2016 (7) TMI 250 - AT - Income Tax

Tribunal Upholds CIT(A) Order on Income Tax Disallowance & Depreciation

The Tribunal upheld the CIT(A)'s order directing the Assessing Officer to verify the working submitted by the assessee for disallowance under section 14A ... Disallowance of 14A - Held that:- The provisions of Rule 8D is mandatory for computing the disallowance during the year under consideration. Therefore, the working made by the assessee has also to be taken into consideration by the Assessing Officer. Since the CIT(A) directed the Assessing Officer to verify the working made by the assessee, this Tribunal do not find any reason to interfere with the order of the lower authority. However, it is made clear that the Assessing Officer shall verify the working made by the assessee and if the working is made as per Rule 8D, the Assessing Officer may follow the same. If for any reason, the Assessing Officer came to know that the working made by the assessee is not in accordance with Rule 8D, then it is open to the Assessing Officer to recompute the disallowance/expenditure and add the same to the total income of the assessee. With the above observation, the order of the CIT(A) is confirmed. Addition on account of unexpired value of AMC - Held that:- This Tribunal in assessee’s own case for assessment year 2005-06 found that the contention of the assessee that it could not recognize revenue for the unexpired period of AMC is on strong footing. This Tribunal further found that the unexpired period AMC could be considered only in the subsequent year and not in the relevant previous year. Accordingly, an identical order of the CIT(A) was confirmed by this Tribunal. As rightly submitted by the ld. Counsel for the assessee, the CIT(A) has reproduced the observation made by this Tribunal and allowed the claim of the assessee. Since the CIT(A) followed the order of this Tribunal, we find no reason to interfere with the order of the CIT(A). As rightly submitted by the ld. Counsel for the assessee a mere pendency of appeal before the High Court against the order of this Tribunal cannot be a reason to take a different view. It is nobody’s case that the order of this Tribunal is stayed by the High Court. In those circumstances, this Tribunal do not find any reason to interfere with the order of this CIT(A) and accordingly the same is confirmed. Entitlement to additional depreciation - AO allowed 10% additional depreciation in the earlier assessment year in respect of the machinery installed and used for less than 180 days - assessee claimed the balance 10% additional depreciation during the year under consideration - Held that:- We find that the Karnataka High Court in the case of M/s Rittal India Pvt. Ltd (2015 (1) TMI 1248 - KARNATAKA HIGH COURT) found that the assessee is entitled for the balance 10% additional depreciation in the subsequent year. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the remaining 10% additional depreciation during the year under consideration. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the remaining 10% additional depreciation during the year under consideration. Issues involved:1. Disallowance under section 14A of the Income Tax Act.2. Addition on account of unexpired value of AMC.3. Claim of additional depreciation under section 32(1)(iia) of the Income Tax Act.Issue 1: Disallowance under section 14A of the Income Tax Act:The Assessing Officer disallowed an amount under section 14A of the Act, which was challenged by the assessee. The CIT(A) directed the Assessing Officer to verify the working submitted by the assessee. The dispute centered around whether the expenditure computed by the Assessing Officer under Rule 8D was accurate, as the assessee argued that no expenditure was related to exempt income. The Tribunal held that Rule 8D is mandatory for computing disallowance, and directed the Assessing Officer to verify the working. If the working complied with Rule 8D, it should be accepted; otherwise, the Assessing Officer could recompute the disallowance. The Tribunal upheld the CIT(A)'s order with this observation.Issue 2: Addition on account of unexpired value of AMC:The Assessing Officer made an addition on account of unexpired value of AMC, which the CIT(A) allowed based on a previous Tribunal order. The Revenue appealed, citing a pending appeal before the High Court. The Tribunal noted that the unexpired value of AMC could not be recognized as revenue in the relevant previous year. Relying on the previous Tribunal order, the Tribunal confirmed the CIT(A)'s decision, emphasizing that the pendency of an appeal did not warrant a different view.Issue 3: Claim of additional depreciation under section 32(1)(iia) of the Income Tax Act:The assessee claimed additional depreciation for machinery used for less than 180 days in a previous assessment year. The Assessing Officer disallowed part of the claim, stating no provision allowed carrying forward of additional depreciation. The CIT(A) upheld this decision based on a Tribunal order. However, the Tribunal, considering a Karnataka High Court judgment, allowed the balance of additional depreciation for the subsequent year. The Tribunal overturned the lower authorities' decisions and directed the Assessing Officer to allow the remaining 10% additional depreciation for the year under consideration.In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's cross objection, providing detailed reasoning for each issue raised in the case.