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TMI Blog2022 (5) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... d liability to trigger adjustment in computing book profit u/s 115JB. 3. Before advancing the matter on facts for adjudication, it is essential to reproduce grounds of grievance assailed by the appellant company as under; "I. Disallowance u/s. 14A of the Income Tax Act: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer as regards disallowance u/s 14A read with rule 8D made to the taxable income as also the Book profit u/s 115JB of the Income Tax Act. 2) The Learned CIT(A) has erred in not passing a speaking order on the grounds whether addition u/s 14A can at all be made to the book profit u/s 115JB for various arguments adduced in the appeal filed before him. 3) The Learned CIT(A) has erred in not passing a speaking order on the grounds whether disallowance u/s 14A rw rule 8D2(ii) can be made when the appellant is having sufficient free reserves to cover the investment made. 4) The Learned CIT(A) has erred in not passing a speaking order distinguishing the various favourable judgements of jurisdictional High Courts on the issues covered by impugned order. 5) The Learned CIT(A) has failed to appreciate that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R (Raj) 103 : (2002) 258 ITR 251 (Raj) already held that condition "running on wind energy" is only attached to the word 'pump' and not to the electric generators. 5) The Learned CIT(A) has erred in not following the decision of the Hon'ble High Court of Orissa in the case of industrial Development Corporation of Orissa Ltd. Vs CIT reported in 268 ITR 130 (Ori) and in [2015] 56 taxmann.com 337 (Madras) 6) The Learned CIT(A) ought to have appreciated that the Direct Taxes ready Reckoner mentions at Para 48.3 that "Plant and machinery - Energy saving devices, renewal energy devices, windmills, electric generators / pumps running on wind energy, rollers in flour mills, sugar works and steel industry are eligible for depreciation @80% 7) Without prejudice, presumption but not admitting that the impugned devices are not energy saving devices, the Learned Assessing Officer ought to have allowed depreciation on UPS @60% as peripheral devices attached to computers. III. Disallowance of the provision for leave encashment: 1) The learned CIT(A) has erred on fact and in law in upholding the order of the Learned Assessing Officer in making addition of the leave encashment amount to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dislodging the claims of the assessee, was unsuccessfully challenged before the first appellate authority, and being aggrieved by the orders of tax authorities, the appellant company filed the present appeal before the Income Tax Appellate Tribunal [for short "Tribunal"] with the grounds assailed herein before at foregoing paragraph 3. 5. After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue. 6. It is evidently noticeable form the records that; 6.1 The controversy is threefold, as to whether provisions of section 14A of the Act, r.w.r. 8D of Income Tax Rules, 1962 [for short "IT-Rules"] are applicable where the assessee claimed to have incurred no expenditure for earning exempt income, secondly whether a diesel generator falls within the sweep of "renewable energy device" and thirdly whether leave encashment is an ascertained liability to qualify deduction. 6.2 It is palpable from the records that, the assessee company for the AY 2012-2013 filed its return of income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant in its return claimed a depreciation @80% on diesel generator newly added to the block treating it as "renewable energy device" in terms of Entry III(8)(ix)(m) of Appendix-I of IT-Rules. Ld. AO in the light of judicial precedents, disapproved the classification of diesel generator as "renewable energy device" for the reasons that the diesel generator was meant to run on electricity and not on wind energy, consequently the claim of depreciation was restricted classifying into the block of Plant & Machinery carrying 15% rate of depreciation, and accordingly disallowed the difference of claim of Rs.11,35,950/-. 6.5 Thirdly, the Ld. AO called upon the assessee to explain why the provision towards the leave encashment of Rs.32,026/- debited to P&L should not be added back in computing the book profit u/s 115JB of the Act, as unascertained liability. In support of its claim as ascertained liability, the assessee company submitted the copy of audit report in the Form No 29B establishing the correctness of computation of book profit, and to buttress warranting no further adjustments. Au contraire, on the strength of clause 1 to explanation 1 to section 115JB(1) of the Act, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below were entranced by the pro-revenue judicial precedents and ignoring the submission laid before them, have carried out the addition u/s 14A of the Act, disapproved the classification relying on inapplicable decision of Hon'ble Gujarat High Court in the case of "CIT Vs Anang Polyfil Pvt. Ltd." (Supra) and misconceived the provisions of section 115JB etc. Au contraire, learned departmental representative for the Revenue [for short "DR"] opposing the admission of additional evidence submitted before the Tribunal u/r 29 of the Rules, vehemently supported the orders of tax authorities in toto. 10. Before we ride the horse, its apt to adjudicate on the admission of additional evidence laid suo-moto by the appellant company u/r 29 of the Rules, which prima-facie consist of details of interest expended towards discounting of bill/invoices and guarantee commission, detailed working of investment earning exempt income and copy of actuarial report to support of its claim of allowability of leave encashment expenditure. Insofar as the admission of additional evidence is concerned, the Hon'ble Delhi High Court while dealing with the similar matter on admissibility of additional evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (Emphasis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debited to P&L was merely pertaining to discounting of trade bills and guarantee commission which has been duly supported by the copies of bank advice issued by the bankers, which per se discretely leads to an undisputed conclusion that there was no interest expenditure for the year under consideration. Further, the perusal of audited financial statement placed at page 16-46 of paper book revealed that, the appellant had not only the sufficient capital & reserved funds at its disposal, but raised a short term interest-free borrowings from its holding company, and both these facts patently ignored while carrying out the impugned disallowance. In the absence of outside borrowing vis-à-vis absence of interest expenditure on any borrowed capital, the appellant claims that, no interest expenditure was indeed incurred for earning exempt dividend income stands tall and de fact remained uncontroverted by the Ld. DR, consequently the disallowance made u/r 8D(2)(ii) remained baseless on records, hence it deserves to be deleted, accordingly we direct as such. 11.4 Insofar as the disallowance for indirect administrative expenditure u/r 8D(2)(iii) is concern, the computation was carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otional disallowance and therefore, by taking recourse to section 14A of the Act, the amount cannot be added back to book profit under clause (f) of section 115JB of the Act, and same can find force in the decision of Hon'ble Apex Court in the case of "Ajanta Pharma Ltd Vs CIT" reported in 327 ITR 305 (SC) Hon'ble Karnataka High Court in "Sobha Developers Ltd. V/s DCIT", & "CIT Vs Gokaldas Images (P) Ltd." reported at 429 ITR 526 (Kar), and a similar view has been taken by the Hon'ble Jurisdictional High Court of Bombay in the case of "CIT Vs Bengal Finance & Investments (P) Ltd.", (ITA 337 of 2013), further the decision of special bench of the Tribunal in the case of "ACIT V/s Vireet Investment (P) Ltd." reported in 165 ITD 27 (Del). Thus, the ground "I" and its counter parts stands partly allowed. 12. Now coming to disallowance of claim of depreciation made u/s 32 on diesel generator as "renewable energy device". It is an admitted fact that, during the financial year relevant to assessment under consideration, the appellant company has on 20/03/2012 purchased an Diesel Generator Set for sum of Rs.34,95,230/- and added to its block as "Plant & Machinery" and claimed 80% rate of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to 100 per cent depreciation under rule 5, Appendix-I, Part-III (3)(iii) B of the Income Tax Rules, 1962, thus the facts under consideration are dissimilar and distinguishable, hence the decision relied upon is of no help to the assessee. The assessee further placed reliance on the decision of Hon'ble Rajasthan High Court in "CIT Vs Agrawal Transformers Pvt. Ltd." reported at 258 ITR 251, however it would again not be of any support to the appellant as the decision was rendered in context of pre-amended Appendix-I entry of clause (xiii) of item (10A). A careful consideration of appendix-I reveals that, all the sub- items of renewable energy devices, i.e., devices for generating non-conventional energy qualify for higher rate of depreciation. An item number (m) specifies "Any special devices including electric generators and pumps running on wind energy." Although, at the first blush it may appear that this entry (m) includes electric generators and, therefore, diesel sets for generating electrical energy may fall under this sub-item, but on proper scrutiny it would appear that, what is contemplated is electric generators running on wind energy and pumps running on wind energ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve observed that, what should be certain is the incurring of the liability and the fact that the same is capable of being estimated with reasonable certainty, although the actual quantification may not be possible and if the aforesaid requirements were satisfied, then the liability could not be held as a contingent liability. Although the liability is in praesenti though it is to be discharged at a future date, it would not make any difference if the future date on which the liability is to be discharged is not certain. In the backdrop of aforesaid observations, the Hon'ble Supreme Court had concluded that the provision made by an assessee for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company, inclusive of the officers and the staff, subject to the ceiling of accumulation as applicable on the relevant date would be entitled to deduction for the accounting year during which the provision is made for the said liability. On the basis of our aforesaid discussion fumus boni iuris, and we are of the considered view, that as the provision for leave encashment has been made by the appellant on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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