2025 (1) TMI 1606 - AT - Income Tax

Revenue appeal dismissed; s.14A r.w. r.8D limited to dividend income; s.32(1)(iia) depreciation allowed; incentives treated as capital receipts

ACIT-CC 3 (2), Mumbai Versus Aarti Drugs Ltd.

ITAT MUMBAI (AT) dismissed the Revenue's appeal. The Tribunal upheld CIT(A)'s restriction of s.14A r.w. r.8D disallowance to dividend income. It allowed ... Disallowance u/s 14A r.w.r. 8D - Assessee suo moto disallowed the expenses - HELD THAT:- On similar facts in earlier years, the issue has been decided in favour of the assessee by the co-ordinate benches. Accordingly, Ld. CIT(A) restricted the disallowance u/s 14A r.w. Rule 8D to the extent of total dividend income earned during the year i.e. Rs. 81,792/-, following the order of the coordinate bench for AY 2012-13. Disallowance of additional depreciation - Claim @10% u/s 32(1)(iia) as the machinery in question had been used for less than 180 days in the financial year relevant to AY 2012-13 - HELD THAT:- It is seen that this is a recurring issue and is squarely covered by the decisions of the co-ordinate benches in the assessee’s own case for AYs 2010-11, 2011-12 & 2012-13. Specifically, in AY 2012-13 [2023 (1) TMI 970 - ITAT MUMBAI] wherein held beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the 6783-83/M/14910-11(11-12- Aart/ Drug Limited 6 assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage Industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. Disallowance of expenses for obtaining certificate of suitability and drug master file - HELD THAT:- In assessee own case for AY 2012-13 [2023 (1) TMI 970 - ITAT MUMBAI] as held assessee has been marketing products elsewhere and thus it can be said that the assessee is already in the business of manufacture and sale of drugs. To expand the business in certain countries it has to obtain certificate of suitability as per the FDA Regulations, which is a part of the process of sale of its products. Similar expenditure was considered by Hon'ble Gujarat High Court, wherein it was held that such payments should be considered in the revenue field. No decision of any other High Court, wherein contrary view taken, was placed before us by the Revenue. Claim of Focus Market Scheme (FMS)/Focus Product Scheme (FPS) and Status Holder Incentive Scripts (SHIS) - revenue or capital receipt - HELD THAT:- As relying on the assessee’s own case for AY 2012-13 [2023 (1) TMI 970 - ITAT MUMBAI] we hold that the incentive received on account of FMS, FPS & SHIS are to be treated as capital receipt. Allowance of deduction in computing Book Profit u/s 115JB(2) - company had adopted transition provision as per Schedule II to the new Companies Act, 2013, of computing depreciation. The depreciation of assets was directly reduced from Reserves as specified in the Act, instead of debiting to the P&L Account. Thus, in the book profit u/s 115JB the amount of depreciation was not reduced - HELD THAT:- Depreciation allowable under the Act, if it is not debited to the P&L account, has to be taken into account while computing books profit u/s 115JB of the Act as has been held by the Ld. AO and also in the in the decisions cited supra. We are, therefore, of the view that the order of Ld. CIT(A), on this issue, deserves to be upheld and the assessee is entitled to reduce the depreciation in computing the book profits u/s 115JB of the Act. Accordingly, the appeal of the revenue is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether disallowance under section 14A read with Rule 8D(2) can be restricted to the amount of exempt income actually earned where the assessee has sufficient own/non-interest funds to cover investments producing exempt income. 2. Whether additional depreciation under section 32(1)(iia) (10% balance where only 50% allowed in year of purchase if put to use