THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 vs. GUJARAT INDUSTRIES POWER COMPANY LTD.

This appeal is preferred under section 260A of the Income Tax Act, 1961 [for short ‘the Act, 1961’] by the revenue feeling aggrieved by the order dated 28.02.2022 passed by the Income Tax Appellate Tribunal, “D” Bench, Ahmedabad [for short ‘the Tribunal’] in ITA No. 644/Ahd/2010 for A.Y. 2007-08. 2. The Tribunal passed a common order dated 28.02.2022 for A.Ys. 2003-04, 2006-07, 2007-08 and 2008-09 in case of the assessee-Gujarat Industries Power Company Limited in appeals and cross-objections filed before it. So far as present appeal is concerned, the following substantial questions of law are proposed: “(a) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in deleting the addition of Rs. 43,44,517/- made on account of disallowance u/s. 14A of the I.T.Act, without appreciating the fact that as per the provisions of sub-section (3) of Section 14A of the I.T.Act 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 total income and in the instant case the assessee claimed that no expenditure has been incurred for earning the exempt income of Rs. 1,37,42,786/- and accordingly the provisions of section 14A(2) of the I.T. Act is applicable in the case of the assessee for the A.Y. 2007-08? (b) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is justified in deleting the addition of Rs. 3,18,126/- made on account of disallowance of claim of depreciation on Managing Director’s residence, without appreciating the fact that as per the Income Tax Rules the buildings which are used mainly for residential purpose except hotels and boarding houses are eligible for depreciation @ 5% only whereas the assessee has claimed depreciation @ 10% on the Managing Director’s residence?”

The Assessing Officer, while passing the assessment order under section 143(3) of the Act, 1961, made disallowance of Rs. 43,44,517/- under section 14A of the Act, 1961 as determined as per Rule 8D(2) of the Income Tax Rules, 1962 [for short ‘the Rules, 1962] as under: (Amount in lacs) Direct Expenditure - Expenditure by way of interest Rs. 3,683/- Average value of total assets Rs. 1,90,438/- Interest disallowable Rs. 34,52,120/- ½% of average of average value of exempted investment Rs. 8,92,398/- Total disallowance Rs. 43,44,517/-

The Assessing Officer also disallowed depreciation of Rs. 3,18,126/- claimed by the assessee on Managing Director's residence.

Being aggrieved by the order passed by the Assessing Officer, the assessee preferred an appeal before the CIT (Appeals), who confirmed the additions. The assessee therefore preferred ITA No. 644/AHD/2010 before the Tribunal. The Tribunal passed a common order for the assessment years 2003-04, 2006-07, 2007-08 and 2008-09 in case of the assessee. The Tribunal deleted the addition made under section 14A of the Act, 1961 considering the fact for the assessment year 2006-

The Tribunal also deleted the disallowance of depreciation considering the material placed before it and recording the fact that the building was used for official-cum-residential purpose by the Managing Director with all office facilities and therefore, the assessee was entitled to depreciation @ 10% and directed the Assessing Officer to allow the same.

In view of our order of even date passed in Tax Appeal No. 349 of 2022 with regard to the issue of disallowance under section 14A of the Act, 1961 and considering the finding of fact given by the Tribunal with regard to use of the building for office-cum-residential purpose by the Managing Director, we do not find any infirmity in the impugned order of the Tribunal as no question of law much less any substantial question of law proposed or otherwise arises therefrom. The appeal is accordingly dismissed. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) JYOTI V. JANI