MOTI UDHARAM PANJABI,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

आदेश / ORDER आदेश आदेश आदेश

PER R.S.SYAL, VP :

This appeal by the assessee arises out of the order passed by the CIT(A)-12, Pune, dated 09-10-2015 in relation to the assessment year 201-12.

Rs.50,76,731/- in total, which was bifurcated as Rs.41,51,812/-

under HO; Rs.9,18,420 under ‘Swiss Country’; and Rs.6,499/- under

‘Silver Mist’. The AO observed that almost 80% of depreciation was

claimed by the assessee in non-80IB project, namely, HO, which was

not appropriate. He rejected the assessee’s claim that separate books

of account were maintained for each project and hence the

disallowance of depreciation was not permissible. In the backdrop of

such an allocation made by the assessee, the AO disallowed 25% of

depreciation claimed by the assessee in the HO project and allocated

it to non-80IB projects namely, ‘Swiss County’ and ‘Silver Mist’ in the

ratio of their closing stocks. This led to an addition of

Rs.10,37,953/-. The assessee approached the Ld. CIT(A) against

such a disallowance. The Ld. first appellate authority has drawn a

chart of assets on page 17 of his order giving project-wise location of

different assets. He, inter alia, observed that all the relevant assets

necessary for construction projects and vehicles were appearing as

assets of HO. As such, it was held that it was not possible to carry

out construction projects without the use of any construction

machinery by the eligible projects. That is how, he opined that all the

assets of the assessee were being used commonly for all the projects.

The total amount of depreciation was allocated between the HO,

‘Swiss County’ and ‘Silver Mist’ in the ratio of increase in inventory as

added by the amount of sales. This led to the allocation of

depreciation to the HO at Rs.7,55,417/- and the balance amount of

depreciation was apportioned between the eligible projects, which

resulted into enhancement of disallowance of depreciation by Rs.23,58,442/-. The assessee is aggrieved by such an enhancement

of amount of depreciation.

on record, it is found as admitted position that the assessee earned

income from the HO, ‘Swiss County’ and ‘Silver Mist’ projects.

Whereas income from the HO project is chargeable to tax, income

from ‘Swiss County’ and ‘Silver Mist’ is admittedly eligible for

deduction u/s.80IB of the Act. The assessee allocated a larger chunk

of assets and the resultant depreciation to non-eligible project of the

HO so as to depress the amount of profit chargeable to tax. The fact

that the assessee was maintaining separate books of account and the

assets were shown distinctly, cannot be a ground to allocate

depreciation appropriately, if the assessee has considered majority of

assets in non-eligible project, but such assets were also used by the

eligible projects, as is the case under consideration. The Ld. CIT(A)

has aptly pointed out that the assessee has not shown several

important assets in the eligible units without which no construction

activity could have been carried out. We, therefore, uphold, in

principle, the action of the authorities below in making disallowance

of depreciation.

disallowed, we find that the Ld. CIT(A) has bifurcated total amount of

depreciation in three projects in the ratio of increase in inventory as

added by amount of sales under the respective projects. Such a

mechanism of allocation of depreciation is not fully appropriate. In

our considered opinion, the disallowance can be correctly made by

firstly allocating the assets to the respective projects which exclusively used such assets. Then the common assets, which are

used by all the eligible and non-eligible projects, should be

separately identified. Depreciation on such commonly used assets

should be allocated amongst the three projects including two eligible

units. The Ld. CIT(A) allocated the total amount of depreciation in

the ratio of increase in inventory as added by the amount of sales. In

our considered opinion, the more rational basis for allocation of

depreciation on common assets in the given peculiar circumstances,

is increase in inventory as added by cost of goods sold. We, therefore,

set aside the impugned order and remit the matter to the file of AO

for computing the disallowance of depreciation in the manner

aforestated, after proper opportunity of hearing to the assessee.

enhancement of addition made by the Ld. CIT(A) out of Salaries and

Wages.

Wages totalling to Rs.1.96 crore and odd, which was bifurcated

amongst the three projects at Rs.62.03 lakh under the HO, Rs.92.01

lakh under ‘Swiss County’ and Rs.15.75 lakh under ‘Silver Mist’. The

AO observed that in the HO project, the assessee was mainly in land

dealings requiring lesser use of manpower as compared to the use of

manpower needed in the construction projects, namely, eligible 80IB

projects. Applying the ratio of closing stock of the three projects of

the assessee, the AO made disallowance of Rs.31,47,157/-. The Ld.

CIT(A) applying the same yardstick as for depreciation, increased the

amount of disallowance to Rs.52,80,650/-, against which the

assessee has approached the Tribunal.

material on record, we find that the assessee did not appropriately

allocate the amount of Salary and Wages to the eligible and non-

eligible projects. It is an admitted position that under HO project,

the assessee was mainly in land dealings and did not undertake any

construction activity, which work was being done under the eligible

projects. In such a scenario, the allocation of the amount of Salary

and Wages is also required to be done accordingly. Following the

view taken hereinabove, we set aside the impugned order and remit

the matter to the file of AO for firstly ascertaining the amount of

Salary and Wages relatable to specific projects, namely, the HO,

‘Swiss County’ and ‘Silver Mist’, and then the common amount of

Salary and Wages, which cannot be specifically identified with a

particular project, should be apportioned in the ratio of increase in

inventory as added by the amount of cost of goods sold under the

three projects. Needless to say, the assessee will be allowed a

reasonable opportunity of hearing.

disallowance u/s.14A to the tune of Rs.4,83,625/-.

Finance charges of Rs.2.02 crore and odd in its Profit and loss

account, out of which a sum of Rs.1.72 crore was allocated to the HO

project. The AO made allocation of such Finance charges in the ratio

of closing stock of the three units, which led to the disallowance of

Rs.1.35 crore. The Ld. CIT(A) held that the action of the AO in

allocating Finance charges to the HO and the other two eligible

projects was not justified. He however invoked the provisions of section 14A and computed disallowance under Rule 8D at

Rs.4,83,625/-. The assessee is aggrieved by the sustenance of

addition u/s.14A. There is no cross appeal by the Revenue against

the deletion of addition of Finance charges.

material on record. Circular No.37/2016 dated 02-11-2016 provides

that where an assessee is entitled to deduction under Chapter VIA of

the Act and the AO makes certain disallowances, such as pertaining

to section 32, 40(a)(ia), 40A(3) or 43B etc. which led to increase in the

amount of profits, then deductions in respect of income covered

under Chapter VIA should be allowed on resultant enhanced income.

The effect of such circular is that, if there is some increase in the

profit by virtue of certain additions or disallowances made by the AO

on account of disallowance of expenses etc., then the eligible income

for deductions under Chapter VI of the Act should be enhanced

accordingly and the deductions should be allowed at such an

enhanced amount. Under such circumstances, we set aside the

impugned order to this extent and direct the AO to add back the

amount of such disallowance made by the ld. CIT(A) u/s 14A and

then allow deduction u/s 80IB(10) of the Act accordingly.

Order pronounced in the Open Court on 02nd November, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (R.S.SYAL) �याियक सद�य �याियक �याियक �याियक सद�य सद�य /JUDICIAL MEMBER उपा�य� सद�य उपा�य� उपा�य�/ VICE PRESIDENT उपा�य� पुणे Pune; �दनांक Dated : 02nd November, 2018 सतीश

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT (Appeals)-12, Pune. 3. आयकर आयु� / The Pr. CIT-11, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी 5. बी बी” / DR ‘B’, बी ITAT, Pune; गाड� फाईल / Guard file. 6.

// True copy // आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune *