2016 (5) TMI 1603 - AT - Income Tax

Tribunal rulings on assessment validity and depreciation allowances for A.Y. 2007-08 and 2009-10

The Tribunal invalidated the reopening of assessment for A.Y. 2007-08, ruling that Section 14A disallowance was inapplicable to the cooperative society. ... Validity of reopening - Addition u/s 14A r.w. Rule 8D - HELD THAT:- We agree with assessee’s argument that this tribunal in its own appeal against regular assessment involving section 14A disallowance has already decided that the same does not apply in a cooperative society case enjoying section 80P deduction. We find that the AO has reopened the said assessment thereby apply gross interest computation formula instead of netting for computing rule 8D disallowance. The law is very well settled by law that Rule 8D is not applicable in the impugned assessment year. A co-ordinate bench of the tribunal in DCIT vs. Trade Apartments [2012 (3) TMI 421 - ITAT KOLKATA] has already rejected Revenue’s contentions against netting formula - Decided in favour of assessee. Contribution made to ARDA(Anand Research Development Association) for dairy development - claimed as revenue expenditure - HELD THAT:- The assessee is fair enough in pointing out that the above stated tribunal’s decision has rejected its identical plea in earlier assessment years. We appreciate this fair stand to uphold the CIT(A)’s findings under challenge. This second substantive ground fails. Issues Involved:1. Validity of reopening under Section 147 of the Income Tax Act.2. Section 14A read with Rule 8D disallowance.3. Depreciation on assets acquired with grants/subsidies.4. Disallowance of contribution to Anand Research Development Association (ARDA) as business expenditure.Issue-wise Detailed Analysis:1. Validity of Reopening under Section 147:The assessee challenged the validity of reopening the assessment for A.Y. 2007-08. The Assessing Officer (AO) issued a notice under Section 148 based on the belief that income chargeable to tax had escaped assessment due to incorrect netting of interest expenses under Section 14A read with Rule 8D. The Tribunal held that the reopening was invalid as the earlier Tribunal decision had already negated the application of Section 14A for a cooperative society enjoying Section 80P deduction. The Tribunal also noted that Rule 8D was not applicable for the assessment year 2007-08, thus supporting the assessee's contention.2. Section 14A read with Rule 8D Disallowance:The AO made a disallowance under Section 14A read with Rule 8D, which was contested by the assessee. The CIT(A) had partially upheld the disallowance by adopting a reasonable method for computation. However, the Tribunal observed that the earlier Tribunal decision had already ruled out the application of Section 14A for the assessee, a cooperative society enjoying Section 80P deduction. The Tribunal further noted that Rule 8D was not applicable for the assessment year 2007-08, thus invalidating the disallowance made by the AO.3. Depreciation on Assets Acquired with Grants/Subsidies:For A.Y. 2009-10, the assessee contested the disallowance of depreciation on assets acquired with grants/subsidies from the National Dairy Development Board (NDDB). The CIT(A) had denied the depreciation claim by applying Explanation 10 to Section 43(1) of the Act. The Tribunal referred to the Gujarat High Court decision in the case of Mahesana District Co-operative Milk Producers Union Ltd. and other relevant judgments, concluding that the authorities below were not justified in excluding the grant portion from the actual cost. The Tribunal allowed the assessee's claim for depreciation on the entire amount.4. Disallowance of Contribution to ARDA:The assessee challenged the disallowance of Rs. 1.5 crores contributed to ARDA for dairy development, claimed as a business expenditure under Section 37 of the Act. The CIT(A) had disallowed the claim, and the Tribunal upheld this decision, noting that a similar plea had been rejected in earlier assessment years. The Tribunal found no merit in the assessee's contention and confirmed the disallowance.Conclusion:The Tribunal allowed the appeal for A.Y. 2007-08, holding that the reopening was invalid and the Section 14A disallowance was not applicable. For A.Y. 2009-10, the Tribunal partly allowed the appeal by granting the depreciation claim on assets acquired with grants/subsidies but upheld the disallowance of the contribution to ARDA. The final order pronounced in the open court on 31-05-2016 reflects these conclusions.