Loading judgment…
Facts
The assessee, Makson Pharmaceuticals (India) Private Limited, filed an appeal against the order of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had held the assessment order passed by the Assessing Officer (AO) to be erroneous and prejudicial to the revenue, directing the AO to pass a fresh assessment order. The PCIT's findings pertained to issues of excess depreciation claims and disallowance of expenses under Section 14A.
Held
The Tribunal found that the PCIT's order under Section 263 was not sustainable in law. Regarding depreciation on cameras and air conditioners, the Tribunal noted that the PCIT herself directed the AO to verify the installation of these assets, indicating a lack of conclusive finding. The Tribunal also found the PCIT's view on depreciation on residential buildings to be flawed, as it did not distinguish the contrary High Court ruling. Concerning Section 14A, the Tribunal held that the onus to record dissatisfaction with the assessee's explanation lay with the AO, not the PCIT, and that the PCIT had wrongly assumed this power. Furthermore, the Tribunal found the issues raised by the PCIT to be trivial and not warranting the exercise of revisionary power under Section 263.
Key Issues
Whether the PCIT's order under Section 263, which set aside the AO's assessment order based on alleged erroneous claims of depreciation and disallowance of expenses, was justified and legally sustainable, or if the revisionary power was misused for trivial matters.
Sections Cited
Section 263 of the Income Tax Act, 1961, Section 14A of the Income Tax Act, 1961, Section 32 of the Income Tax Act, 1961, Rule 8D of the Income Tax Rules
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & Ms. SUCHITRA KAMBLE
(िनधा�रण वष� / Assessment Year : 2018-19) बनाम/ Makson Pharmaceuticals Pr.CIT (India) Private Limited Ahmedabad-3, Vs. Survey No.195, Makson Ahmedabad Compound, Rajkot Highway, Surendranagar, Gujarat 363020 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCM2806L (Appellant) .. (Respondent) अपीलाथ� ओर से /Appellant by : Shri M J Ranpura, A.R. ��यथ� क� ओर से/Respondent by : Shri Alpesh Parmar, CIT. DR 13/05/2025 Date of Hearing Date of Pronouncement 21/07/2025 (आदेश)/ORDER PER SMT. ANNAPURNA GUPTA, AM:
The present appeal has been filed by the assessee against the order of the Ld. Principal Commissioner of Income Tax, Ahmedabad, (hereinafter referred to as “PCIT”), dated 14.03.2024 passed under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2018-19 holding assessment order passed by the Assessing Officer in the present case be erroneous causing prejudice to the Revenue.
The grounds raised by the assessee are as under:
“1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The order passed by Pr. Commissioner of Income-tax, Ahmedabad-3, Ahmedabad (hereinafter referred as to the "PCIT"] is bad in law, invalid and requires to be quashed, the same may kindly be quashed.
3. The Ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the AO was erroneous as well as prejudicial to j the interest of the revenue on the ground that the order has been passed by the AO without making enquiries/verification, which should have been made in respect of alleged(i) excess claim of depreciation on plant & machinery of Rs.2,47,520/- (ii) excess claim of depreciation on residential building of Rs.3,05,260/- (iii) excess claim of depreciation on Camera and Air-conditioner of Rs.17,19,392/-. The order passed by PCIT requires to be quashed and may kindly be quashed.
4. The Ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the AO was erroneous as well as prejudicial to the interest of the revenue on the ground that the AO has not made proper inquiry in respect of disallowance u/s.14A r.w.r. 8D for exempt income earned by the appellant during the year. The order passed by PCIT requires to be quashed and may kindly be quashed.
5. The learned Pr. CIT erred on facts as also in law in setting aside the assessment order dated 25.05.2021 passed u/s. 143(3) of the Income Tax Act, 1961 directing the AO to pass a fresh assessment order. The order passed u/s 263 of the Act by the learned Pr. CIT is totally unjustified on facts as also in law therefore the same may kindly be quashed.
6. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal on or before the hearing of appeal.”
3. Perusal of the order of Ld. PCIT reveals the assessment order passed u/s 143(3) of the Act in the present case being erroneous with respect to claims of depreciation and disallowance of expenses u/s 14A of the Act.
4. The aspect of the incorrect allowance of depreciation by the AO is noted to be with respect to the following: i. Being depreciation allowed to the assessee on WDV of the assets as at the beginning of the year without reducing the additional depreciation to the extent of 50% thereof carried forward from the preceding year, which the assessee was required as per law to claim in this year on account of the concerned assets to which it related having been put to use for less than 180 days in the preceding year. As per the Ld. PCIT, the assessee ought to have first reduced the WDV of the assets with the balance 50% additional depreciation not claimed in the preceding year and on the reduced WDV, the assessee ought to have been allowed claim of depreciation. While the assessee was noted to have been allowed depreciation on the WDV at the beginning of the year. Thus, as per the Ld. PCIT, the assessee had claimed excess depreciation to the extent pertaining to the additional depreciation claimed by the assessee in the impugned year resulting in an excess depreciation claimed of Rs.2,47,520/-. ii. The assessee was noted to have been allowed depreciation on residential building @10% which as per the Ld. PCIT was allowable only @5% resulting in excess depreciation allowed to the assessee amounting to Rs.3,05,260/-. iii. The assessee had been allowed claim of additional depreciation on camera and Air Conditioners, which, as per the Ld.PCIT, was not allowable since claim of additional depreciation as per law was allowable only on plant and machinery situated at factory, resulting thus in excess depreciation being allowed to the tune of Rs.17,19,392/- on the said two assets.
5. With respect to disallowance of expenses u/s 14A of the Act, the assessee was noted to have earned exempt income of Rs.1,63,692/- but no expenses incurred for earning the same was noted to be disallowed in terms of section 14A of the Act.
The Ld. PCIT confronted these issues to the assessee who filed his contentions with regard to the same and after considering the same the Ld. PCIT held the assessment order passed in the present case be erroneous causing prejudice to the revenue and directed the AO to pass a fresh order and disallow the claim of excess depreciation and also make disallowance u/s.14A r.w.s. 8D of the Act. Her findings in this regard are contained at para 18 of the order as under:
“18. By virtue of the powers vested in me u/s. 263 of the IT Act, I hereby set-aside the order u/s. 143(3) rw.s 1448 of the Income Tax Act, 1961 dated 29/05/2021 on the issues discussed above and direct the Assessing Officer to pass a fresh assessment order and disallow the claim for excess depreciation and also make disallowance u/s 14A r.w Rule 8D of the Act.”
We have heard both the parties. Considering the submissions made before us and on going through the order of the Ld. PCIT and taking note of her categorical finding holding the assessment order to be erroneous causing prejudice to the revenue and directing the AO to make the disallowance as discussed by her in her order, we find that the impugned order u/s.263 of the Act is clearly not sustainable in law .To put it briefly ,the reason for the same is that we find from the bare reading of the order passed by the Ld. PCIT in the present case that she herself has either not arrived at a conclusive finding of the impugned claims being wrongly allowed to the assessee or her finding in this regard is found to be incorrect.
The most glaring instance in this regard is, we find, with respect to the claim of additional depreciation on camera and Air Conditioner. The Ld. PCIT, we find, in her order herself has directed the AO to verify the claim of the assessee that these assets were installed in the factory of the assessee. The assessee had contended before the Ld. PCIT that both the camera and Air Conditioners were installed in the factory of the assessee and as per the decision of the Co-ordinate Bench of the ITAT in the case of Metropolis Healthcare Ltd. vs. DCIT, dated 06.07.2021, reported in [2021] 129 taxmann.com 171 (Delhi-Trib.) and in the case of DCIT vs. M/s. Jindal Worldwide Limited, dated 20.02.2019 in the ITAT had allowed the claim of additional depreciation on identical assets finding them to be installed in the factory of the assessee. Ld. PCIT, on considering the said contention of the assessee, had directed the AO to verify the claim of the assessee that these assets were installed in the factory premises of the assessee and thereafter adjudicate the issue. Her findings in this regard are recorded at para 11 to 11.3 of the order as under:
“11. Regarding the claim of additional depreciation on Camera and Air Conditioners, it is stated that during the year under consideration the assessee has claimed additional depreciation of Rs. 10,281/- on "Cameras" and Rs. 17,09,111/- on "Air Conditioners" which is not allowable as additional depreciation is allowed only on plant and machinery situated at the factory and does not include any appliances installed at office or residential accommodations. This has resulted in claim of excess depreciation and under assessment of Rs. 17,19,392/- and consequent short levy of tax. 11.1 The assessee has in its submission vide point D of para 6 submitted that the cameras and air conditioners on which additional depreciation is claimed is actually installed at the factory to keep the manufacturing are under close surveillance and cool. The assessee has also submitted the photos of the said factory premises where such appliances have been installed as Exhibit 1. In this regard, the assessee has placed reliance on the following decisions: (i) Decision of Gujarat High Court in case of CIT vs. ElconEngg. Co. Ltd. [1974] 96 ITR 672 (Gujarat) (8) Decision in case of CIT vs. Tarun Commercial Mills Ltd. [1985] 151 ITR 75 (Guj.). (iii) Decision in case of CIT vs. Subrata Dutta Choudhary [2010]c32 (I) ITCL 120 (P&H-HC) 11.2 On perusal of the submissions made by the assessee, it was observed that the assessee has claimed additional depreciation on cameras and air conditioners on the ground that they were installed at the factory premises for keeping the manufacturing activity under close surveillance and cool. With this regard, it is submitted that if such assets are integral part of factory premises, then additional depreciation on such asset is allowed. In this regard, it is relevant to refer the decision of Hon'ble ITAT Delhi in case of Metropolis Healthcare Ltd. vs. DCIT, Circle-16(2), Delhi dated 06.07.2021 [2021] 129 taxmann.com 171 (Delhi - Trib.) which reads as under. "Section 32 of the Income-tax Act, 1961 - Depreciation - Additional depreciation (Illustration) - Assessment years 2012- 13 and 2013-14-Assessee company was engaged in business of providing referral laboratory services and diagnostic services etc. Assessee had set up various collection centers at multiple locations - Assessee claimed additional depreciation on its assets used in such collection centres-Revenue was of view that these collection centres did not produce any article or thing and, therefore, were in nature of office premises, hence, he disallowed additional depreciation on assets used in said centres Whether collection centres of assessee were also integral part of whole process of business of diagnostic and report making central facilities and, therefore, additional depreciation on assets used by assessee in those collection centres should also be allowed specifically when revenue had already accepted claim that assessee was entitled to additional depreciation on assets installed by it at diagnostic and report making central facilities - Held, yes (Para 12][in favour of assessee) It is noticed that similar view was accepted by the Hon'ble ITAT Ahmedabad in case of DCIT, Circle-2(1)(2), Ahmedabad vs. M/s Jindal Worldwide Limited dated 20.02.2019 vide who allowed the claim of additional depreciation in respect of air conditioners and finger recognition system by relying on the decision of Hon'ble Gujarat High Court in case of CIT vs. Nathubhai H. Patel dated 24.11.2005 [2006] 154 Taxman 117 (GUJ.). The order of Hon'ble Ahmedabad Tribunal reads as under. “10. Third issue concerns disallowance of Rs 38,850/- made on account of additional depreciation in respect of air conditioner machines and finger recognition system. The learned AR for the assessee submitted that the air conditioners were installed with the factory premises and the finger recognition system is for the supervision and control of the emplyees' attendance. Both the assets are in the nature of plant and machinery and thus qualify for additional depreciation under s.32(1)(iia) of the Act. For this proposition, the learned AR for the assessee referred to the decision of Hon'ble Gujarat High Court in CIT vs. Nathubhai H Patel (2006) 154 TAXMAN 117 (Guj). We find force in the plea of the assessee noted above. The assessee cannot be denied additional depreciation in the facts narrated above. The aforesaid issue is thus sottled in favour of the assessee. In the decisions referred supra, similar matters were dealt by the respective courts and the assessee's claim of additional depreciation on cameras and air conditioners was allowed on the grounds that as the aforesaid appliances are installed and utilized at the factory premises and it is in nature of plant and machinery which is eligible for additional depreciation, the same are considered to be an integral part of the Plant & Machinery and are eligible for claiming additional depreciation. 11.3 The assessee has claimed in its submission along with the photos of factory premises brought on record and the judicial pronouncements relied upon by the assessee that the cameras and air conditioners were installed at the factory premises of the assessee with the intention to keep the manufacturing activity under close surveillance and cool and therefore, they are considered to be an integral part of the Plant & Machinery installed at the factory premises and thus, eligible for claiming additional depreciation. The AO is directed to verify the claim of additional depreciation and allow the same if facts of the case are similar with cases referred supra.”
Having asked the AO to verify the claim of the assessee that the assets were deployed in the factory and allow the claim to additional depreciation if facts found similar to cases cited by the assessee, it is patently clear that on the issue of allowance of claim of additional depreciation on camera and Air Conditioners, there was no categorical finding by the Ld. PCIT of the said claim of additional depreciation to the tune of Rs.17,19,392/- having been wrongly allowed to the assessee. The matter having been referred back to the AO for verification, the Ld. PCIT could not have directed the AO to disallow the said claim in her order passed u/s.263 of the Act.
Taking up next the issue of depreciation on factory building, we find, that her finding of the said claim being wrongly allowed to the assessee is flawed.
The case of the Ld. PCIT was that the assessee was entitled to depreciation on the same @5% but had wrongly been allowed depreciation by the AO @ 10%. The order of the Ld.PCIT reveals that the assessee had pointed out a decision of the Hon’ble High Court of Madras in the case of CIT vs. Ashok Leyland Limited, reported in (2019) 266 Taxman 406 holding that a company cannot use any building for residential purposes and, therefore, there was no question of restricting claim of depreciation on building used as residential quarters for staff to the extent of 5% thereon. The Ld. PCIT, however, we find has, without distinguishing the decision of the Hon’ble High Court of Madras in this regard pointed out by the Ld. Counsel for the assessee, has referred to the decision of the ITAT, which is lower in judicial hierarchy to the Hon’ble High Court, to hold the claim of the assessee to be not in accordance with law. The Ld. PCIT has referred to the decision of ITAT Ahmedabad Bench in the case of Adani Petronet (Dahej) Port Pvt. Ltd. vs. DCIT in in this regard. The finding of the Ld. PCIT in this regard are contained in para 10 to 10.2 of the order as under:
“10. Regarding the claim of excess depreciation on residential buildings, it is stated that during the year under consideration the assessee has claimed depreciation on residential buildings at the rate of 10% on the opening WDV of Rs. 61,05,195/However, the rate of depreciation applicable to residential buildings is only 5% which has resulted in excess claim of depreciation amounting to Rs. 3,05,260/- consequent to which there is under assessment and short levy of lax. 10.1 The assessee in its submission vide point C of para 6 submitted that it has claimed depreciation @10% on its buildings used for the staff. It being a company cannot use any building for residential purpose and has relied on the decision of Madras High Court in case of CIT vs. Ashok Leyland Limited [2019] 266 taxmann.com 406. 10.2 On perusal of the submissions made by the assessee, it was observed that the assessee has claimed depreciation @ 10% on residential buildings on the ground that the said buildings were used for the staff and not for its residential purpose. In this regard, it is relevant to refer to the decision of Hon'ble ITAT Ahmedabad in case of AdaniPetronet (Dahej) Port Pvt. Ltd. vs. The Dy. Commissioner of Income Tax, Circle 1(1)(1), Ahmedabad which reads as under "22. As regards the issue raised by the assessee in Ground No. 3 of its cross objection for A.Y. 2013-14 relating to the disallowance made on account of depreciation on staff quarters, it is observed that the claim of the assessee for depreciation @ 10% on staff quarters was restricted by the Assessing Officer at 5% treating the same as "building" On appeal, learned CIT(A) upheld the action of the Assessing Officer on this issue observing that the depreciation allowed by the Assessing Officer on staff quarters being building was as per the prescribed rates given in the relevant rules. At the time of hearing before the Tribunal, the learned counsel for the assessee has not raised any material contention to challenge the impugned order of the learned CIT(A) on this issue. We, therefore, find no justifiable reason to interfere with the impugned order of learned CIT(A) on this issue whereby depreciation @ 5% was allowed on staff quarters as per the prescribed rate applicable to the building. Ground No. 3 of the assessee's Cross Objection for A.Y. 2013-14 is accordingly dismissed." On perusal of the above facts and the decision of Mumbai Tribunal in case of Adani Petronet (Dahej) Port Pvt. Ltd., it can be clearly concluded that only 5% depreciation is allowed on the concerned residential building and not 10% as argued by the assessee. Therefore, the depreciation on staff quarters is restricted to 5%. In view of decision of Hon'ble Delhi High court in case of BSES Rajdhani Power Ltd. vs. PCIT, Delhi-2, referred supra, wherein SLP was dismissed by Supreme court, 152 taxmann.com 139, in the present case also, AO has not verified depreciation on staff quarter, thus this part depreciation claim is not verified by AO, hence in view of this, revision u/s 263 is valid in eyes of law. In the present case, assessee claimed 10% depreciation on staff quarter which is grossly incorrect and results in underassessment of tax, this fact clearly proves that AO order has not verified this fact and assessment order passed by AO is prejudicial to interest of revenue as well as erroneous as envisaged in Provisions of Section 263 of the Act.”
Clearly the finding of error by the Ld. PCIT with regards to the issue of claim of depreciation of residential building of staff @10% is itself flawed and incorrect, based on the decision of the ITAT, while the assessee had pointed out the decision of the Hon’ble High Court of Madras ruling in its favour, which the Ld. PCIT had not cared to distinguish at all. The finding of error by the Ld. PCIT in the order of the AO in this regard being flawed her direction to the AO to disallow the excess claim of depreciation on the residential building is, therefore, not sustainable in law.
Taking up the next issue of disallowance of expenses u/s.14A of the Act, the assessee was noted to have made investment in an LLP, which investment was found to have substantially increased at the end of the year from that made at the beginning of the year.
The Ld. PCIT noted the assessee to have earned exempt income from the LLP and finding the AO to have made no disallowance of expenses u/s.14A of the Act pertaining to the expenses incurred for the purposes of earning exempt income, she held the assessment order passed in the present case to be erroneous causing prejudice to the Revenue.
As noted above, she has directed the AO to make disallowance of the expenses invoking Rule 8D of the Income Tax Rules. The order of the PCIT reveals that the assessee had submitted the fact that the entire investments made by the assessee in the LLP were out of the own interest free funds of the assessee and no expenses were incurred by the assessee for making investments in the LLP. The Ld. PCIT, we find, has rejected this explanation of the assessee stating that the assessee has incurred huge expenses on finance cost and other expenses during the year and whether or not any exempt income is earned, disallowance of expenses has to be made u/s.14A of the Act. She has rejected assessee’s explanation of furnishing of own funds stating that the disallowance pertains not only to finance cost incurred by the assessee but also to other expenses incurred with respect to the investments made earning exempt income. She has dealt with the issue at para 9 to 9.4 of her order as under:
“9. Regarding the exempt income earned by the assessee company of Rs. 1,63,692/- from its investments in firms/LLPs. The assessee has made investments income from which do not form part of total income, then disallowance under section 14A rw Rule 8D is to be made with respect to expenses incurred to earn such exempt income. 9.1 On verification of case records, it was found that the assessee has earned exempt income of Rs. 1,63,692/- from investment in firms/LLPs. On perusal of the Profit & Loss Account of the assessee company, it was found that it has claimed vanous expenses including Finance Costs of Rs. 2.92. lakhs & other expenses of Rs. 27.98 crores during the year under consideration however, no disallowance has been made with respect to expenses incurred for earning the said exempt income. Also, it was noticed that the assessee has in its balance sheet at Note 17 shown investment in partnership firm of Rs. 48,08,111/- as on 31/03/2017 and of Rs. 1,10,38,342/- as on 31/03/2018. 9.2 The assessee in its submission vide point B of para 6 submitted that the said investments were made out of the assessee's own non- interest bearing funds and no interest bearing funds were utilized by the assessee for either its normal business of manufacturing or investment purposes. 9.3 The assessee has earned exempt income of Rs. 1,63,692/- and no expenditure is attributable to exempt income cannot be accepted for following reasons: (i) It is undisputed fact that assessee has made investments in shares and earned exempt income in books of accounts. It is matter of fact that whether assessee has earned exempt income or not, provisions of Section 14A is applicable as Investments made by assessee are capable of earning such income. It may happen that in some years, assessee may not earn exempt income but incurs huge administrative expenditure but as per assessee's interpretation, no disallowance would be made as no exempt income is earned and same is incorrect. It may happen that in some other years, assessee eams exempt Income but there is no expenditure debited in Profit & loss account and even in this scenario, no disallowance would be made as no expenditure is debited in Profit & loss account. Thus, disallowance u/s 14A of the Act is depended upon investments made by assessee and not on earning of exempt income or incurring of expenditure for earning exempt income. (ii) The Assessee has claimed that during the course of assessment proceedings, assessee has submitted all the relevant details and assessment order u/s 143(3) rw.s 144B was passed on 29/05/2021 hence present proceedings deserves to be dropped. However, during the present hearing, assessee has failed to demonstrate that AO has applied his mind while passing the assessment order or assessee has submitted specific details regarding non applicability of provisions of Section 14A before Assessing officer. (iii) The assessee itself has shown finance costs of Rs. 2.92 lakhs and other expenses of Rs. 27.98 crores in the Profit & Loss Account. The assessee has claimed various expenses including the above expenses and it cannot be said that no disallowance is required to be made. (iv) The assessee has argued that investments were made out of the assessee's own non-interest bearing funds and no interest bearing funds were utilized by the assessee for either its normal business of manufacturing or investment purposes. In this regard, it is noted that amendment has been made to Rule BD by the CBDT vide Notification No. 43/2016 dated 2nd June, 2016 to provide that disallowance shall be the aggregate of directly relatable expenditure and 1% of the annual average of the monthly averages of the opening and closing balance of investments yielding income which does not or shall not form part of total income. The amended provisions of Rule BD applicable in year under consideration, does not provide any bifurcation between interest expenditure and administrative expenditure as was in old Rule BD applicable till A.Y.2016-17. These facts itself prove that assessee has not made disallowance as per provisions of the Act as discussed herein above and such facts are not discussed by AO in assessment order. The AO has accepted the assessee's version without any discussion in assessment order. These facts clearly proves that assessment order passed by AO is prejudicial to interest of revenue as well as erroneous as envisaged in Provisions of Section 263 of the Act. 9.4 These facts clearly proves that AO has not verified such facts and not made disallowance u/s 14A of the Act. Thus assessment order passed by AO is prejudicial to interest of revenue as well as erroneous as envisaged in Provisions of Section 263 of the Act.”
The law with regards to disallowance of expenses u/s.14A of the Act it is settled by Hon’ble Apex Court, wherein interpreting the provisions of Section 14A(2) of the Act, it has been held that before invoking the provisions of Section 14A of the Act the AO has to record his satisfaction, having regard to the accounts of the assessee, that the claim made by the assessee of the expenditure incurred/ not incurred for earning exempt income, is incorrect. The Hon’ble apex court settled the proposition in the land mark case of Maxopp Investments Ltd. vs. CIT (2018) 91 taxmann.com 154.
In the facts to the present case, the onus of the AO to record dis-satisfaction with the explanation of the assessee has been assumed by the Ld. PCIT. It is the PCIT who has rejected the explanation of the assessee as not being sufficient for explaining its claim that no expenses were attributable to the earning of exempt income. This clearly is not as per law interpreted by the Hon’ble Apex Court. It was for the AO to record dis-satisfaction and the Ld. PCIT could not usurp this power and further after usurping this power and recording dis-satisfaction with the explanation of the assessee, she could not have directed the AO to make disallowance by invoking the Rule 8D of the IT Rules. The Ld. PCIT, at best, ought to have directed the AO to consider the explanation of the assessee and record his dis-satisfaction or not with the said explanation and thereafter proceed in accordance with law. The Ld. PCIT in the present case having assumed power which she was not entitled to in terms of the provisions of Section 14A of the Act and which power lay only with the AO, her direction, therefore, to the AO to disallow expenses by invoking the Rule 8D of the IT Rules, 1962, goes against the provisions of law and, therefore, are not sustainable.
Taking up the last issue of excess depreciation claimed by the assessee on the written down the value of the assets before reducing the portion of additional depreciation to which it was entitled to in the impugned year. As noted above, the facts relating to the issue are that the assessee was entitled to claim additional depreciation on certain assets in the preceding year, but, since the assessee had put to use the assets for less than 180 days, the assessee had claimed only 50% of the additional depreciation in the preceding year. The balance was claimed in the impugned year. However, in the impugned year, on the WDV of assets, the assessee claimed depreciation as per the rates applicable and also claimed additional depreciation. The case of the Ld. PCIT was that the assessee ought to have first reduced the WDV with the additional depreciation carried forward for set off in the impugned year and on the balance WDV only, the assessee ought to have claimed depreciation as per law. As per the Ld. PCIT, the assessee have adopted the wrong course has resulted in excess claim of depreciation to the extent of Rs.2,47,520/-.
We find that the assessee had explained to the Ld. PCIT that the assessee’s claim of depreciation was in accordance with law. That the provisions of law required the assessee to claim depreciation on the WDV of assets which the assessee had claimed. It was pointed out to her that there was no requirement in law requiring the assessee to first reduce the WDV with the additional depreciation allowed to be set off in the impugned year. Therefore, there was no error in the claim of depreciation made by the assessee during the impugned year.
The Ld. PCIT, we find, has decided the issue on merits stating that the entitlement of claim of additional depreciation was in the preceding year alone but since the assets were not put to use for more than 180 days, therefore, only 50% of the additional depreciation was allowable to the assessee in the preceding year. The balance 50%, since it pertained to the preceding year, but was not allowed to the assessee due to non-utilization of assets for the specified period, the said balance claim of additional depreciation ought to have been reduced from the WDV of assets before allowing depreciation to the assessee on the WDV of the assets. The Ld. PCIT has dealt with this issue at para 5 to 5.4 of her order as under:
“5. Regarding the claim of excess depreciation of Rs.2,47,520/-, it is submitted that the assessee company has computed/claimed general depreciation allowance @15% on the opening WDV of Rs. 19,31,47,982/- which includes the amount of 50% additional depreciation of Rs. 16,50,136/- which resulted into claim of excess depreciation @1.5%. 5.1 On perusal of facts on record and submission filed by the assessee company. it was found that the assessee company has claimed depreciation of Rs. 5,81,72,224/-, which includes additional depreciation of Rs. 16,50,136/- relating to an asset put to use for less than 180 days in immediately preceding year ie. AY 2017-18. 5.2 Further it was noticed from Schedule DPM Depreciation on Plant & Machinery of ITR relating to A.Y. 2018-19 that the assessee has taken the amount of Rs. 19,31,47,982/- as opening WDV of the block of Plant & Machinery and claimed/computed normal depreciation @ 15% on the same u/s 32(1)(ii) of the Act and has also claimed balance 50% additional depreciation allowance of Rs. 16,50,136/-, Since the WDV of Rs. 19,31,47,982/- at the end of the year on 31.03.2017 includes balance of 50% additional depreciation of Rs. 16,50,136/-relating to previous year on asset put to use for less than 180 days, same was required to be reduced from the opening WDV of Rs. 19,31,47,982/- and thereafter general depreciation allowance @ 15% should have been computed on remaining WDV. Accordingly, by doing this the assessee has claimed excess depreciation of Rs. 2,47,520/- (15% of remaining 50% additional depreciation of Rs. 16,50,136/-). 5.3 The assessee company has in its submission vide sub-point (A) of para 6 has raised the following arguments: (i) If Section 32 is interpreted in the way in which the notice is attempting to interpret then, 50% additional depreciation ought to have been allowed in determining total income of the preceding A.Y. i.e., 2017-18 and also to be reduced from the opening WDV of Rs. 19,31,47,982/- in the immediately succeeding AY i.e., 2018-19 while calculating general depreciation allowance would mean that additional depreciation of 20% on assets put to use during the entire year ought to have been allowed in the year in which the assets are acquired or installed irrespective of the date of additions. (ii) In the entire sub-section 1 of section 32, nowhere it is stated that 50% of 20% additional depreciation is deducted from the opening WDV of the asset and remaining balance is available for depreciation allowance. 5.4 In this regard, it is relevant to refer to Section 32(1)(ia) which governs issue of additional depreciation which is reproduced herein below: "in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):" On perusal of the above, it can be observed that the intention to introduce such section was to encourage investment in plant & machinery by the manufacturing and the power sector, for which additional depreciation of 20% of the cost of new plant or machinery acquired and installed was to be allowed. On the lines of allowability of general depreciation allowance, the second proviso to section 32(1) provides that the additional depreciation would be restricted to 50% when the new plant or machinery acquired and installed by the assessee, is put to use for a period of less than 180 days. However, non-availability of 100% additional depreciation for acquisition and installation of new plant and machinery in the second half of the year would motivate the assessee to defer such investment to the next year for availing full 100% of additional depreciation in the next year. In order to remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, the amendment proposing the allowance of 50% additional depreciation in the immediately succeeding previous year was made to take effect from 1st April, 2016. Accordingly, as per third proviso it was clear that balance 50% of additional depreciation towards the Plant & Machinery used for less than 180 days in the preceding previous year was to be allowed under sub-section 32(1)(ii) i.e., in addition to general depreciation allowance to which he was already entitled to.”
We are not in agreement with the Ld. PCIT in this regard. For the simple reason that as pointed out by the assessee to the Ld. PCIT, the provisions of law clearly state and required depreciation to be allowed on the WDV of assets and there is no provision in law to the effect that additional depreciation brought forward from the preceding year needs to be reduced from the WDV of the present year or succeeding year before allowing depreciation on the same. Section 32 of the Act clearly provides for depreciation to be allowed on WDV of assets as under:
“32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, not being goodwill of a business or profession, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:”
The Ld.PCIT has not pointed out any provision of law requiring WDV to be reduced with additional depreciation carried forward from preceding year for set off, before allowing depreciation on the same for the year.
The primary Rule of interpretation of statute is that law is to be read as it is and nothing can be added or subtracted or altered or modified unless it is plainly necessary in order to prevent a provision from being unintelligible, or absurd, or unreasonable or unworkable or totally irreconcilable with the rest of the statute. The Hon’ble apex court in the case of Sarala Birla vs CWT 176 ITR 98(SC) has held that the plain language of a statute must override any supposed intendment of the legislature and cannot be amended or stretched by any court.
The Ld.PCIT has tried to give a purposive interpretation to the provision of law, which is against the basic rule of interpretation of statutes and her contention therefore for finding assesses claim of depreciation on WDV of assets to be excessive is, we hold, against the provisions of law in this regard.
Even otherwise, we note that the issue involved pertains to an incorrect claim of depreciation amounting to Rs.2,47,520/-. The fact of the matter is that the assessee has declared income to the tune of Rs.12.31 Crores. The issue raised by the Ld. PCIT effects the determination of income if any to the tune of 0.2% of the income returned, which is too trivial a matter for assuming power of revision as provided u/s.263 of the Act, which literally tantamounts to reopening an assesses case for consideration. Considering the consequences and repercussions of the power of revision, it is but natural that it should be exercised with utmost caution, with the materiality of the issue also being one of the considerations for the same.
The issue, at hand, pertaining to claim of depreciation, which is merely allowance of cost of an asset which is spread over the useful life of an asset, the said claim if disallowed in the impugned year is liable to be allowed in succeeding years. The exercise of revisionary power over an admittedly trivial/ immaterial claim which otherwise is allowable in succeeding years to the assessee, is nothing but a gross misuse of the power granted u/s 263 of the Act.
In view of the above, we hold that the order passed by the Ld. PCIT directing the AO to make disallowance of the excess depreciation so claimed, is not sustainable in law.
On all the issues raised by the Ld.PCIT we have found the power of revision exercised to be not in accordance with law.
In view of the above the order passed by the Ld. PCIT is set aside in entirety.
In the result, appeal filed by the assessee is allowed.
This Order pronounced on 21/07/2025 Sd/- Sd/- (SUCHITRA KAMBLE) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 21/07/2025 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��यथ� / The Respondent. 2. 3. संबंिधत आयकर आयु� / Concerned CIT आयकर आयु�(अपील) / The CIT(A)- 4. 5. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,