH COURT by the Hon ble Jurisdictional High Court in favour of the assessee as held under the scheme of the excise duty, the assessee incurs liability to pay excise duty only upon both the events taking place, namely manufacture of excisable goods and removal of excisable goods; excise duty is not therefore includible in the valuation of closing stock. We find that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of Hon'ble jurisdictional High Court in Narmada Chematur Petrochemicals Ltd. 2010 (8) TMI 263 - GUJARAT HIGH COURT . - Decided against revenue Disallowance u/s 14A r.w.r. 8D - no claim for expenditure - HELD THAT - As perused the relevant materials available on record and also the judgment passed by the Jurisdictional High Court in the matter of Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT . It is settled principle of law that when there is no claim for expenditure addition of notional disallowance expenditure is all the more illogical and unsustainable in the eye of law, particularly when the AO has not been able to prove that any expense has been made to earn the income nor has disproved the claim of the appellant in this regard. - Decided in favour of assessee.

Issues Involved:
1. Deletion of disallowance under Section 40(a)(i) for consultancy and supervision charges.
2. Deletion of disallowance of additional depreciation.
3. Deletion of addition on account of unutilized CENVAT credit.
4. Deletion of disallowance under Section 14A read with Rule 8D.

Issue-Wise Detailed Analysis:

Ground No.1: Deletion of Disallowance under Section 40(a)(i) for Consultancy and Supervision Charges

The assessee filed its return of income declaring a total income of ?2,35,39,500/-. During scrutiny, it was found that the assessee had made payments to non-residents amounting to ?71,43,952/- for consultancy and supervision charges without deducting TDS as required under Section 195 of the Act. The Assessing Officer (AO) disallowed this amount under Section 40(a)(i). However, the Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, following the decision in the assessee's own case for A.Y. 2010-11. The ITAT upheld the CIT(A)'s order, relying on the coordinate bench's decision in similar cases, and dismissed the revenue's appeal.

Ground No.2: Deletion of Disallowance of Additional Depreciation

The assessee claimed additional depreciation of ?1,53,74,316/- on plant and machinery purchased and leased out. The AO disallowed this, restricting depreciation to 15%, arguing that the machinery was used for leasing, not manufacturing. The CIT(A) deleted the disallowance, following the order in the assessee's case for A.Y. 2010-11. The ITAT upheld the CIT(A)'s decision, citing the Gujarat High Court's judgment in Diamines & Chemicals Ltd., which stated that additional depreciation is allowable even if the machinery is used for leasing, provided the assessee is engaged in manufacturing. The revenue's appeal was dismissed.

Ground No.3: Deletion of Addition on Account of Unutilized CENVAT Credit

The AO added ?23,64,484/- to the assessee's income for unutilized CENVAT credit, arguing that the assessee followed an exclusive method of accounting, which was against Section 145A. The CIT(A) deleted the addition, stating that the unutilized CENVAT credit was shown as loans and advances and not claimed as an expense in the Profit & Loss account. The ITAT upheld the CIT(A)'s decision, referencing the Gujarat High Court's judgment in Narmada Chematur Petrochemicals Ltd., which held that unutilized CENVAT credit cannot be treated as income. The revenue's appeal was dismissed.

Ground No.4: Deletion of Disallowance under Section 14A read with Rule 8D

For A.Y. 2012-13, the AO disallowed ?1,38,489/- under Section 14A read with Rule 8D, arguing that the assessee must have incurred administrative expenses related to investments. The CIT(A) deleted the disallowance, stating that no exempt income was earned, and hence, no expenditure was incurred. The ITAT upheld the CIT(A)'s decision, relying on the Gujarat High Court's judgment in Corrtech Energy Pvt. Ltd., which held that no disallowance under Section 14A is warranted if no exempt income is earned. The revenue's appeal was dismissed.

Conclusion:

In conclusion, the ITAT dismissed both the revenue's appeals for A.Y. 2011-12 and A.Y. 2012-13, upholding the CIT(A)'s decisions on all grounds. The judgments relied on established legal precedents, including decisions by the Gujarat High Court and coordinate benches of the ITAT. The appeals were found to be devoid of merit, and the orders of the CIT(A) were confirmed.

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