2018 (3) TMI 2031 - AT - Income Tax

Tribunal Partly Allows Appeals: Directs AO on Depreciation & Recomputes Disallowances u/s 14A.

M/s. Parry Agro Industries Limited. Versus The Deputy Commissioner of Income Tax, Corporate Circle -5 (1), Nungambakkam, Chennai.

The tribunal allowed the assessee's appeals concerning additional depreciation disallowance under Section 32(1)(iia), directing the AO to permit the ... Additional depreciation of 10% claimed u/s. 32(1)(iia) - additions made to plant and Machinery that was put to use for less than 180 days - as submitted that the AO has no considered the fact that the assessee is a manufacturer of tea and only 40% of the income computed as per Rule 8 of the Income Tax Rules is liable for tax and therefore, the disallowances made are to be restricted to 40% - HELD THAT:- Following this tribunal order [2017 (9) TMI 2024 - ITAT CHENNAI] for assessment year 2012-13 we hold that the assessee was eligible for claiming the balance 10% depreciation in the impugned assessment orders. AO is directed to allow such claim. The assessee’s plea that such disallowances are to be restricted to 40% in accordance with Rule 8 of the Income Tax Rules is also in accordance with provisions and accordingly, the AO is directed to restrict the disallowances to 40%. The assessee’s appeal for these two years stands allowed. Disallowances u/s. 14A r.w.r 8D - expenditure incurred for earning dividend income - computation made under Rule 8D(2)(iii) - CIT(A) restricted the disallowances u/s. 14A r.w.r 8D to the extent of exempt income - HELD THAT:- We direct the Assessing Officer to re-compute the disallowances under Rule 8D(2)(iii) by taking the amount equal to ½ percentage of the average value of the investments which have given rise to the income which does not form part of total income. Thus, the corresponding grounds are partly allowed for statistical purposes. Issues:1. Additional depreciation disallowance under section 32(1)(iia)2. Disallowance under section 14A r.w.r. 8DAdditional Depreciation Disallowance (Section 32(1)(iia)):The assessee, engaged in tea cultivation and manufacturing, appealed against the disallowance of additional depreciation claimed on plant and machinery additions put to use for less than 180 days in previous assessment years. The CIT(A) confirmed the disallowance for both years. The AR argued citing a tribunal order and the assessee's tax liability calculation based on Rule 8 of Income Tax Rules. The tribunal allowed the appeal, directing the AO to permit the balance 10% depreciation claim and restrict disallowances to 40% of the income liable for tax as per Rule 8, thereby allowing the assessee's appeal for both years.Disallowance under Section 14A r.w.r. 8D:The AR contended that the assessee had already disallowed specific amounts as expenses for earning dividend income and had invested in mutual funds from available surplus without incurring additional expenses. The AO/CIT(A) included non-current investments in the disallowance calculation under Rule 8D(iii) without exempt income consideration. The AR referenced a tribunal decision for re-computing disallowances under Rule 8D(2)(iii) based on investments giving rise to non-taxable income. The tribunal upheld the CIT(A)'s decision to restrict disallowances to exempt income but directed the AO to recompute disallowances under Rule 8D(2)(iii) by considering half percent of the average value of investments generating non-taxable income. The appeals were partly allowed for statistical purposes.In conclusion, the tribunal allowed the assessee's appeals regarding additional depreciation disallowance and directed a re-computation of disallowances under Rule 8D(2)(iii) for investments generating non-taxable income, while upholding the restriction of disallowances to exempt income.