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2021 (12) TMI 1136 - AT - Income TaxDisallowance u/s.14A with rule 8D of Income Tax Rule - HELD THAT - Admittedly, there was no exempted dividend income received by the assessee and therefore there cannot be any disallowance under the provisions of section 14A read with rule 8D of Income Tax Rule. In holding so we draw support and guidance from the judgment of Corrtech Energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT - we hold that there cannot be any disallowance under the provisions of section 14A read with rule 8D of Income Tax Rule. Accordingly, we do not find any infirmity in the order of learned CIT (A) and thus we uphold the same. Hence the ground of appeal of the Revenue is dismissed. Interest attributable on the amount diverted to non-commercial activities - HELD THAT - Admittedly, the advance was given by the assessee in the earlier year. Before we touch the issue whether such advance was given for the purpose of the business or not, it is sufficient to note that the own fund being capital and reserve of the assessee at the beginning of the financial year in which amount was advanced stands which is much more than the capital advance as discussed above and this fact is undisputed. Thus it can be safely be presumed that the amount has been advanced by the assessee out of its own fund without involving any borrowed fund. Accordingly, the question of making the disallowance of the proportionate amount of interest on such capital advance does not arise. Hence, we do not find any reason to interfere in the order of the learned CIT (A). Thus we uphold the same. Hence the ground of appeal of the revenue is dismissed. Deduction claimed under the provisions of section 80IA - Initial assessment year - whether the unabsorbed depreciation pertaining to the period prior to the initial assessment year should be first set off against the against the profit of the eligible undertaking for the year under consideration? - HELD THAT - In the case on hand, the commercial activity started from the assessment year 2009-10. However, the assessee has not chosen the assessment year 2009-10 as the initial assessment year. As such the assessee has chosen the initial assessment year 2012-13 which is within the provisions of law. The issue with respect to the selection of the initial assessment year has been resolved by the CBDT in its circular No. 1 of 2016 dated 15th February 2016.From the above there remains no ambiguity that it is the option of the assessee to choose the initial assessment year. Admittedly, the assessee has chosen the assessment year as the initial assessment year 2012-13 for claiming the deduction under the provisions of section 80 IA. The provisions of subsection 5 of section 80IA of the Act provides that the deduction shall be computed treating the eligible undertaking as the only eligible source of business. Thus, the provision itself provides that the deduction shall be computed without setting off the unabsorbed depreciation of earlier year when undertaking was not eligible. Indeed, the unabsorbed depreciation pertains to the eligible undertaking for the period post commencement of the commercial activities but before the initial assessment year when the units becomes eligible for deduction. This controversy has been answered by the Hon ble Madras High Court in case of Velayudhaswamy Spining Mills (P.) Ltd 2010 (3) TMI 860 - MADRAS HIGH COURT . Thus we hold that the assessee is eligible for deduction under section 80IA of the Act without setting of/adjusting the unabsorbed depreciation of earlier years as alleged by the AO. Hence, we do not find any infirmity in the order of learned CIT (A) and thus we decline to interfere in his order. Thus the ground of appeal of the Revenue is dismissed. Disallowance on account of depreciation claimed on the cost incurred in relation to the land being non depreciable asset - AO during the assessment proceedings found that amount of depreciation claimed by the assessee on the windmill was inclusive of the depreciation on the cost incurred by the assessee for keeping the land open/ vacant near the area where the windmill was located - HELD THAT - There is no dispute to the fact that the cost/expense was incurred by the assessee to keep the surrounding land where the windmill was installed as open and vacant. It was incurred for the effective functioning and maximum output of the windmill. Admittedly, the cost was incurred by the assessee for the purpose of the business and this fact was not doubted by the authorities below. The assessee has treated such cost as part of the cost of the windmill and therefore, the assessee has claimed the depreciation thereon. To our understanding, the impugned expenses were not incurred by the assessee for the acquisition of the land rather cost was incurred for effective functioning of the windmills. Therefore, such cost was directly connected with the functioning of windmill. Thus there was commercial expediency to incur the expenses hence assessee was eligible to claim such expenses. However we find that the assessee instead of claiming such expenditure separately added the same to the cost of windmill and claiming depreciation on the same which was accepted in the earlier years.- Decided against revenue.
Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act. 2. Deletion of disallowance under Section 36(1)(iii) of the Income Tax Act. 3. Allowance of deduction under Section 80IA(4) of the Income Tax Act. 4. Allowance of depreciation on payment to Synefra Engineering & Construction Ltd. Detailed Analysis: 1. Deletion of Disallowance under Section 14A: The Revenue contended that the CIT(A) erred in deleting the disallowance of ?99,89,119/- under Section 14A read with Rule 8D. The Assessing Officer (AO) had made this disallowance on the grounds that the assessee had made investments in shares capable of generating exempted income. However, the CIT(A) deleted the addition, noting that the assessee did not earn any exempt income during the year and had voluntarily disallowed ?1,10,000/- on an estimated basis. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court judgment in CIT vs. Corrtech Energy Pvt. Ltd., which stated that Section 14A does not apply when no exempt income is received. 2. Deletion of Disallowance under Section 36(1)(iii): The Revenue argued that the CIT(A) erred in deleting the addition of ?2,00,910/- related to interest attributable to amounts diverted to non-commercial activities. The AO had found that the assessee diverted ?1,16,35,975/- as capital advance without charging interest. The CIT(A) deleted the addition, stating that the assessee had sufficient interest-free funds to cover the capital advance. The Tribunal upheld this decision, noting that the assessee's own funds were substantially higher than the capital advance and thus, no borrowed funds were involved. 3. Allowance of Deduction under Section 80IA(4): The Revenue contended that the CIT(A) erred in allowing the deduction of ?76,33,610/- under Section 80IA. The AO had disallowed the deduction, arguing that the initial assessment year should be 2009-10, the year commercial activities began, and thus, unabsorbed depreciation from earlier years should be set off against the profits of the eligible unit. The CIT(A) allowed the deduction, citing judicial precedents that the initial assessment year can be chosen by the assessee and unabsorbed depreciation prior to this year should not be carried forward. The Tribunal upheld this view, referencing the Madras High Court judgment in Velayudhaswamy Spinning Mills Pvt. Ltd. and a CBDT circular clarifying that the initial assessment year is at the assessee's option. 4. Allowance of Depreciation on Payment to Synefra Engineering & Construction Ltd.: The Revenue argued that the CIT(A) erred in allowing depreciation on ?9,53,992/- paid to Synefra Engineering & Construction Ltd., which was considered as a non-depreciable asset related to land. The AO had disallowed this amount, asserting it was related to land, a non-depreciable asset. The CIT(A) allowed the depreciation, noting that the payment was for keeping the land vacant for the efficient functioning of the windmill, thus directly related to the business. The Tribunal upheld this decision, stating that the cost was incurred for the business purpose and was consistently treated as part of the windmill's cost in previous years. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The judgment emphasized the importance of judicial precedents and the assessee's right to choose the initial assessment year under Section 80IA, as well as the principle of consistency in allowing depreciation claims.
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