Appeal partially allowed: Disallowance under Section 14A dismissed, additional depreciation disallowed under Section 32(1)(iia).

The Tribunal partly allowed the appeal, dismissing the disallowance under Section 14A by applying Rule 8D(iii) but allowing the disallowance of additional depreciation under Section 32(1)(iia). The decision was pronounced in Chennai on April 26, 2016.

---

---

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961 by applying Rule 8D(iii).
2. Disallowance of additional depreciation under Section 32(1)(iia) of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A by applying Rule 8D(iii):

The assessee, engaged in the business of printing, filed a return of income admitting a total income of Rs. 2,82,68,850/-. The Assessing Officer (AO) completed the assessment under Section 143(3) by making various additions, including a disallowance under Section 14A by applying Rule 8D(iii). The assessee received dividend income and long-term capital gains, both exempt under Sections 10(34) and 10(38) respectively. The AO determined that the assessee had not attributed any portion of the expenditure debited to the P&L account towards earning the exempt income. The AO applied Rule 8D to compute the disallowance, which was confirmed by the CIT(A).

The Tribunal noted that the assessee had sufficient own funds to cover its investments, and the interest debited could not be attributed to borrowings for exempt income investments. However, the CIT(A) confirmed the disallowance under Rule 8D(2)(iii), citing decisions from ITAT Delhi and Chennai Benches which held that indirect management and administrative expenses qualify for disallowance under Section 14A. The Tribunal upheld this view, stating that whether or not the assessee earned any exempt income, once investments are made, the related management and administrative expenses qualify for disallowance under Section 14A. The Tribunal dismissed the assessee's ground on this issue.

2. Disallowance of additional depreciation under Section 32(1)(iia):

The assessee claimed additional depreciation amounting to Rs. 15,95,635/- under Section 32(1)(iia) for the assessment year 2008-09, including a balance claim from the preceding previous year. The AO disallowed this claim, stating that additional depreciation is allowable only on new plant and machinery and there is no provision for carrying forward the balance additional depreciation to subsequent years. The CIT(A) confirmed this disallowance.

On appeal, the Tribunal referred to decisions from the Cochin Bench of ITAT and the Karnataka High Court, which allowed the balance additional depreciation in subsequent years if the machinery was used for less than 180 days in the year of acquisition. The Tribunal cited the case of Automotive Coaches & Components Ltd. v. DCIT, which held that the balance 50% of additional depreciation should be allowed in the subsequent year. The Tribunal found that the issue was covered in favor of the assessee and directed the AO to allow the balance 50% of additional depreciation in the succeeding year. Thus, the ground raised by the assessee was allowed.

Conclusion:

The Tribunal partly allowed the appeal filed by the assessee, dismissing the ground on disallowance under Section 14A by applying Rule 8D(iii), and allowing the ground on disallowance of additional depreciation under Section 32(1)(iia). The order was pronounced on April 26, 2016, in Chennai.

---