2016 (11) TMI 1705 - AT - Income Tax

Tribunal grants assessee relief on various issues including section 153C, additional depreciation, and 14A disallowance

DCIT, Central Circle-XX, Kolkata Versus M/s Dhansar Engg. Co. Pvt. Ltd. AND Vice-Versa.

DCIT, Central Circle-XX, Kolkata Versus M/s Dhansar Engg. Co. Pvt. Ltd. AND Vice-Versa. - TMI Issues Involved:1. Condonation of delay in filing Cross Objections (COs).2. Validity of proceedings under section 153C of the Income Tax Act.3. Eligibility for additional depreciation under section 32(1)(iia) of the Act.4. Excess depreciation claim.5. Disallowance of festival celebration expenses.6. Disallowance under section 14A read with Rule 8D.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing COs:The assessee filed COs with a delay of 1036 days, attributing the delay to inadvertent errors by the accountant handling tax matters. The Departmental Representative raised no objections. The Tribunal deemed it fit to condone the delay and admitted the COs.2. Validity of Proceedings Under Section 153C:The assessee challenged the initiation of proceedings under section 153C on the grounds that no satisfaction was recorded, and no incriminating documents were found during the search. The CIT(A) dismissed these objections, stating that the AO had recorded satisfaction and that the seized documents belonged to the assessee. The Tribunal, however, found that the documents were working papers of another group (NKG) and did not belong to the assessee. The Tribunal held that the AO did not establish that the documents belonged to the assessee, thus invalidating the proceedings under section 153C. Consequently, all related assessments were canceled.3. Eligibility for Additional Depreciation Under Section 32(1)(iia):The Revenue contended that the assessee, engaged in coal mining, was not involved in manufacturing or production, thus not eligible for additional depreciation. The CIT(A) allowed the claim, referencing jurisdictional High Court decisions that considered coal mining as production. The Tribunal upheld the CIT(A)'s decision, affirming that the assessee's activities amounted to production, making it eligible for additional depreciation.4. Excess Depreciation Claim:The AO disallowed full depreciation on an excavator, arguing it was used for less than 180 days. The CIT(A) found that the machine was commissioned and used from October 1, 2009, supported by third-party evidence. The Tribunal upheld the CIT(A)'s decision, granting full depreciation as the machine was used for more than 180 days.5. Disallowance of Festival Celebration Expenses:The AO disallowed 50% of festival expenses, questioning the claim of celebrating 50 years of existence. The CIT(A) found the expenses were for a Golden Jubilee celebration of a flagship company and were supported by bills and vouchers. The Tribunal upheld the CIT(A)'s decision, noting the AO did not establish the expenses as non-business related.6. Disallowance Under Section 14A Read with Rule 8D:The AO disallowed interest expenses related to tax-exempt investments. The CIT(A) upheld this disallowance. The Tribunal, referencing various decisions, noted that strategic investments in group companies should not attract disallowance under section 14A. The Tribunal directed the AO to exclude such investments from disallowance calculations, and the assessee's appeal was allowed.Conclusion:The Tribunal allowed the assessee's COs and appeals regarding the validity of section 153C proceedings, additional depreciation, and festival expenses. It also directed the AO to reconsider disallowance under section 14A for strategic investments. Revenue's appeals were dismissed, and the assessee's appeals were allowed or dismissed as not maintainable based on the specific grounds.