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

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TAXAP/458/2022HC GujaratGJHC24046306202223 August 2022Bench: HONOURABLE MR. JUSTICE N.V.ANJARIA,HONOURABLE MR. JUSTICE BHARGAV D. KARIA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. Regarding the disallowance under Section 14A, the Court referred to its order in Tax Appeal No. 349 of 2022 concerning the same issue. While the specific reasoning for the Section 14A deletion is not detailed in this judgment, it is implied that the Tribunal's finding on this issue was upheld. Concerning the depreciation on the Managing Director's residence, the Court noted the Tribunal's finding of fact that the building was used for official-cum-residential purposes with all office facilities. Based on this factual finding, the Tribunal had allowed depreciation at 10%. The High Court found no infirmity in the Tribunal's order on this aspect, considering it a finding of fact. Consequently, no substantial question of law arose for consideration. The operative direction was to dismiss the appeal.

What were the facts?

The Revenue, Principal Commissioner of Income Tax, Vadodara 1, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 28.02.2022 passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The ITAT's order pertained to Assessment Year (AY) 2008-09 and dealt with common appeals for AYs 2003-04, 2006-07, 2007-08, and 2008-09 for the assessee, Gujarat Industries Power Company Ltd. The Assessing Officer had made an addition of Rs. 41,11,595/- under Section 14A read with Rule 8D(2) and disallowed depreciation of Rs. 2,86,314/- on the Managing Director's residence. The CIT(Appeals) had confirmed these additions. The ITAT deleted both these additions.

What were the issues?

1. Whether, on the facts and in law, the ITAT was justified in deleting the addition of Rs. 41,11,595/- made under Section 14A of the Income Tax Act, 1961, despite the assessee claiming no expenditure was incurred for earning exempt income of Rs. 59,84,386/-, thereby invoking Section 14A(2)? 2. Whether, on the facts and in law, the ITAT was justified in deleting the disallowance of depreciation of Rs. 2,86,314/- on the Managing Director's residence, when residential buildings are eligible for depreciation at 5% only, whereas the assessee claimed 10%? Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the ITAT's decision implies the assessee argued successfully that the disallowance under Section 14A was not warranted and that the Managing Director's residence qualified for 10% depreciation due to its dual official-cum-residential use with office facilities. Revenue's Contentions: The Revenue argued that Section 14A(2) was applicable as the assessee claimed no expenditure was incurred for exempt income, and that depreciation on the Managing Director's residence should be restricted to 5% as per Income Tax Rules for residential buildings.

Which sections of the Income-tax Act were involved?

Section 260A,Section 14A,Section 143(3)

AI-generated summary — verify with the full judgment below

C/TAXAP/458/2022 ORDER DATED: 23/08/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 458 of 2022 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 Versus GUJARAT INDUSTRIES POWER COMPANY LTD. ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 23/08/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1.

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. 495/Ahd/2012 for A.Y. 2008-09. 2. The Tribunal passed a common order dated Page 1 of 5

C/TAXAP/458/2022 ORDER DATED: 23/08/2022 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. 41,11,595/- 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. 59,84,386/-

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. 2008-2009? (b) Whether on the facts and in the circumstances of the case and in law, Page 2 of 5

C/TAXAP/458/2022 ORDER DATED: 23/08/2022 the Hon’ble ITAT is justified in deleting the addition of Rs. 2,86,314/- 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?” 3. The Assessing Officer, while passing the assessment order under section 143(3) of the Act, 1961, made disallowance of Rs. 41,11,595/- 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].

4.

The Assessing Officer also disallowed depreciation of Rs. 2,86,314/- claimed by the assessee on Managing Director's residence. 5. Being aggrieved by the order passed by the Page 3 of 5

C/TAXAP/458/2022 ORDER DATED: 23/08/2022 Assessing Officer, the assessee preferred an appeal before the CIT (Appeals), who confirmed the additions. The assessee therefore preferred ITA No. 495/AHD/2012 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 2006-07. 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. 6. In view of our order of passed in Page 4 of 5

C/TAXAP/458/2022 ORDER DATED: 23/08/2022 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. 7. The appeal is accordingly dismissed. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 5 of 5

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