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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
This appeal of assessee is arising out of the order of Commissioner of Income Tax (Appeals)-30, Mumbai [in short CIT(A)], in appeal No. CIT(A)-30/JC19(3)/19/2014-15 dated 03-11-2015. The Assessment was framed by the Joint Commissioner of Income, Range-16(1), Mumbai (in short ‘JCIT’) for the A.Y. 2011-12 vide order dated 04.03.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the additional depreciation claimed by assessee on wind mills under section 32(1)(iia) of the Act. For this assessee has raised the following ground No.1:-
“1. The learned CIT(A) erred in not allowing the appellant’s legitimate claim for additional depreciation of ₹ 88,70,000/- on the wind mills.”
3. Briefly stated facts are that the assessee is an individual engaged in the business of construction and development of property. During the year under consideration the assessee installed/ purchase wind mills. The AO on perusal of the details notice that the assessee has claimed depreciation at the rate of 40% since the asset is used for less than 6 months, being rate applicable for deprecation at the rate of 80%, amounting to Rs. 3,54,80,000/- purchases value of Rs. 8.87 crores for wind mills. The assessee also claimed additional deprecation at the rate of 10% instead of 20% applicable rate since the asset is used for less than 6 months. According to AO, as per the proviso to section 32(1) (iiia) of the Act additional depreciation is allowable only to those who are engaged in the business of manufacturing or production of any article or Thing. But cannot claim depreciation on installation of wind mills because it is not engaged in the manufacturing or producing of Any Article or Thing. Accordingly, he disallowed the additional claim of depreciation. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO by observing in Para 5.10 as under:-
“5.10 From the aforesaid facts and the legal position, it is manifestly clear that the appellant's activity of real estate, construction and development of property carried out during the year under appeal does not amount to 'manufacture' or 'production' of an article or thing as envisaged in section 32(1)(iia) of the IT Act and therefore, the essential condition for claiming additional depreciation that as on the date, of installation of the new plant & machinery, the assessee should already be aged in the business of manufacture or production of an article or thing, is not satisfied. Accordingly, the Assessing Officer is justified in disallowing additional depreciation (though made on a different logic) claimed by the appellant and the addition of ₹ 88,70,000/- made by the Assessing Officer does not call for any interference because of the above discussion and accordingly the same is upheld.”
Aggrieved, now assessee is in second appeal before Tribunal.
4. We have heard the rival contentions and gone through facts and circumstances of the case. We find that the AO has disallowed the depreciation on wind mills and CIT(A) confirmed only on premises that the assessee is not engaged in the business of manufacturing or production of any Article or Thing and hence, he is not entitled for additional depreciation under section 32(1)(iia) of the Act. We find that this issue is covered by the decision of Hon’ble Madras High Court in the case of CIT vs. VTM Ltd. (2009) 319 ITR 0336, wherein it is held as under:-
We are not in a position to appreciate either of the contentions of the learned counsel for the petitioner. As far as the first contention is concerned, when the Tribunal by the impugned order has applied section 32(1)( iia) of the Act, to the facts involved in the case of the assessee and has found that the assessee is entitled for the additional depreciation claimed under the said provision, it cannot be held that simply because Co-ordinate Bench of the Tribunal had earlier taken a different view, the Tribunal on this occasion also ought to have followed the same. When we find that the Tribunal has applied the law correctly in the impugned order, there is no gain saying that there was an earlier order by the Co-ordinate Bench and therefore, for that reason, this time also the Tribunal should have blindly followed its own earlier decision even if such earlier decision did not reflect the correct position of the law.
As far as the contention based on section 32(1)( iia) of the Act, is concerned, the assessment year pertains to 2005-06. The provision, which is relevant for our purpose, reads as under :
" (iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31 st day of March, 2002 , by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) :Provided that such further deduction of fifteen per cent shall be allowed to—
(A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1 st day of April, 2002 ; or (B) any industrial undertaking existing before the 1 st day of April, 2002 , during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent.
In the case on hand, the assessee is stated to have set up a wind mill at a cost of Rs. 5, 85, 60, 000. It is true that the assessee is a company engaged in the business of manufacture of textile goods. As far as application of section 32(1)( iia) of the Act, is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31-3-2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed up to 31-3- 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in section 32(1)( iia) of the Act.
In such circumstances, we are not able to appreciate the contention of the learned standing counsel for the appellant on the ground that the order of the Commissioner of Income-tax (Appeals) as confirmed by the Tribunal should be interfered with. It cannot also be said that setting up of a windmill will not fall within the expression setting up of a new machinery or plant. We do not find any error in the conclusion of the Tribunal in confirming the order of the Commissioner of Income-tax (Appeals). We, therefore, do not find any question of law much less substantial question of law to entertain this appeal. The appeal fails and the same is dismissed. No costs."
5. Similarly, even the co-ordinate Bench of this Tribunal in the case of DCIT vs. Avinash Nivruti Bhosale in for AY 2007-08 has also allowed the similar claim. We find that the AO has not doubted the genuineness of installation of wind mills nor on merits, the claim was disallowed. As the issue is covered on principles by the decision of Hon’ble Madras High Court in the case of VTM Ltd. (supra), we direct the AO to allow the claim of additional depreciation on wind mills under section 32(1) (iia) of the Act. We direct the AO accordingly.
6. The next issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the expenses relatable to exempt income under section 14A of the Act read with Rule 8D(ii) and (iii) of the Income Tax Rules 1962 (hereinafter the ‘Rules’). For this assessee has raised the following ground No. 2:-
“2. The learned CIT(A) erred in maintain disallowance of ₹ 9,13,009/- under section 14A r.w.r 8D.”
We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has earned dividend income of ₹ 22,59,461/- and also long term capital gain on shares of ₹ 2,21,902/- and claim the same as exempt. The AO noted that the assessee has claimed interest expenses of ₹ 38,120/- and hence, he made disallowance by invoking the provisions of section 14A of the Act read with Rule 8D (ii) of interest expenses of ₹ 11,776/- and administrative expenses being 0.5% of average investments at ₹ 9,01,233/-. Aggrieved, assessee preferred the appeal before CIT(A), the CIT(A) also confirmed the AO. We find from the arguments of the learned Counsel for the assessee, who is maintaining two separate set of accounts i.e. one set of business of wind mills farm which are enclosed at pages 32 to 38 and another set of business accounts of construction which are enclosed at pages 39 and 45 of assessee’s paper book. Further, the assessee has also filed personal accounts those are not part of the business accounts and in this accounts the assessee has made investments and investment in shares and earned dividend income. These accounts are enclosed in assessee’s paper book of pages 51 to 53. At page 52, assessee has enclosed capital accounts and at page 51, assessee has enclosed balance sheet which clearly depicts that the assessee’s own funds and loans funds on which net interest is paid. The assessee has following the income and expenditure in the personal account as on 31-03-2011 and the same reads as under:-
Particulars Miss Swapnali A, Bhosale 31/03/2011 Opening Balance 333,066,369 Add:- 4,121,938 Interest received Interest received on PPF 214,464 Dividend Received 2,044,997 Sale of shares Profit from proprietary Firm 273,360,589 Profit / Loss on sale of M/F 221,902 613,030,259 Less: Drawings 5,724,421 Donation 36,000 Life Insurance 102,000 Wealth Tax 96,525 Income Tax 634,562 Total Capital 606,436,751
When it was pointed out to the learned Sr. DR, he fairly stated that there is no expenditure on which disallowance can be made. We find that the entire investments in shares from where dividend income is earned as well as long term capital is earned, the assessee has not paid any interest. In such circumstances, on the given facts of the case, we are of the view that no disallowance can be attributed to the exempt income and hence, we delete the disallowance and allow this issue of assessee appeal.
In the result, the appeal assessee is allowed.
Order pronounced in the open court on 11-04-2018.