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TMI Blog2016 (10) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 43(6)reads as under:- “Explanation 7:- For the purpose of this clause, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “profits and gain of business or profession”, from computing the written down value of assets acquired before the previous year, the total amount of depreciation shall be computed as if the entire income is derived from the business of assessee under the head “profits and gain of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act”. This Explanation has been inserted by Finance ( No.2) Act w.e.f 2009. It creates a deeming fiction affecting substantive computation provision determining actual tax liability. Therefore, ld. CIT(Appeals) has rightly treated it to be prospective. We, accordingly, uphold the order of ld. CIT(Appeals)to allow the claim of depreciation - I.T.A. No.2006/KOL/ 2013, I.T.A. No.2007/KOL/ 2013, I.T.A. No.2008/KOL/ 2013 - - - Dated:- 21-10-2016 - Shri M. Balaganesh, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member Shri G. Mallikarjuna, CIT, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Jorhat Group Ltd Vs. Agricultural ITO (226 ITR 622) passed by the Hon ble High Court of Guwahati which held the Cess on green leaf is deductible from the agricultural income only and not from the composite income. According to AO the Department has not accepted that decision of the Hon ble Calcutta High Court in the case of supra and filed an appeal in Hon ble Supreme Court. The amount of ₹ 367.76 lakhs was added to the total income of the assessee company. a SLP has been admitted in the Supreme Court, nevertheless, the Supreme Court has not stayed the order of the High Court of Kolkata. The CIT-A deleted the addition of ₹ 367.76 lakhs pending adjudication of SLP by the Hon ble Supreme Court. 4. As matter stood thus, the Honourable Supreme Court dismissed the SLP filed by the appellant revenue and agreed with the interpretation of scope of Rule 8 of Income Tax Rules 1962 rendered by the Honourable High Court of Calcutta. The Learned AR placed copy of such order before us and submitted that the present appeal may be disposed of in pursuance of the decision of Honourable Supreme Court and learned DR submits that the appellant revenue did not succeed in SLP and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO show caused the assessee to explain as to why the proportionate interest relating to interest-free advance given out of interest bearing loan to HPL amounting to ₹ 989.21 Lakhs should not be disallowed. The assessee explained as under: The advance was given to HPL during the period when TTL (assessee) was promoter of HPL prior to commencement 0f production facilities along with other joint venture partners. The advance provided to HPL was agreed to be adjusted against the equity contribution and therefore it was agreed that no interest was to be charged on such advance. Subsequently TTL had decided to withdraw from further participation in the project. However. as HPL was not in a position to repay the money advanced, it was agreed that until commencement of commercial production. HPL would not be compelled to make any refund nor would pay any interest on such advances. We would like to inform you that in the income Tax Law there is no concept of subjecting to tax any notional income. which does not accrue in favour of the assessee. We invite your attention to the decision reported in 46 ITR 144 (SC) in this regard. We would therefore request you not to make any addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsider the said fact and inflicted the disallowance merely based on similar disallowance made in earlier years. Copy of the letter dated 22-09-2008 filed in this regard is enclosed as Annexure-2. 3) Without prejudice, it is submitted that the advances made to Haldia Petrochemicals which was outstanding as on the beginning of the year of ₹ 989.21 lakhs was fully repaid during the relevant previous year 2005-06. Hence, no disallowance of interest was called for during the relevant assessment year. 4) Without prejudice to the aforesaid and assuming though not admitting even if the advances are considered as made out of loan funds, no disallowance of interest is called for since the: advances were given out of commercial expediency of business of the appellant. It is submitted that the advance was given as a measure of commercial expediency and arose 0:7 a pure business decision for becoming a promoter of HPL. The said decision was duly approved by the board and the shareholders. However due to delay in project and at the request of West Bengal State Government, the appellant backed out of the project since it was not prepared to invest further funds. Further, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant company had duly discharged its onus of explaining the source of funding of the loan. The onus was then on the A.O. to examine the availability of surplus fund and its deployment towards loan before coming to any conclusion as to whether there existed a direct nexus between the advances given and surplus fund utilization. No such analysis seems to have been done by the A.O. in the assessment order. On the other hand the appellant has cited several judgements that no disallowance of interest on borrowed fund will be made if the Interest free loan is sufficiently covered by the non interest bearing fund available with the appellant. Humbly, following the decision of Jurisdictional High Court in the cases of Woolcombers of India Ltd., vs. CIT 134 ITR 219 and CIT vs. Britannia Industries Ltd., 280 ITR 525, I delete the disallowance of notional interest made by the A.O. for ₹ 71.091akhs. 10. Before us, At the time of hearing the Ld. AR submitted that this issue has been set aside by this Tribunal in the immediately preceding assessment years 2000-01, 2001-02, 2002-03, 2003-04 and 2005-06. In some of the assessment years the matter is still pending with the AO. In this as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ''It is humbly submitted that the claim of depreciation made by the appellant by filing revised return is allowable in view of the decision of the jurisdictional High Court in the case of CIT -vs.- Suman Tea Plywood India (P) Limited 204 ITR 719 (Cal.) which was binding on the Assessing Officer. The Hon'ble Supreme Court in the case of CfT-vs. - Doom Dooma India Limited (2009) 310 ITR 392 (Se) has confirmed the principles laid down by the jurisdictional HC in the case of CIT -vs.- Suman Tea Plywood Industries Pvt. Limited (supra) and thereby has affirmed the validity of law as laid down by the jurisdictional HC for the relevant year. The Ld. CIT(Appeals) has allowed similar claim of depreciation made in earlier years by following the jurisdictional HC decision in the case of Suman Tea(Supra) since confirmed by the SC vide consolidated order for appeal no. 84-91/CIT(A)- IV/05-06 passed for AY 1993-94/ AY 1994-95 to AY 1996-9~1998-99 to 2001- 02 wherein claim was made by filing 154 petition and Vide order dated 25-08-2005 27-11-2006 for A Y 2002-03 AY 2003-04 respectively wherein claim for depreciation was made in the course of assessment. The issue b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eful consideration to the rival submissions made before us and have perused the orders of authorities below. The assessee had advanced its claim on the ground that since assessee s income was to be computed as per Rule 8 of the Income-tax Rules and 40% of the income was to be treated as income from business or profession, therefore, depreciation only to the extent of 40% was to be treated as actually allowed and to the extent the income was treated as agricultural income by virtue of the same being exempt, depreciation could not be deemed to have being actually allowed to the assessee for earning the agricultural income. As regards the interpretation of the phrase actually allowed , the assessee had relied on the decision of the Hon ble Kolkata High Court in the case of CIT Vs. Suman Tea Plywood Industries Pvt. Ltd (204 ITR 719), wherein it has been held that the term actually allowed , cannot be stressed to mean notionally allowed or merely allowable on notional basis. Therefore, depreciation could not be treated as notionally allowed against agricultural income. Explanation 7 to Section 43(6) reads as under:- Explanation 7:- For the purpose of this clause, where the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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