ASSISTANT COMMISSIONER OF INCOME TAX,, PUNE vs. DHARIWAL INDUSTRIES LTD,, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A), Pune – 11 dated 28.11.2016 for the assessment year 2011-12.

Assessee is a company who electronically filed its return of income for A.Y. 2011-12 on 29.09.2011 declaring loss of Rs.66,41,42,079/-. The case was selected for scrutiny and thereafter assessment was

framed u/s 143(3) of the Act vide order dated 14.03.2014 and the total

loss was determined at Rs.52,18,16,211/- and income u/s 115JB of the

Act was determined at Rs.46,22,169/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who vide consolidated

order for A.Y. 2004-05 to 2013-14 (in appeal No.PN/CIT(A)-11/DCIT,

Cen.Cir.1(1), Pune/148/2014-15) granted partial relief to the assessee.

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before us

and has raised the following grounds :

“1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in restricting the disallowance under Rule 8D(2)(iii) to each year on 'adhoc basis' without appreciating that Section 14A(2) mandates that the amount of expenditure to be disallowed is to be determined as per the method prescribed in Rule 8D of the I.T. Rules, 1962 and when Rule 8D(2) uses the word "shall" and therefore computation of disallowance is also mandatory? 2. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in allowing the claim of additional depreciation on windmills of the assessee for A.Y.201 0-11, when the Finance Bill, 2012 envisaged allowance of initial depreciation w.e.f. A.Y.2013-14 and subsequent years? 3. The order of CIT(A) may be vacated and that of the Assessing Officer be restored.”

side even in the past despite service of notices. Even on the date of

present hearing, none appeared on behalf of assessee nor any

adjournment application was filed. We therefore proceed to dispose of

the appeal ex-parte qua the assessee.

4.1. During the course of assessment proceedings, AO noticed that

assessee had claimed Rs.27,20,26,138/- as exempt income u/s 10 of

the Act and had attributed Rs.41,425/- on adhoc basis as expenditure

towards earning of exempt income. It was also noticed that amount

attributed by the assessee towards earning exempt income was without

applying the provisions of Rule 8D of IT Rules. The assessee was

therefore asked to explain as to why the expenditure in relation to

exempt income should not be disallowed u/s 14A r.w. Rule 8D of I.T.

Rules, to which assessee inter-alia submitted that assessee has already

disallowed the expenses for earning exempt income. The submissions

of the assessee were not found acceptable to the AO as AO noticed that

assessee had offered Rs.41,425/- on account of salary and telephonic

expenses etc towards earning exempt income and that too on adhoc

basis. AO noted that Hon’ble Bombay High Court in the case of Godrej

& Boyce Manufacturing Co. Ltd., Vs. DCIT reported in (2017) 394 ITR

449 (SC) has held that provisions of Rule 8D are applicable for the year

under consideration and therefore by following the methodology

prescribed under Rule 8D of IT Rules, worked out the disallowance u/s

14A of the Act at Rs.27,71,521/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who while deciding the

issue noted that the Tribunal in assessee’s own case for A.Y. 2008-09 to

2010-11 had restricted the disallowance of administrative expenses to

Rs.2 lakhs. He thereafter directed the AO to follow the Tribunal’s

decision in A.Y. 2008-09 to 2010-11. Aggrieved by the order of

Ld.CIT(A), Revenue is now before us.

applicable for the year under consideration and therefore the

disallowance has to be made as per Sec.14A r.w. Rule 8D of I.T. Rules.

He further submitted that in the order of lower authorities there is no

finding with respect to the expenditure incurred by the assessee on

earning exempt income working out disallowance under Rule 8D(2)(ii)

and the availability of interest free funds for working out the

disallowance of interest under Rule 8D(2)(iii) of I.T. Rules. He therefore

fairly submitted that the issue may be remitted back to the file of AO to

work out the disallowance as per the provisions of the Act.

record. The issue in the present ground is with respect to disallowance

u/s 14A r.w Rule 8D of I.T. Rules. It is an undisputed fact that the

provisions of Rule 8D are applicable for the year under consideration.

Rule 8D of the I.T. Rules prescribes the method for determining amount

of expenditure in relation to income not includable in total income. As

per Rule 8D(2) the disallowance of expenses is aggregate of expenditure

directly relating to exempt income, [(Rule 8D(2)(i)], disallowance of

interest expenses as per working of Rule 8D(2)(ii) and disallowance of

administrative expenses as per Rule 8D(2)(iii). With respect to

disallowance of interest expenses under Rule 8D(2)(ii), various High

Courts including Hon’ble Bombay High Court in the case of CIT Vs.

HDFC Bank Ltd., (2014) 160 DTR 140 have held that if the assessee has

interest free funds more than the investments, then there is a

presumption that interest free funds have been utilized for making

investments and no disallowance of interest under Rule 8D(2)(ii) is

called for.

the availability of interest free funds vis-à-vis the investments. Further,

no details are available on the nature of expenses which have been

incurred by the assessee to earn exempt income. Considering the

totality of the aforesaid facts, we are of the view that the issue needs to

be reexamined by AO. We therefore restore the issue back to the file of

AO to re-examine and decide the issue in accordance with law and after

considering the submissions of the assessee. Assessee is also directed

to furnish all the required details called for by the authorities. In case

the assessee fails to file the requisite details, the AO shall be at liberty to

decide the issue on the basis of material available on record. Thus, the

ground of Revenue is allowed for statistical purposes.

depreciation on windmill.

8.1. AO on perusing the depreciation chart noticed that assessee had

claimed additional depreciation at 20% on windmill amounting to

Rs.7,90,56,303/-. The assessee was asked to justify the claim of

additional depreciation, to which the assessee made the submissions

which were not found acceptable to the AO. AO was of the view that the

assessee was not manufacturing or producing any article or thing by

operating windmills and the process of ‘power generation’ was not

described in the statute, as claimed by the assessee. He was of the view

that therefore assessee was not eligible to claim additional

depreciation amounting to Rs.7,90,56,303/- and accordingly denied the

claim of additional depreciation. Aggrieved by the order of AO, assessee

carried the matter before Ld.CIT(A), who by following the Tribunal’s

decision in assessee’s own case (in ITA Nos.1318 to 1324/PN/13 for

A.Y. 2004-05 to 2006-07 order dated 02.05.2016) directed the AO to

allow the claim of additional depreciation. Aggrieved by the order of

Ld.CIT(A), Revenue is now before us.

claim of depreciation by following the ITAT’s order in assessee’s own

case order dated 02.05.2016 (supra). He further placed on record letter

dated 09.08.2019 from the office of Addl.Commissioner of I.T. (Central)

Range – 1, Pune bearing Ref.No.(Pn/Addl.CIT/CR-1/SCR.Rep/DIL/

2019-20/416) wherein it was stated that on similar issue, the assessee

has already got a favourable ruling from Hon’ble Bombay High Court in

ITA No.275 of 2017 (order dated 914/2019) and the decision of Hon’ble

High Court has been accepted by the Department. He therefore

submitted that the issue be decided accordingly.

The issue in the present ground is with respect to the claim of additional

depreciation on windmills. We find that the Co-ordinate Bench of the

Tribunal in assessee’s own case for earlier years in ITA Nos.1318 to

1324/PN/13 order dated 02.05.2016 (supra) has decided the issue in

assessee’s favour by following the decision of Hon’ble Madras High Court

in the case of CIT Vs. M/s. Hitech Arai Ltd., reported in 373 TIR 477

and other decisions and allowed assessee’s claim of additional

depreciation. Before us, Ld. D.R. has also placed on record a

communication received from the office of Addl.CIT, Pune wherein it is

stated that on similar issue, assessee has already got a favourable

ruling from Hon’ble Bombay High Court vide order dated 09.04.2019

(ITA No.275 of 2017) and the decision of Hon’ble Bombay High Court

has been accepted by the Department. In view of the aforesaid facts,

we find no reason to interfere with the order of Ld.CIT(A) and thus the

ground of Revenue is dismissed.

Order pronounced on 30th day of October, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 30th October, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-11, Pune. 4. Pr. CIT(Central), Pune. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” / DR, ITAT, “A” Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.