DCIT CORPORATE CIRCLE 1(1), CHENNAI vs. AGILE ELECTRIC SUB ASSEMBLY PVT LTD., CHENNAI

PER G.MANJUNATHA, AM:

This appeal filed by the Revenue and Cross Objection

filed by the assessee are directed against the order of the

learned CIT(A)-1, Chennai dated 31.01.2018 and pertains to

assessment year 2013-14. Since, facts are identical and

issues are common, for the sake of convenience, the appeal

filed by the Revenue and Cross Objection filed by the assessee

were heard together and are being disposed off by this

consolidated order.

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appeal:-

“1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.

2.1 The learned CIT(A) erred in holding that the provisions of section 14A are not applicable, since the assessee had not earned any exempt income during the relevant assessment Year, without appreciating the fact that exempt income bearing investments are held by the assessee, and therefore the provisions of section 14A read with Rule 8D will get triggered.

2.2 The learned CIT(A) erred in following the decision of the jurisdictional high Court decision in the case of M/s. Redington (India) Limited, without appreciating the fact that the decision of the Hon’ble High court pertains to A.Y. 2007-08, which is prior to introduction of rule 8D, and the case in hand relates to the A.Y. 2013-14, thereby a decision of the High Court in the pre 8D era cannot be applied to a case in the 8D era.

2.3 The learned CIT(A) ought to have appreciated the circular in 5/2014 dated, which clearly explains that the provisions of section 14A read with Rule 8d are applicable even in a situation, when the assessee does not earn any exempt income but exempt income bearing investments are held by the assessee, and the Board’s circular is binding.

3.1 The learned CIT(A) erred in deleting disallowance of depreciation claimed of Rs.1.61 crores though it was not established that plant and machinery was put to use during the relevant previous year.

3.2 The learned CIT(A) while agreeing that the assessee could not have produced such volumes thereby agreeing with the AO that the machinery could not have been put to use on the last day of the relevant year, erred in holding that depreciation was allowable on plant and machinery if it was ready for use relying on the jurisdiction Hon’ble HC’s decision in the case of

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Chennai Petroleum Corporation v CIT (1971) ITR 790 ITR 613.

3.3 The learned CIT(A) failed to appreciate that the relied upon decision in the case of Chennai Petroleum Corporation v CIT (1971) ITR 790 ITR 613 has not been accepted by the Department and the SLP preferred against the said decision is pending adjudication before the Apex Court.

that the cross objection filed by the assessee is time barred by

66 days for which necessary petition for condonation of delay

along with affidavit explaining the reasons for the delay has

been filed. The AR further submitted that the assessee could

not file cross objection within the time allowed under the Act,

due to the fact the Authorized Representative was out of town.

The delay in filing cross objection is neither intentional nor

willful but for the unavoidable reasons, therefore, delay may be

condoned in the interest of advancement of substantial

justice.

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condonation of delay petition filed by the assessee submitted

that the reasons given by the assessee do not come within the

ambit of reasonable and bonafide reasons, which can be

considered for condonation of delay and hence, appeal filed

by the assessee may be dismissed as not maintainable.

by the assessee for condonation of delay, we are of the

considered view that reasons given by the assessee for not

filing the cross objection within the time allowed under the

Act comes under reasonable cause as provided under the Act

for condonation of delay and hence, delay in filing of cross

objection is condoned and the cross objection filed by the

assessee is admitted for adjudication.

engaged in the business of manufacture of components,

subassembly for motors and tools etc. filed its return of income

for the assessment year 2013-14 on 29.11.2013 admitting total

income of Rs. 3,58,42,730/-. The case was selected for

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scrutiny and assessment has been completed u/s. 143(3) of

the Act on 30.03.2016 and determined total income at

Rs.7,14,81,039/- by making additions towards disallowance of

expenses relatable to exempt income u/s.14A of the Act and

disallowance of depreciation claimed on plant and machinery

on the ground that assets were not put to use in the business

of the assessee for the relevant assessment year. The

assessee carried the matter in appeal before the first appellate

authority. The learned CIT(A) for the detailed reasons stated in

his appellate order dated 31.01.2018 deleted additions made

by the Assessing Officer towards disallowance u/s.14A and

disallowance of depreciation u/s. 32 of the Income Tax Act,

1961. Aggrieved by the learned CIT(A) order, the Revenue is in

appeal before us.

ground no.2 of revenue appeal is disallowance of expenses

relatable to section 14A of the Income Tax Act, 1961. During

the course of assessment proceedings, the Assessing Officer

noticed that assessee has made huge investments in shares

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and securities, but did not make suo moto disallowance of

any expenses relatable to exempt income and hence, invoked

Rule 8D of Income Tax Rules, 1962 and computed

disallowance of Rs.1,95,18,258/- u/s.14A of the Act. On first

appeal, the learned CIT(A) by following the decision of the

Hon'ble Jurisdictional High Court of Madras in the case of M/s.

Redington India Ltd. Vs.Addl.CIT (2016) 97 CCH 219 (Mad),

deleted additions made towards disallowance u/s.14A by

holding that when there is no exempt income earned for the

relevant assessment year, then there cannot be any

disallowance relatable to such exempt income.

erred in holding that the provisions of section 14A are not

applicable, when the assessee had not earned any exempt

income during the relevant assessment year without

appreciating fact that provisions of section 14A will come into

operation, even though there is no exempt income for the year

under consideration. The DR further submitted that the

learned CIT(A) has erred in following the decision of the

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Hon'ble Jurisdictional High Court of Madras in the case of M/s.

Redington India Ltd. Vs. Addl.CIT (supra) without appreciating

fact that said decision pertains to assessment year 2007-08,

which is prior to insertion of Rule 8D, whereas the case in hand

relates to assessment year 2013-14, where it is mandatory to

compute disallowance u/s.14A as per Rule 8D of Income Tax

Rules, 1962. The DR further referring to CBDT circular

No.5/2014 submitted that circular issued by the Board clearly

explains that provisions of section 14A is applicable even in a

situation, where the assessee does not earn any exempt

income. Therefore, he submitted that the learned CIT(A) has

completely erred in deleting additions made by the Assessing

Officer towards disallowance of expenses u/s.14A of the Act.

submitted that the issue is squarely covered in favour of the

assessee by the decision of the Hon'ble Supreme Court in the

case of CIT Vs. Chettinad Logistics Pvt.Ltd.(2018) 95

taxmann.com 250(SC), where the Hon'ble Supreme Court has

dismissed SLP filed by the Revenue against High Court ruling

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that section 14A cannot be invoked, where no exempt income

was earned by the assessee in relevant assessment year .

available on record and gone through orders of the authorities

below. The issue of disallowance of expenses relatable to

exempt income u/s.14A, in a situation where there is no

exempt income earned for the relevant assessment year has

been subject matter of deliberations by various High Courts,

including the Hon'ble Jurisdictional High Court of Madras in the

case of M/s. Redington India Ltd. Vs. Addl.CIT (supra), in the

light of the provisions of section 14A of the Act, where it was

clearly held that provisions of section 14A r.w.r 8D cannot be

made applicable in a vacuum i.e., in the absence of exempt

income. The Hon'ble Supreme Court in the case of CIT vs.

Chettinad Logistics Pvt.Ltd. (supra) has upheld the findings of

the Hon’ble Madras High Court that section 14A cannot be

invoked, where no exempt income was earned by the assessee

in the relevant assessment year . In this case, the learned

CIT(A) has recorded categorical finding that the assessee has

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not earned any exempt income for the relevant assessment

year. Therefore, we are of the considered view that findings

recorded by the learned CIT(A) in light of the decision of

Hon’ble Jurisdictional Madras High Court in the case of M/s.

Redington India Ltd. Vs.Addl.CIT (supra) is in accordance with

law and does not call for any interference from our end and

hence, the findings of the learned CIT(A) is upheld and ground

raised by the Revenue is rejected.

ground no.3 of revenue appeal is deletion of disallowance of

depreciation made by the Assessing Officer on the addition of

plant and machinery. The facts relating to the impugned dispute

are that during the year the assessee has made various

additions to plant and machinery and such plant and

machinery was acquired and installed before 30.03.2013. The

assessee has claimed depreciation as per the provisions of

section 32 of the Act and further, wherever assets were put to

use for less than 182 days, the assessee has claimed half of

actual depreciation allowable as per the Act. The Assessing

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Officer has disallowed depreciation claimed on plant and

machinery on the ground that although plant and machinery

was installed and commissioned before 30.03.2013, but the

same has not been put to use in the business of the assessee.

Therefore, claim of depreciation cannot be allowed unless the

assets are put to use in the business of the assessee for the

relevant assessment year . To come to said conclusion, the

Assessing Officer has relied upon production of finished goods

furnished by the assessee and argued that in one day such a

huge quantity of finished goods cannot be produced. He has

also held that assets were not in fact, put to use in the

business and hence rejected the depreciation claim on said

plant and machinery.

the Assessing Officer by following the decision of Hon’ble

Madras High Court in the case of CIT Vs. Chennai Petroleum

Corporation (2013) 358 ITR 314(Mad) and also the decision

of Hon’ble Bombay High Court in the case of Whittle Anderson

Ltd. Vs. CIT (1971) 79 ITR 613(Bom) on the ground that

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where machinery is ready for use though actually not used,

depreciation is admissible.

erred in deleting disallowance of depreciation, though it was not

established that plant and machinery was put to use during the

relevant previous year . The DR further submitted that although

the learned CIT(A) while agreeing that the assessee could not

have produced such volumes of finished goods in one day

thereby in agreement with the findings of the Assessing Officer

that plant and machinery could not have been put to use on the

last day of the relevant assessment year, but erred in holding

that depreciation was allowable on plant and machinery, even

though the same is ready for use by relying on the decision of

jurisdictional Madras High Court in the case of CIT Vs. Chennai

Petroleum Corporation (supra).

of the learned CIT(A) submitted that assessee has placed all

evidences to prove that plant and machinery was put to use in

the business of the assessee and based on the evidences

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placed by the assessee, the learned CIT(A) has rightly held that

the assessee has put to use the plant and machinery in the

business for the relevant assessment year to delete the

additions made towards disallowance of depreciation. The A.R

further referring to the paper book filed by the assessee

submitted that the assessee has placed on record plant and

machinery installation report, as per which plant and machinery

was installed on 30.03.2013 and the same was put to use for

production of finished goods . The assessee has also placed on

record finished goods produced from plant and machinery

installed and commenced. Therefore, it is incorrect on the part

of the Assessing Officer to come to the conclusion that

although plant and machinery was installed, but the same was

not put to use in the business of the assessee, without bringing

on any evidence to prove that said plant and machinery was

not put to use in the business of the assessee. He further

submitted that findings of the Assessing Officer was purely on

suspicious and conjectures and without there being any

evidence to prove that plant and machinery was not installed in

business of the assessee.

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available on record and gone through orders of the authorities

below. Admittedly, the assessee has filed a tabular chart

explaining date of purchase of machinery and completion of

commissioning of such machinery, as per which all the plant

and machinery was commissioned before 30.03.2013. The

assessee had also placed on record commissioning report for

installation and commissioning of plant and machinery . It is

also an admitted fact that before Assessing Officer, the

assessee has placed on record details of finished goods

produced from the new plant and machinery installed and put

to use for the relevant assessment year. The learned CIT(A),

after considering the relevant submissions of the assessee has

recorded categorical finding that assessee has completed

installation and commissioning of plant and machinery on or

before 30.03.2013. However, concurred with the findings of the

Assessing Officer that in one day so many units of finished

goods cannot be produced. We find that reasons given by the

Assessing Officer to disallow depreciation on plant and

machinery is not on sound footing, because it is a well settled

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principles of law by the decision of the Hon’ble Bombay High

Court in the case of Whittle Anderson Ltd. Vs. CIT (supra) that

when machinery kept ready for use at any moment from which

taxable profits are earned, machinery can be said to be used for

business purpose of section 10(2)(vii), the second proviso and

depreciation on such plant and machinery can be allowed. The

jurisdictional High Court of Madras in the case of CIT Vs.

Chennai Petroleum Ltd.(supra) has considered an identical

issue and held that where assessee’s business was a going

concern and machinery could not be put to use due to raw

material paucity beyond assessee’s control, depreciation

claimed u/s.32 of the Act could not be denied. The sum and

substance of ratio laid down by the above two decisions of

Hon’ble High Courts are that even if plant and machinery is not

put to use for the relevant assessment year, but was installed

and ready for use, then depreciation claim can be allowed on

such plant and machinery .

assessee including commissioning report of plant and

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machinery, we find that all plant and machinery were acquired

and installed before the end of the financial year. In fact, the

assessee has placed on record production details of finished

goods from newly installed plant and machinery. Therefore,

we are of the considered view that the Assessing Officer has

erred in disallowing depreciation on plant and machinery on

assumption and surmises that in one day so much units of

finished goods cannot be produced without understanding fact

that in one day so many lakhs of units can be produced

depending upon installed capacity of the plant and machinery.

In this case, the observations of the Assessing Officer that so

much units cannot be produced in one day was nothing but

assumption or surmises, but not based on any facts and

figures. Therefore, we are of the considered view that on this

ground depreciation claimed on plant and machinery which

were installed and put to use in the business of the assessee

cannot be denied. Be that as it may, even assuming for a

moment, the asset was not put to use in the business of the

assessee, but when the plant and machinery is installed and

ready for use in the business for the relevant assessment year,

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then claim of depreciation can be allowed. Therefore, we are of

the considered view that there is no error in the findings

recorded by the learned CIT(A) to delete disallowance of

depreciation on plant and machinery. Hence, we are inclined

to uphold findings of the learned CIT(A) and reject the ground

taken by the Revenue.

of the learned CIT(A) and raised various grounds. Since the

appeal filed by the Revenue on both issues were dismissed,

the cross objection raised by the assessee becomes

infructuous and hence, the same is dismissed as not

maintainable.

and cross objection filed by the assessee is also dismissed. Order pronounced in the open court on 21st April, 2021 Sd/- Sd/- ( वी.दुगा� राव) (जी. मंजुनाथ) (V.Durga Rao) (G.Manjunatha) �या�यक सद�य /Judicial Member लेखा सद�य / Accountant Member

ITA No.1203/Chny/2018 & C.O. No.122/Chny/2018

चे�नई/Chennai, 0दनांक/Dated 21st April, 2021 DS

आदेश क( &�त2ल3प अ4े3षत/Copy to: Appellant 2. Respondent 3. आयकर आयु5त (अपील)/CIT(A) 4. आयकर आयु5त/CIT 5. 3वभागीय &�त�न�ध/DR 6. गाड� फाईल/GF.