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Issues: (i) Whether the disallowance under section 14A read with Rule 8D should be sustained in respect of investments that did not yield exempt dividend income; (ii) Whether additional depreciation of Rs. 45,21,271 arising from re adjustment of the written down value (WDV) of civil works of windmill is allowable by recomputing WDV; (iii) Whether the provision for mine closure expenses of Rs. 62,91,01,252 is allowable as deduction under section 37(1) of the Income tax Act, 1961.
Issue (i): Whether the disallowance under section 14A read with Rule 8D should be sustained in respect of investments that did not yield exempt dividend income.
Analysis: The admitted facts show dividend arose only on a specified portion of investments; the assessee had suo moto disallowed an amount representing average value of investments that actually yielded dividend and that amount exceeded the maximum permissible computation under Rule 8D(2)(iii). Coordinate and High Court authorities restrict Rule 8D apportionment to investments that yielded exempt income; the assessing officer had applied Rule 8D to the larger investment base including non yielding investments.
Conclusion: Disallowance under section 14A read with Rule 8D is not sustainable to the extent computed on investments that did not yield exempt income; the net addition of Rs. 2,59,24,567 is deleted. (Outcome in favour of assessee)
Issue (ii): Whether additional depreciation of Rs. 45,21,271 arising from re adjustment of WDV of civil works of windmill is allowable.
Analysis: Prior years' restriction of depreciation resulted in the need for correct computation of WDV for the block; recomputation under the statutory depreciation provisions affects subsequent years' WDV and consequential depreciation. The appellate authority directed recomputation in accordance with Section 32.
Conclusion: The additional depreciation of Rs. 45,21,271 is allowable on recomputation of WDV in accordance with Section 32. (Outcome in favour of assessee)
Issue (iii): Whether the provision for mine closure expenses of Rs. 62,91,01,252 is allowable as deduction under section 37(1) of the Income tax Act, 1961.
Analysis: The provision was created following mandatory guidelines issued for mine closure, represents an accrual based provision made in the ordinary course of business, and coordinate bench decisions in the assessee's own earlier years apply; no contrary binding higher court decision was shown by Revenue.
Conclusion: The provision for mine closure expenses of Rs. 62,91,01,252 is allowable as a deduction under section 37(1). (Outcome in favour of assessee)
Final Conclusion: The appeal by Revenue is dismissed; the appellate findings deleting the section 14A disallowance, allowing recomputed depreciation, and allowing the mine closure expense deduction are upheld.
Ratio Decidendi: Disallowance under section 14A read with Rule 8D is to be computed only in respect of investments that yielded exempt income; accrual based provisions mandated by industry guidelines for mine closure can qualify as allowable business expenditure under section 37(1); WDV must be recomputed and depreciation adjusted in accordance with Section 32 when prior year restrictions affected the block.
Disallowance for exempt dividend investments limited to those that yielded exempt income; excess deletion ordered.
ITAT held that disallowance for exempt dividend income computed under the apportionment rule is restricted to investments that actually yielded exempt dividends, deleting the excess addition of Rs. 2,59,24,567. The tribunal directed recomputation of the written down value for the asset block, allowing additional depreciation of Rs. 45,21,271 on correct WDV computation under statutory depreciation rules. It further held that an accrual-based provision for mine closure made pursuant to mandatory industry guidelines qualifies as an allowable business deduction under general business expenditure principles, allowing the claimed provision of Rs. 62,91,01,252.
Disallowance u/s 14A read with Rule 8D - expenditure on investments yielding exempt income - Additional depreciation on readjusted WDV (Civil Work) of Windmill - recomputation of written down value and consequential depreciation u/s 32 - allowability of provision for mine closure as deduction u/s 37(1) Disallowance u/s 14A r/w Rule 8D - expenditure on investments yielding exempt income - assessee suo moto disallowed u/s 14A - Whether the disallowance u/s 14A r/w Rule 8D could be restricted to expenditure in relation to investments that actually yielded exempt dividend income? - HELD THAT:- The Tribunal accepted that the Jurisdictional High Court in Corrtech Energy Pvt. Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT] authority restricts disallowance u/s 14A r/w Rule 8D to expenditure attributable to the investments which yielded exempt income. As found that the assessee earned dividend only on a specified part of its investments and had suo moto disallowed an amount representing average value of investments on which dividend was received, which exceeded the maximum permissible u/Rule 8D(2)(iii). Tribunal held there was no reason to interfere with the CIT(A)'s deletion of the AO's additional disallowance. [Paras 8] CIT(A)'s deletion of the disallowance made u/s 14A read with Rule 8D was upheld. Additional depreciation on readjusted WDV (Civil Work) of Windmill - Recomputation of written down value and consequential depreciation u/s 32 - Whether the WDV of the block of assets pertaining to Civil Work of Windmill could be recomputed and consequential additional depreciation allowed? - HELD THAT: - Tribunal noted it was undisputed that depreciation in earlier assessment years had been restricted by the department and that recomputation of WDV and consequential allowance of depreciation in the impugned year falls within the provisions of section 32. The CIT(A)'s direction to the AO to recompute the WDV in accordance with law and allow the consequential depreciation was held to be lawful and not interfered with. [Paras 9] The direction to recompute the WDV and allow consequential additional depreciation was sustained. Allowability of provision for mine closure as deduction u/s 37(1) - Whether the provision made for mine closure expenses is allowable as a deduction u/s 37(1) - HELD THAT: - The Tribunal followed its earlier coordinate-bench decisions in the assessee's own cases, which found that mandatory provisions for mine closure made in accordance with Ministry of Coal guidelines and computed on a scientific basis were allowable as business expenditure. The revenue did not show these Tribunal decisions were reversed by a higher forum; accordingly the CIT(A)'s allowance of the claimed mine closure provision as a deduction u/s 37(1) was upheld. [Paras 10, 12] The deduction of the mine closure provision u/s 37(1) as allowed by the CIT(A) was upheld. Final Conclusion: All grounds raised by the Revenue were dismissed and the CIT(A)'s order was affirmed - appeal filed by the Revenue is dismissed.