THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1), VISAKHAPATNAM vs. PRATHYUSHA GLOBAL TRADE PRIVATE LIMITED, VISAKHAPATNAM
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
Per contra, the Ld. Departmental Representative [DR] relied on the order of the Ld. AO.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is an admitted fact that the electricity connection is in the name of the Director of the company whereas the assessee claims expenditure with respect to electricity charges paid in the name of business of the assessee claiming that it is for the purpose of business of the assessee. On a query from the Bench asking that why the electricity charges are very meagre as compared to 70 ponds wherein the electricity charges should have been substantially more, the Ld. AR replied that part of the electricity was used by way of generator hence the consumption of electricity through the electricity connection in the name of the Director is minimal. However, no such evidence was produced before us to state that this expenditure was incurred purely for
6 the purpose of business and not for the personal use of the Director since the meter is in the name of the Director. In the absence of any cogent evidence, we have no hesitation to uphold the order of the Ld. AO thereby setting aside the order of the Ld. CIT(A) on this issue. The case laws relied on the by the Ld. AR on the decision of the Hon’ble Supreme Court in the case of S.A Builders v. CIT (Appeals), [2007] 288 ITR 1 (SC) is of no help to the assessee. Thus, Ground No.2 raised by the Revenue is allowed.
Grounds No. 3, 4 & 5 are with respect to disallowance of depreciation. At the outset, the Ld. DR submitted that the assessee has claimed the expenditure incurred for the ponds as capital expenditure and has claimed depreciation @ 100% on the same. The Ld. AO has considered the capital asset as plant and machinery and by relying on the decision of the Hon’ble Supreme Court in the case of CIT vs. Victory Aqua Farm Ltd [2015] 379 ITR 335 (SC) has denied the depreciation of 85% additionally claimed by the assessee. The Ld. DR further submitted that the Ld. CIT (A) has considered the alternative plea of the assessee that this is a revenue expenditure and allowed the deduction U/s. 37(1) of the Act by not providing any opportunity to examine the payments by the Ld. AO. The Ld. DR further submitted that it is a fact that the
7 assessee has incurred various expenditure which are capital in nature and later on claimed it as a revenue expenditure before the Ld. CIT(A) is not valid in law. He therefore pleaded that the order of the Ld. AO be upheld. Per contra, the Ld. AR relied on the order of the Ld. CIT(A).
We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities on the issue. Admittedly, the assessee has incurred expenditure for the construction of 70 ponds and has claimed it as capital expenditure in the books of accounts of the assessee and has also claimed depreciation @ 100% on the same. Later on, the assessee claimed it as a revenue expenditure stating that the assessee has incurred this expenditure for the purpose of clearing, excavation, drilling and levelling of the agricultural land. In the case relied on by the Ld. DR on the ratio laid down by the Hon’ble Supreme Court in the case of ACIT vs. Victory Acqua Farm Ltd [2015] 61 taxmann.com 166 (SC) the Hon’ble Apex Court in para 6 of their order has clearly held that based on the ‘functional test’ the ponds which were designed for rearing / breeding of the prawns, they have to be treated as tools of the business of the assessee and the depreciation was admissible on these ponds. In the instant case, the assessee has incurred various expenditure for the construction of the ponds which are considered as
8 capital in nature by the assessee itself and has claimed 100% depreciation on the same. However, the Ld. CIT(A) subsequently allowed the alternative plea of the assessee that it is a revenue expenditure and allowed it U/s. 37(1) of the Act. From the submissions of the Ld. AR, we find that this expenditure was incurred for excavation, levelling, clearing and earth work for about 70 ponds which in our opinion are capital in nature and was used as a tool for the business of the assessee. We therefore are of the considered view that this expenditure constitutes plant and machinery of the assessee and hence the Ld. AO has is correct in allowing the depreciation @ 15% of expenditure incurred by the assessee thereby disallowing the 85% excess claim of the assessee. To conclude, we do not find any infirmity in the order of the Ld. AO and accordingly, we hereby set-aside the order of the Ld. CIT (A) on this issue. Accordingly, Grounds No. 3, 4 & 5 raised by the Revenue are allowed.
With respect to Ground No.6 of the Grounds of Appeal deleting the addition U/s. 14A of the Act, the Ld. DR submitted that the assessee has received exempt income of 12.59 lakhs as dividend from the investment of Rs. 2.50 Crs in the equity share of M/s. Prathyusha Associates Shipping Pvt Ltd. The Ld. AO has rightly invoked the provisions of section 14A r.w.r 8D(1)(b) of the Act and has made a disallowance of Rs.
9 1,25,000/- being 0.5% of the investment made by the assessee. However, the Revenue could not accept the receipt dividend income by the assessee. Per contra the Ld AR submitted that the Ld. CIT(A) has examined the computation of income as well as the P & L Account and has found that no dividend income was received by the assessee. The assessee has also relied on the ratio laid down by the Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics (P.) Ltd [2018] 95 taxmann.com 250 (SC) and the decision of the Hon’ble Madras High Court in the case of Redington (India) Ltd vs. Addl. CIT [2017] 392 ITR 633 (Madras).
It is a settled principle that when there is no exempt income, no disallowance can be made U/s. 14A of the Act for the relevant assessment year. The Revenue has also not demonstrated that assessee received dividend income (exempt) during the impugned AY. Therefore by relying on the various judicial pronouncements, as aforesaid, we hereby found no infirmity in the order of the Ld. CIT(A) while deleting the addition made U/s. 14A of the Act and thereby dismiss the ground raised by the Revenue.
Further, we find from the written submissions made by the assessee that the assessee has invoked Rule 27 of the ITAT Rules wherein the assessee has contested the order of the Ld. CIT(A) stating
10 that he has failed to adjudicate the legal ground. The contention of the Ld. AR is that the case was selected for limited scrutiny for the purpose of examining the additional depreciation whereas the Ld. AO has travelled beyond his jurisdiction without following the Central Board of Direct Taxes [“CBDT”] Circular dated 8/9/2010.
Per contra, the Ld. DR relied on the order of the Ld. AO.
We have heard both the sides and perused the material available on record as well as the written submissions of the assessee. For the sake brevity, we may extract below the CBDT Circular relied on by the Ld. AR:
12 The above Circular clearly states that the scrutiny of the case would be only to the aspects of information received through AIR. In the instant case, we find that the case was selected for scrutiny under CASS is not based on the information received through AIR but based on the return filed submitted by the assessee. We therefore are of the considered view that the CBDT Circular (supra) relied on by the Ld. AR is of no assistance to him. Further, we find that the Ld. AO has rightly exercised his powers while doing the scrutiny assessment. Reliance placed by the Ld. AR on the decision of the Coordinate Bench of Pune in the case of Surendra Bhimsen Agarwal in ITA No. 637/PUN/2013 (AY 2009-10), dated 4/9/2019 is distinguishable on the fact that the said case was selected for scrutiny based on the AIR returns and hence the CBDT Circular (supra) applies to that case. However, in the instant case, the case was not selected for scrutiny based on the AIR returns and hence the said Circular cannot be applied. We therefore reject the petition filed by the assessee by invoking the provisions of Rule 27 of the ITAT Rules.
In the result, appeal filed by the Revenue is partly allowed and the petition filed by assessee under Rule 27 of the ITAT Rules is dismissed.
Pronounced in the open Court on 28th May, 2024.
Sd/- Sd/- (दुव्िूरु आर. एल रेड्डी) (एस बालाकृष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER लेखासदस्य/ACCOUNTANT MEMBER Dated :28.05.2024 OKK - SPS
आदेशकीप्रतिलिपिअग्रेपिि/Copy of the order forwarded to:- निर्धाररती/ The Assessee–M/s. Prathyusha Gloabal Trade Private 1. Limited, Prathyusha House, D.No. 25-40-12, Near Lakshmi Talkies, Visakhapatnam-530001, Andhra Pradesh. रधजस्व/The Revenue –DCIT, Circle-3(1), Income Tax Office, Infinity 2. Towers, Shankaramatham Road, Santhipuram, Visakhapatnam, Andhra Pradesh – 530016. 3. The Principal Commissioner of Income Tax, आयकरआयुक्त (अपील)/ The Commissioner of Income Tax 4. ववभधगीयप्रनतनिधर्, आयकरअपीलीयअधर्करण, ववशधखधपटणम/ 5. DR,ITAT, Visakhapatnam गधर्ाफ़धईल / Guard file 6. आदेशधिुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
