Tribunal Allows Crop Depreciation in Pipeline Costs, Reduces Disallowance, and Restricts Section 14A Disallowance

The Tribunal allowed depreciation on crop compensation as part of pipeline costs, dismissing Revenue's appeal. It reduced disallowance of expenses attributable to capital work-in-progress from 10% to 1% and restricted disallowance under section 14A to Rs. 2,87,511/- due to absence of exempt income. The order was pronounced on 7/12/2015.

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Issues Involved:
1. Disallowance of depreciation on RoU (crop compensation), RoU (related to land users), and ROW payments.
2. Disallowance of expenditure directly attributable to capital work-in-progress.
3. Disallowance under section 14A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on RoU (Crop Compensation), RoU (Related to Land Users), and ROW Payments:

The assessee, engaged in laying pipelines for natural gas transportation, claimed depreciation on costs incurred for crop compensation, RoU, and ROW payments, treating them as part of the pipeline cost. The Assessing Officer disallowed these claims, arguing that the underlying asset is land, which is not depreciable. The CIT(A) allowed depreciation on crop compensation but upheld the disallowance for RoU and ROW payments. The Tribunal, referencing a similar case (ITA No.3222/Ahd/2009), found that crop compensation should be added to the cost of the pipeline, not land, and allowed depreciation of Rs. 5,25,65,289/-. The Tribunal dismissed the Revenue's appeal on this ground.

2. Disallowance of Expenditure Directly Attributable to Capital Work-in-Progress:

The Assessing Officer disallowed 10% of employee costs and administrative expenses, attributing them to capital work-in-progress, amounting to Rs. 1,23,48,152/-. The CIT(A) reduced this disallowance to 5%, citing the need for an estimate due to the large scale of the assessee's projects and the difficulty in precisely bifurcating expenses. The Tribunal further reduced the disallowance to 1% of employee costs and administrative expenses, totaling Rs. 12,35,815/-, considering the detailed bifurcation provided by the assessee and the lack of specific defects pointed out by the Assessing Officer.

3. Disallowance under Section 14A:

The Assessing Officer disallowed Rs. 1,53,13,165/- under section 14A, applying Rule 8D, despite the assessee's acceptance of Rs. 2,87,511/- as disallowable. The CIT(A) modified the calculation but upheld the disallowance. The Tribunal, noting that the assessee had sufficient non-interest-bearing funds and no exempt income was earned during the year, referenced the Gujarat High Court decision in CIT vs. Corrtech Energy P. Ltd. (2015) 372 ITR 97 (Guj), which held that section 14A does not apply if no exempt income is earned. Consequently, the Tribunal restricted the disallowance to Rs. 2,87,511/- as accepted by the assessee.

Conclusion:

The Tribunal partly allowed both the Revenue's and the assessee's appeals, providing relief on the grounds of depreciation on crop compensation and reducing the disallowance for capital work-in-progress and section 14A to the amounts accepted by the assessee. The order was pronounced on 7/12/2015.

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