Tribunal decision: Revenue appeal partly allowed, issues remitted for reconsideration

The Tribunal partly allowed the Revenue's appeal. The issue of disallowance under Section 14A was remitted back to the Assessing Officer for reconsideration, the additional depreciation on plant and machinery was denied, and the deduction under Section 80IA for windmills was upheld.

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Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Additional depreciation on plant and machinery.
3. Deduction under Section 80IA of the Income Tax Act for windmills.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The Revenue challenged the deletion of disallowance made under Section 14A amounting to Rs. 35,00,000/-. The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted this disallowance, relying on the jurisdictional ITAT's decision in the case of EIH Associated Hotels, which stated that investments in subsidiary companies made for business expediency should not be considered for disallowance under Section 14A. The Revenue argued that the CIT(A) overlooked the Board's Circular No. 5/2014, which allows disallowance under Section 14A even if no exempt income is received. The Tribunal, after considering rival submissions and judicial precedents, remitted the issue back to the Assessing Officer to verify and exclude investments in group companies for the purpose of disallowance under Section 14A, providing the assessee an opportunity to be heard.

2. Additional Depreciation on Plant and Machinery:
The Revenue contested the deletion of additional depreciation on plant and machinery amounting to Rs. 62,63,733/-. The CIT(A) allowed the depreciation, relying on the previous year's order, stating that the assessee's activity of manufacturing ready-mix concrete qualifies for additional depreciation. However, the Tribunal found that the activity of producing ready-mix concrete does not amount to manufacturing as per the Apex Court's decision in CIT vs. N.C. Budharaja & Company and other judicial precedents. The Tribunal set aside the CIT(A)'s order and allowed the Revenue's ground, denying the additional depreciation.

3. Deduction under Section 80IA of the Income Tax Act for Windmills:
The Revenue challenged the CIT(A)'s decision to allow the deduction under Section 80IA amounting to Rs. 34,30,895/-, which was denied by the Assessing Officer by notionally setting off brought forward losses. The CIT(A) allowed the deduction, following the jurisdictional High Court's decision in CIT vs. Velayuthasamy Spinning Mills. The Tribunal upheld the CIT(A)'s order, stating that the judgment of the Madras High Court is binding and the mere pendency of a Special Leave Petition before the Supreme Court cannot be a reason to take a different view. Thus, the Tribunal found no infirmity in the CIT(A)'s order and dismissed the Revenue's ground.

Conclusion:
The Tribunal partly allowed the Revenue's appeal. The issue of disallowance under Section 14A was remitted back to the Assessing Officer for reconsideration, the additional depreciation on plant and machinery was denied, and the deduction under Section 80IA for windmills was upheld. The order was pronounced on September 8, 2016, at Chennai.

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