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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
PER MAHAVIR PRASAD, JUDICIAL MEMBER
This appeal filed by the Assessee is directed against the order of the Ld. CIT(A)-2, Vadodara dated 13.11.2015 pertaining to A.Y. 2012-13 and following grounds have been taken:
ITA No. 155/Ahd/2016 2 . A.Y. 2012-13 1.The learned Commissioner of Income Tax (Appeals)-2, Baroda [the "CIT(A)"] erred in fact and in law in confirming the action of the Assistant Commissioner of Income Tax Circle-2(l)(l), Baroda ["the AO"] in making disallowance of Rs. 37,712 u/s 14A of the Income Tax Act, 1961 ("the Act"). 2. The Id. CIT(A) erred in fact and in law in restricting the claim of depreciation on plant and machinery to 50% of the eligible depreciation and thus making a disallowance of Rs. 56,70,020, on the grounds that plant and machinery has been put to use for less than 180 days. 3.The Id. CIT(A) has erred in fact and in law in levying interest u/s 234B. 4.The Id. CIT(A) has erred in fact and in law in levying interest u/s 234C. 5.The Id. CIT(A) has erred in fact and in law in not adjudicating the initiation of penalty proceedings u/s 271(l)(c).
Facts of the case are emanated from the assessment order: 4.2 Disallowances u/s 14A r.w. Rule 8D: During the year under consideration, the assessee has earned dividend of Rs.92,687/-. In the computation of income, the assessee has claimed it as exempt dividend income u/s.io(34) of the Act. However, it is seen that the assessee has not made disallowance U/S. 14A as prescribed in. Rule 8D of the I T Rules, 1962. During the course of assessment proceedings, the assessee was requested to state as to why the disallowance u/s 14A read with rule 8D should not be made. In its reference, vide letter dated 30.10.2014 the assessee has submitted as under : "We have invested Rs. 1,50,00,000/- in SBI Debt Fund and SBI Magnum Insta Cash Fund. Mutual fund on 18.1.2011 — Rs. 50 lakhs and Rs.l,00,00,000/- on 10.3.2011 for go days. When we have invested in Mutual fund there was credit balance in our bank and we were not utilizing cash credit limit. For your perusal and verification of copy of bank statements are enclosed. Since excess fund available to us, We have temporarily invested in mutual fund. " 4.2.2: The reply of the assessee has been duly considered. In this case, the assessee is in receipt of income which has been claimed as exempt out of the mutual fund investment. Further the assessee company is not in the business of investment, therefore there certainly is some expenditure attributable to earning the exempt income. The onus is on the assessee to prove that there was no expenditure incurred for earning the exempt income. Consequent upon the
ITA No. 155/Ahd/2016 3 . A.Y. 2012-13 insertion of sub-section (2) to section 14A, the disputes which had arisen between taxpayers and the revenue on the method of determining the expenditure to be disallowed have been given a quiet us by adopting a uniform method of determination. However, the assessee has not worked out the disallowance as prescribed in Rule 8D of the Income-tax Rules, 1962. 4.2.3: It is further seen that assessee had made the investments in earlier year i.e. F.Y. 2010-11, which were redeemed 'during the year under consideration. In support of immediate source of investment, the assessee has furnished copy of bank statement for relevant period, which indicates that assessee had invested in mutual fund out of its own funds i.e. on the day of investment in the mutual fund, the assessee company had credit balance in its bank account. The intention of legislature is that the expenses which are incurred directly or indirectly to the income which is not includible to the 1 income have to be disallowed. The scheme of section 14 A envisage that when such expenses related to exempt income cannot be quantified incurred on administrative such as salary, bank charges, office expenditure & ancillary expenses grouped under such administrative cost shall be quantified by way of formula laid down under Rule 8D of I. T. Rules 1962. Hence, the reply of the assessee is not acceptable in view of the method laid down vide Rule 8D of l.T. Rules 1962. i) The amount of expenditure directly relating to income which does not form part of total income; ii) In case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- AxB A - amount of expenditure by way of interest other than the amount of Interest included in clause® incurred during the previous year, B - The average of value of investment, income from which does not or shall not form part of the total, income, as appearing in the balance sheet of the assessee, Oil the first day and the last day of the previous year; C - The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; iii) An amount equal to one half per cent of the average of the value of investment, income from which does not or shall not form part of the total
ITA No. 155/Ahd/2016 4 . A.Y. 2012-13 income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Nil = Rs.Nil Nil = Rs.Nil [ 75,000/- + 1,50,10,000/- 1 x 0.50% = Rs. 37,712/- 2 Total = Rs.37,712/-
Therefore an amount of Rs.37,712/- is disallowed u/s 14A read with rule 8D and added to the total income of the assessee.
4.3: Depreciation on Cobalt 60 Source; During the year under consideration assessee company has made addition to Cobalt 60 Source; which is used for the irradiation process and claimed depreciation on the same @8o%. From the details furnished during the course of assessment proceedings, it was seen that the addition to Cobalt 60 Source was made on 26th & 27* September, 2011. Therefore the assessee was asked to furnish evidence in respect of the Cobalt 60 source so added, being put to use. 4.3.2:- In support of the same, assessee furnished copy of letter dated 07/10.10.2011 from Head, RDS (Radiological Safety Division) of Atomic Energy Regulatory Board. On perusal of the said letter, it is gathered that Cobalt 60 source replenishment operations were carried out on 26th & 27th September, 2011 at the assessee premises at Universal, ISO-MED Gamma Radiation Processing Facility(GRPF) at Dashrath Vadodara, Gujarat. The letter further stated as under: "in view of the safe Cobalt 60 Source loading operations, radiation protection survey of the facility and acceptable results of the plant re-commissioning dosimetry after augmentation of the Cobalt 60 source activity by additional 7.4 pBq (-2OO.okCi) and now the total activity of 29.34pBq (~79^'953 kd as on 21.9,2011),, distributed in 82 integrated source units (ISU), M/s. Universal medical ltd., Dashrath, Vdodara, Gujarat is hereby permitted to resume the routine operation of GRPF for sterilization of health care products subject to compliance with conditions
ITA No. 155/Ahd/2016 5 . A.Y. 2012-13 stipulated in the Regulatory Consent No. AERB/RSD/License/R2/UIM/2009/4092 dated 06,04.2009." 4.3.3: In view of the above facts, the authorized representative of the assessee company vide order sheet noting dated 11.11.2014 was asked to explain why depreciation on Cobalt 60 Source should not be restricted to @ 40% as the same is put to use for less than 180 days during the year under consideration? 4.3.4: The assessee vide letter dated 20.11.2014 submitted as under: “ The 200 kci Cobalt 60 Sources was loaded on 26th & 27th September, 2011 in the source a/c of UML facility. The loading operation was- carried out by Shri Pravin Kumar, Manager, IS, SS&L, BRIT and Shri M.K. Erande, SA/F, IS, SS&L, BRIT. After source loading frame was raised and lowered 5 (five) times and it was found to be working satisfactorily and the plant was handed over for further work to Director UML and RSO, UML, this is as per report given by offer, BRIT and copy of the same already submitted to your good office. Since technicians of BRIT has raised and lowered source five(s) times on 27th Sept. 2011 this confirm that the source was put to use on 27th September soil. We have also received letter from Head, RSD, Atomic Energy Regulatory Board dated 7/loth October, soil stating that replenishment operation carried out on 26th & 27th Sept. 2011 and integrated source units (ISU) of UML is hereby permitted to resume the routine operation. It is normal procedure that BRIT officers/technical loaded the source give us loading report on the spot and send letter after they reach at their office, we have started the operation and also raise; invoices for irradiation services for Rs, 1,64,263.75 excluding service tax between 28th Sept. to 30th Sept. soil. Copy of invoices are enclosed." 4.3.5: The submission made by the assessee has been perused. It is gathered from the details furnished during the course of assessment proceedings that Cobalt 60 Source is used for gamma irradiation carried out by the assessee. A procedure is required to be followed for security reasons for replenishing the source, and as such necessary clearance is required to be obtained by AERB (Atomic Energy Regulatory Board). Further the procedure of replenishment of source is required to be done under the supervision of BRIT Officers/technicians as well as RSO (Radiation Safety Officer) of the assessee company. 4.3.6: The assessee has furnished copy of report for loading of Cobalt-60. Facts emerged from the said report are as under:
ITA No. 155/Ahd/2016 6 . A.Y. 2012-13 (i) 2 flasks containing 10 number of source pencils were unloaded on 26.9.2011. (ii) 2 persons from BRIT were involved in the loading operation. (iii) Each BLC-100 flask was lowered into the water pool by using electric hoist on 26.09.2011. (iv) For lowering the flasks, all bolts, cover plates and vent plug were removed from the flasks. (v) Source cage containing source pencils was removed from each flask and kept on bottom of water pool. (vi) All the existing pencils were reshuffled and 10 number of newly fabricated pencils were loaded in the racks. (vii) After source loading, source frame was raised and lowered 5 times. (viii) Necessary clearance from AERB was obtained by the assessee for replenishing the source. 4.3.7: From the above facts it can be observed that the procedure for replenishing the source is highly technical in nature and is required to be carried out properly for the safety reasons as it concerns the exposure to radiation of all the items/persons involved into this procedure and as such it is carried out under water under the technical supervision. Further report suggests that flasks & source cage are are lowered after removing all the bolts,- plates & vents and the pencils are reshuffled. Obviously after replenishing the source successfully, the source cage & flasks are required to re-fixed. This leads to the conclusion that the entire process of replenishing the source is time consuming. Further the source frame needs to be checked whether the loading has been done correctly and as such the frame is raised and lowered number of times; to be precise, 5 times as the report suggests. Even after loading the source successfully, the technical team needs to check whether the source/ plant is ready for resuming its commercial productions. The copy of loading report submitted by the assessee, though signed by the technicians of BRIT, is undated. And hence it is not known when the plant was handed over to the assessee for resuming the operations. The report also suggests that there is requirement of a clearance from AERB which is the regulatory Board, for replenishing the source; which has been duly obtained by the assessee. At the same time, AERB also requires to certify the resumption of irradiation process after replenishment of the source. Further AERB has allowed the assessee to resume the routine operation of GRPF of the
ITA No. 155/Ahd/2016 7 . A.Y. 2012-13 assessee vide letter dated 07/10.10.2011. Therefore unless the regulatory board allows the assessee to resume the operation, the assessee can not use the plant for its commercial production. And if assessee has resumed the operations before receiving the consent of the regulatory board, it has probably defied the conditions stipulated in the Regulatory Consent. 4.3.8: The assessee company; it in its reply has stated that they had already started the operation and also raised invoices for irradiation services between 28th Sept. 2011 to 30.9.2011. However assessee company has failed to establish that the irradiation services indicated in the invoices raised between 28th to 30* Sept. 2011 were carried out of the Cobalt 60 source replenished on 26th/27th Sept. 2011. Moreover the assessee company was allowed to resume the routine -operation of GRPF only after O7/1Q.10.2011 as per the letter from Atomic Energy Regulatory Board and as such the replenished source has been used for commercial production/activities of the assessee only after 07/10.10.2011. 4-3-9: In view of the above facts and discussions, it is held that the Cobalt 60 Source replenished during the year has been used for less than 180 days and as such depreciation on the same needs to be .restricted @5O% of the applicable rate. The assessee company has claimed depreciation @ 80% amounting to Rs. 1,13,40,042/- on the addition of Cobalt 60 source of Rs. 1,41,75,0527- during the year under consideration. Since the Cobalt 60 source so added has been put to use for less than 180 days, the depreciation is restricted to 50% of the applicable rate. This works out to Rs.56,70,020/-. Therefore an amount of Rs. 56,70,020/- is added to the total income on account of excess depreciation claimed by the assessee
Against the disallowance u/s. 14A of Rs. 37,712/- and disallowance of depreciation of Rs. 56,70,020/-, assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee.
We have gone through the relevant record and impugned order. Assessee is in the business of manufacturing of Pharmaceuticals Rubber Closures &
ITA No. 155/Ahd/2016 8 . A.Y. 2012-13 providing service of Gamma Irradiation etc. Having invested Rs. 1,50,00,000/- in SBI Debt Fund and SBI Magnum Insta Cash Fund (Mutual Fund) on 18.01.2011 and earned dividend income on the said investment. Assessee also made investment in earlier financial year i.e. 2010-11, which were redeemed during the year under consideration.
In support of its contention for source of investment, assessee furnished copy of bank statement for relevant period, which indicates that assessee had invested in mutual fund out of its own funds i.e. on the day of investment in the mutual fund, assessee company had credit balance in its bank account. As per Rule 8D, revenue authorities are duty bound to charge an amount equivalent to half percent of the average value of the investment in relation to income which does not form part of the total income under the Act for such previous year. We do not find any ambiguity in the order passed by the lower authorities. Therefore, we dismiss this ground of appeal.
Now with regard to ground no. 2, ld. A.R. contention is that he filed certain documents which were issued by the Department of Atomic Energy, Government of India and same are part of paper book and other documents were not considered by the ld. CIT(A) while deciding the matter.
In the interest of justice, we think it proper to set aside the matter back to the file of the ld. CIT(A) who will examine all the documents and evidence which are to be filed before the ld. CIT(A). Thereafter, ld. CIT(A) will decide a matter as per provision of law.
ITA No. 155/Ahd/2016 9 . A.Y. 2012-13
In the result, appeal filed by the Assessee is partly allowed.
Order pronounced in Open Court on 07 - 05- 2019
Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 07/05/2019 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad