Depreciation and section 80IB principles applied to reject higher claims on boilers, trucks and duty drawback; section 14A disallowance deleted.

Higher depreciation was not allowable on boilers and trucks because the applicable depreciation schedule prescribed 80% for specialised boilers and energy-saving devices, and the truck claim exceeded the relevant entry; the claim was rejected. Deduction under section 80IB could not be extended to duty drawback because it was treated as an incentive not derived from the eligible industrial undertaking; the disallowance was upheld. Section 14A disallowance was not justified because the assessee had sufficient own funds for the investments and no demonstrable nexus between expenditure and exempt income was shown; the deletion of the addition was sustained.

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Issues: (i) whether higher depreciation was allowable on boilers and trucks; (ii) whether deduction under section 80IB of the Income-tax Act, 1961 could be denied in respect of duty drawback; (iii) whether disallowance under section 14A of the Income-tax Act, 1961 was justified.

Issue (i): whether higher depreciation was allowable on boilers and trucks.

Analysis: The prescribed rate of depreciation for specialized boilers and energy-saving devices under Appendix I, Part A, III, item 8(ix) was 80%, and the claim for 100% depreciation was not consistent with the depreciation table. For trucks used for the assessee's own business, the claim for a higher rate was not accepted in view of the applicable depreciation entry and the view already taken in the assessee's own case.

Conclusion: The claim for higher depreciation on boilers and trucks was rejected.

Issue (ii): whether deduction under section 80IB of the Income-tax Act, 1961 could be denied in respect of duty drawback.

Analysis: Duty drawback was treated as a benefit not derived from the eligible industrial undertaking, and the denial of deduction was supported by the controlling principle that such incentives do not qualify as profit derived from the undertaking for section 80IB purposes.

Conclusion: The disallowance of deduction under section 80IB on duty drawback was upheld.

Issue (iii): whether disallowance under section 14A of the Income-tax Act, 1961 was justified.

Analysis: The assessee had sufficient own funds to cover the investments yielding exempt income, and no fresh investment-based nexus warranting disallowance was established. In such circumstances, section 14A could not be invoked to make the addition.

Conclusion: The deletion of the disallowance under section 14A was sustained.

Final Conclusion: The assessee's appeals failed, while the Revenue's appeal on section 14A also failed, leaving the tax consequences substantially undisturbed.

Ratio Decidendi: Depreciation must be granted only at the rate prescribed in the applicable depreciation schedule, section 14A disallowance requires a demonstrable nexus between expenditure and exempt income, and exempt- income-related incentives such as duty drawback do not automatically qualify for deduction as profits derived from the undertaking.

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