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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by assessee is against the order of Commissioner of Income Tax (Appeals)-VI, Kolkata dated 10.12.2012. Assessment was framed by DCIT, Circle-6, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 26.12.2011 for assessment year 2009-10. Assessee has raised its ground assessee as under:- “Based on the facts and the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-VI [hereinafter referred to as ‘learned CIT(A)] erred in upholding the order [dated 26 December 2011 issued by the Deputy Commissioner of Income Tax, Circle 6, Kolkata (hereinafter referred to as ‘the AO') under section 143(3) of the Income- Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 2 tax Act, 1961 (‘the Act’) in relation to the Assessment Year (‘AY') 2009- 10, relevant to the previous year ended 31 March 2009, in the case of Century Enka Limited (hereinafter referred to as ‘the Appellant’) on certain grounds.
On the facts and circumstances of the case, the learned CIT(A):
Disallowance under section 32(1)(iia) of the Act.
Erred in not allowing the claim of the Appellant that the balance additional depreciation amounting to rs.1,832,362/- on the asses which were put to use for less that 180 days in the immediately preceding assessment year (i.e., AY 2009-10) could be claimed in the subject assessment year; 2. Erred in disregarding the fact that carry forward of unclaimed additional depreciation of immediately preceding assessment year (i.e., AY 2008-09) is not restricted under the provisions of the Act; 3. Erred in holding that additional depreciation is allowed only in the year of purchase of assets; 4. Failed to appreciate that the balance additional depreciation @ 10% had already vested in the hands of the Appellant under section 32(1)(iia) of the Act in the year in which the asset had been purchased i.e., in AY 2008-09 and rightly claimed in the current year;
Disallowance under section 14A of the Act r.w.r. 8D of the Income Tax Rules 1962 (‘Rules’)
5. Erred in confirming the disallowance amounting to Rs.958,584/- made by the AO under section 14A of the Act, read with Rule 8D of the Rules; 6. Erred in disregarding the fact that the investments were made by the Appellant from its own funds and since no expenditure was incurred in earning the exempt income, noting can be disallowed under section 14A of the Act; 7. Erred in disregarding the fact that the income exempt from tax has been earned from investments made in the period prior to 1995-96 and no movement (i.e., purchase / sale) has occurred in the same during the AY 2009-10 and hence no efforts / expense have been incurred for earning such exempt income; 8. Without prejudice to the above, failed to appreciate that the Appellant has adequate own fun for making investment and hence, disallowance of proportionate interest expense under section 14A of the Act cannot be made; 9. Without prejudice to the above, 1% of dividend income can be said to be reasonable expenditure under section 14A of the Act; Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 3 Disallowance of provision for leave encashment claimed as deduction 10. Erred in confirming the disallowance amounting to Rs.5,049,661/- made by the AO with regard to provision for leave encashment;
11. Failed to appreciate that provision for leave encashment is a liability for normal business expenses and not a statutory liability or contingent liability and the Appellant was entitled to make provisions for the same and thereby entitled to deduction under the Act;
Failed to appreciate that the App’s position is based upon the decision of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd and Others vs. UOI [(2007) 292 ITR 470 (HC Kol)]. Further, the Hon'ble Supreme Court has also permitted Exide Industries Ltd to claim the deduction on the provision for leave encashment made by it;
Interest under section 234B and 234C of the Act
Erred in levy of interest under section 234B and 234C of the Act.
Inter-connected grounds raised
by assessee in ground No. 1 to 4 in this appeal is that Ld. CIT(A) erred in confirming the action of Assessing Officer by sustaining the disallowance of additional depreciation for an amount of Rs.18,32,362/- by wrongly interpreting the provision of Sec. 32(1)(iia) of the Act.
3. Briefly stated facts are that assessee is a Limited Company and engaged in manufacturing and sale of polyester chips/ polyester yarn, nylon tyre cord/ fabrics etc. During the year assessee has claimed additional depreciation for Rs.18,32,362/- on the addition of plant and machinery purchased in the financial year 2007-08 u/s 32(1)(iia) of the Act as in the year of purchase the aforesaid plant and machinery was put to use for a period less than 180 days. So that year, the assessee claimed 50% of the additional depreciation and another 50% additional depreciation was claimed again by assessee in the financial year 2008-09 i.e. the year under consideration which was not allowed by Assessing Officer on the ground that additional depreciation is available exclusively in the year of purchase and same cannot Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 4 be claimed in subsequent year. Accordingly, AO disallowed the additional depreciation of Rs.18,32,362/- and added it to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO.
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
Shri Akash Mansinka and Mr. Vivek Ruia, Ld. Authorized Representatives appeared on behalf of assessee and Shri Kalyan Nath, Ld. Departmental Representative appeared on behalf of Revenue.
At the outset, it was observed that the issue is squarely covered in favour of assessee and against the Revenue in its own case in dated 18.05.2016, the relevant extract is reproduced below:- “7. We have heard rival submissions and perused the material available on record the Ld. AR stated that the Ld. CIT(A) relied on the decision of his predecessor in the case of M/s Birla Corporation Ltd. for AY 2007-08 and upheld the addition made by the Ld. AO. The Ld. AR placed on record the copy of the decision of the Co-ordinate Bench of this Tribunal in the case of Birla Corporation Ltd. Vs. DCIT in ITA No. 683/Kol/2011 for AY 2007-08 dated 08.12.2014, wherein this Tribunal held that the assessee is entitled to claim the remaining portion of 50% additional depreciation in the subsequent year. He also placed on record another decision of Coordinate Bench of this Tribunal in assessee’s own cases for AY 2006-07 reported in (2015) 154 ITD 426 (Kolkata), which in turn placed reliance on the decision of Birla Corportion Ltd., supra. The decisions cited by Ld. AR were fairly conceded by the ld. DR. we find that the issue involved is squarely covered by the decision of Coordinate bench by this Tribunal in assessee’s own case reported in (2015) 154 ITD 426 (Kolkata), wherein it was held as under:- ‘The issue on proposition of law regarding allowance of remaining additional depreciation in the next assessee year u/s 32(1)(iia) of the Act was covered in favour of assessee and against revenue by the decision of coordinate bench of ITAT Kolkata ‘A’ Bench in the case of Birla Corporation Ltd. Vs. DCIT in ITA No. 683/Kol/2011 for the assessment year 2007-08 dated 8-12-2014, wherein it was held that extra depreciation allowable u/s. 32(1)(iia) is an extra incentive which has been earned and calculated in the year of acquisition but restricted Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 5 for that year to 50% on account of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s. 32 shall definitely not exceed the total cost of machinery and plant. Thus, assessee is entitled for the balance 50% additional depreciation in view of sec. 32(1)(iia) of the Act in the next assessment year for remaining unutilized additional depreciation.’
Respectfully following the aforesaid decision, we allow the ground no. 1 as raised by the assessee.”
Taking a consistent view in assessee’s own case in (supra) we allow this ground of assessee’s appeal.
Coming to next inter-connected ground No.5 to 9 is that Ld. CIT(A) erred in confirming the action of AO by sustaining disallowance amounting to Rs.9,58,584/- u/s 14A of the Act r.w.s Rule 8D of the IT Rules, 1962.
During the year, assessee earned tax free income by way of dividend of Rs.53.15 lacs but no expense against such income was disallowed. The AO during the course of assessment proceeding invoked the provision of Sec. 14A of the Act and disallowed a sum of Rs.9,58,584/- in terms of Rule 8D of the Rules and added to the total income of assessee.
Aggrieved assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- “33. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant has average investments amounting to Rs.319,00000/- and has paid interest amounting to Rs.25,66,00,000/- o the borrowings. The appellant has not disallowed any expenditure for earning the exempted dividend income amounting to Rs.53,14,994/-. The appellant has its share capital of Rs.20.45 crores and general reserve of Rs.308.42 crors. The appellant has further clarified an amount of Rs.113.10 crores as profit from the current year. 34. Therefore, in the facts & circumstances as discussed and following the judgments of the Hon'ble Appellate Authorities including the Hon'ble jurisdictional High Court in the case of ISG Traders Ltd. vs. CIT-III, Kolkaa & Dhanuka & Sons v. CIT (Central)-I; the Hon'ble Special Bench of ITAT in the case of Cheminvest Ltd. v. Income-tax Office5r, New Delhi and the Hon'ble Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 6 ITAT Delhi Bench ‘H’ in the case of Technopak Advisors (P) Ltd. v. Additional Commissioner of Income-tax, Range-16, New Delhi and Sonata Information Technology td. V. Deputy Commissioner of Income Tax LTU, Mumbai reported in 2012-TIOL-721-ITAT-MUM the disallowance of Rs.9,58,584/- as per Rule 8D read with section 14A is upheld. The additions made by the Assessing Officer of Rs.9,58,584/- is upheld. This ground of appeal is dismissed.”
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
We have heard rival contentions and perused the materials available on record. At the outset, we observe that issue raised by assessee is squarely covered in favour of assessee in assessee’s own case in dated 18.05.2016 (supra) where the Tribunal has decided this issue in para 14 & 15, for the sake of clarity, the relevant extract of this order reproduced below:- “14. We have heard rival submissions and perused the material available on record including the various case laws relied upon by both the sides. We find from the facts of the instant case that the Learned AO has not examined the accounts of the assessee and there is no satisfaction recorded by the Learned AO about the correctness of the claim of the assessee and without the same, he invoked Rule 8D(2) of IT Rules. While rejecting the claim of assessee with regard to expenditure in relation to exempt income, the Learned AO has to indicate cogent reasons for the same. We find that the Learned AO had straight away embarked upon computing disallowance under Rule 8D(2) of the Rules. We find that the case laws relied upon by the Learned AR on the decision of the jurisdictional High Court are directly on this point and in favour of the assessee. CIT vs Ashsish Jhunjhunwala in G.A. No.2990 of 2013 in ITAT No. 157 of 2013 dated 8.1.2014 rendered by Calcutta High Court. ‘While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case, it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. in view of the above and respectfully following the coordinate bench decision in the case of J.K.Investors (Bombay) Ltd., supra, we uphold the order of CIT(A).’ Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 7 CIT VS R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Calcutta High Court "The Assessing Officer also disallowed the expenditure under section 14A of the income Tax Act, 1961 without first recording that he was not Integrated Coal Mining Ltd satisfied with the correctness of the claim as regards the claim that "no expenditure" was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed". Hence, we hold that the action of the Ld. AO in directly embarking on Rule 8D(2) of the Rules is not appreciated and hence no disallowance u/s. 14A of the Act could be made in the facts of the instant case.
From the aforesaid chart reproduced in para 11 above, we also find that the assessee has got sufficient own funds which are several times more than the investments made by the assessee. Hence, it can be safely concluded that borrowed funds have not been utilized for the purpose of making investments. Accordingly, we hold that the provisions of Rule 8D(2)(ii) of the Rules could not be invoked in the facts and circumstances of the case. In this regard, we place reliance on the decision of the Hon'ble Bombay High court in the case of CIT Vs. Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Born). We also are in agreement with the arguments of the Ld. AR that investments yielding dividend income alone are to be considered for the purpose of making disallowance u/s. 14A of the Act read with Rule 8D of the rules. However, this aspect would become infructuous in view of our finding recorded hereinabove that provisions of Rule 8D(2) of the Rules could not be invoked in the facts and circumstances of the case for want of satisfaction in terms of Rule 8D(1) of the Rules by the Ld. AO. In view of the aforesaid findings and decided judicial precedents, we allow ground nos. 7 to 10 raised by the assessee. We also find that ground no. 11 raised by the assessee would become infructuous in view of our decision given for ground nos. 7 to 10.”
We further find that there is no change in the investment of shares and securities of the company and there is surplus own fund available with the assessee. The facts of the instant case are exactly identical as of in the own case of the assessee. Taking a consistent view of the Co-ordinate Bench of this Tribunal in assessee’s own case in ITA No. 335/Kol/2012 (supra) we allow ground of assessee’s appeal.
Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 8 10. Next interconnected ground No. 10 to 12 of assessee’s appeal is that Ld. CIT(A) erred in confirming the action of AO by sustaining the disallowance of Rs,50,49,661/- on account of leave encashment.
At the outset, we find that similar issue has been decided by this Hon’ble Tribunal in Revenue’s appeal in the own case of the assessee in dated 18.05.2016 (supra), where the Tribunal remitted back this issue to the file of AO for fresh adjudication in terms of decision of Hon'ble Supreme Court, the relevant extract of the order in para-4 for the sake of clarity is reproduced below:- “4. We have heard rival submissions and perused the material available on record. We find that the Ld. CIT(A) had allowed the claim of the assessee in respect of provision made for leave encashment by placing reliance on the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. reported in Vs. Union of India (2007) 292 ITR 470 (Cal) but Ld. Sr. DR before us argued that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court vide order dated 08-05-2009 by following observations:- ‘Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statue Book but at the same time it would be entitled to make claim in its returns.’ In view of the above, Ld. counsel for the assessee fairly stated that let Hon'ble Supreme Court decided the issue and by that time the mater can be remitted back to the file of AO for fresh adjudication in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of Revenue’s appeal is remitted back to the file of AO and is allowed for statistical purposes.”
Taking a consistent view of this Tribunal in (supra) we remit this issue to the file of AO for fresh adjudication in accordance with law.
Century Enka Ltd. v. DCIT, Cirl-6 Kol. Page 9 Assessee is directed to extend full cooperation to the AO. Hence the ground raised by the assessee is allowed for statistical purpose.
12. Next ground of assessee’s appeal is u/s 234B and 234C of the Act as we have already partly allowed assessee’s appeal this issue is premature stage and does not require any adjudication.