Revenue's Appeal Allowed Statistically; Assessee's Appeal Partly Allowed. Delay Condoned, Leave Encashment Pending. Tribunal Allows Additional Depreciation.

The Revenue's appeal was allowed for statistical purposes, and the assessee's appeal was partly allowed. The delay in filing the Revenue's appeal was condoned, and the appeal was admitted for hearing. The issue of leave encashment provision was remitted back to the AO pending the Supreme Court's decision. The Tribunal allowed the claim for the leftover additional depreciation. The disallowance under Section 14A read with Rule 8D was not upheld due to lack of cogent reasons by the AO. As no disallowance under Section 14A was made, the issue of disallowance to the book profit under Section 115JB did not arise.

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Issues Involved:
1. Condonation of delay in filing the appeal by the Revenue.
2. Allowance of leave encashment provision.
3. Entitlement to claim the leftover portion of additional depreciation.
4. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
5. Disallowance under Section 14A to the book profit computed under Section 115JB of the Income Tax Act.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal by the Revenue:
The Revenue's appeal was delayed by 10 days. A condonation petition was filed explaining the reason for the delay. The assessee did not object to the condonation. Consequently, the delay was condoned, and the appeal was admitted for hearing.

2. Allowance of Leave Encashment Provision:
The issue was whether the provision made for leave encashment amounting to Rs. 1,47,66,197/- was allowable. The CIT(A) had allowed the claim based on the decision of the Calcutta High Court in the case of Exide Industries Ltd. However, the Supreme Court had stayed this judgment. The assessee's counsel agreed that the matter should be remitted back to the AO for fresh adjudication pending the Supreme Court's decision. The Revenue did not object. Therefore, the issue was remitted back to the AO to await the Supreme Court's decision.

3. Entitlement to Claim the Leftover Portion of Additional Depreciation:
The assessee claimed the remaining 50% of additional depreciation (Rs. 9,02,49,544/-) for assets put to use for less than 180 days in the previous year. The AO disallowed this claim, and the CIT(A) upheld the disallowance. The Tribunal found that the issue was covered by its earlier decisions, which allowed the claim for the remaining additional depreciation in the subsequent year. Consequently, the Tribunal allowed the assessee's claim for the leftover additional depreciation.

4. Disallowance under Section 14A read with Rule 8D:
The AO made a disallowance of Rs. 11,05,019/- under Section 14A read with Rule 8D, which was upheld by the CIT(A). The Tribunal noted that the AO had not recorded any satisfaction regarding the correctness of the assessee's claim that no expenditure was incurred to earn the exempt income. The Tribunal emphasized that the AO must indicate cogent reasons for rejecting the assessee's claim before invoking Rule 8D. Since the AO failed to do so, the Tribunal held that no disallowance under Section 14A could be made. Additionally, it was established that the assessee had sufficient own funds, and borrowed funds were not used for investments. Thus, the provisions of Rule 8D(2)(ii) were not applicable.

5. Disallowance under Section 14A to the Book Profit Computed under Section 115JB:
The Tribunal held that since no disallowance under Section 14A was warranted, the question of making any disallowance to the book profit computed under Section 115JB did not arise. Consequently, the grounds related to this issue were allowed.

Conclusion:
The appeal by the Revenue was allowed for statistical purposes, and the appeal by the assessee was partly allowed. The Tribunal pronounced the order in the open court on 18.05.2016.

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