TaxTMI 
TaxTMI 
2022 (2) TMI 159
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....als were disposed-off by Tribunal as group matter vide common order dated 12.03.2018 which was challenged by assessee as well as revenue before Hon'ble High Court of Madras vide TCA Nos. 785 of 2018 & ors. wherein these appeals were disposed-off by Hon'ble Court vide order dated 11.12.2018. Before Hon'ble Court, the subject matter of revenue's appeal was disallowance u/s. 14A and adjustment of unabsorbed depreciation of earlier years beyond eight Assessment Years. Ground No. 1 relating to nature of expenditure to set up new unit was decided against the revenue. The subject matter of assessee's appeal was disallowance u/s. 14A. 3. The issue of unabsorbed depreciation as raised in revenue's appeal was remitted back by Hon'ble Court to Tribunal with following observations:- 6. The second substantial question of law raised by the Revenue is regarding unabsorbed depreciation for the previous years. 7. The Revenue contends before us that the eight years limitation in respect of carry forward of the depreciation had expired and therefore, the assessee was not permitted to carry forward. This order was reversed by the CIT(A) on an erroneous ....
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....cable to the case of the assessee. 13. Therefore, we are of the considered view that this issue relating to unabsorbed depreciation has to be reconsidered by the Tribunal after due opportunity to the Revenue and the assessee to enable them to place all the decisions on this point. Accordingly, the finding rendered by the Tribunal with regard to carry forward of the unabsorbed depreciation relating to the assessment year 1997-98 is set aside and the matters are remanded to the Tribunal for a fresh decision on merits and in accordance with law. Accordingly, substantial question of law No. 2 raised by the Revenue is left open. It is evident that the matter has been remitted back to us for re-adjudication in the light of factual matrix after considering all the applicable decisions including the decision of Hon'ble Supreme Court in Peerless General Finance and Investment Co. Ltd. V/s CIT (380 ITR 165). 4. Pursuant to these directions, we have heard the arguments made by both the sides and also considered the various decisions as applicable to the facts of the case. Having heard rival submission and after due consideration of applicable judicial decisions including th....
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....e could not be allowed. Accordingly, the set-off was denied to the assessee. 7. During appellate proceedings, the assessee submitted that the unabsorbed depreciation available to the assessee as on 01.04.2002 could be carry forward and set-off for any number of years. The logic was that the unabsorbed depreciation of AYs 1997-98 to 1999-2000 became unabsorbed depreciation of AY 2002-03 and subsequent years and therefore, the same could be set-off during any number of years. The said position was approved by Hon'ble Gujarat High Court in the case of General Motors India (P) Ltd. V/s DCIT (354 ITR 244) wherein Hon'ble High Court referred to Board's Circular No. 14 of 2001 and held that any unabsorbed depreciation as available to the assessee as on 01.04.2002 shall be dealt with in accordance with the provisions of Sec. 32(2) as amended by Finance Act. 2001 and not by the provisions of Sec. 32(2) as it stood before the amendment. Reliance was also placed on the other decision of Hon'ble Gujarat High Court in Synbiotics Ltd. V/s ACIT (370 ITR 119), the decision of Hon'ble Karnataka High Court in Karnataka Co-op Milk Producers Federation Ltd. V/s DCIT (53 DTR 81) ....
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.... of years. The logic was that the unabsorbed depreciation of AYs 1997-98 to 1999-2000 would become part of depreciation of AY 2002-03 and subsequent years and therefore, the same could be set-off during any number of years. The same was as per the ratio laid down by Hon'ble Gujarat High Court in the case of General Motors India (P) Ltd. V/s DCIT (354 ITR 244) wherein Hon'ble High Court referred to Board's Circular No. 14 of 2001 and held that any unabsorbed depreciation as available to the assessee as on 01.04.2002 shall be dealt with in accordance with the provisions of Sec. 32(2) as amended by Finance Act. 2001 and not by the provisions of Sec. 32(2) as it stood before the amendment. The relevant observations were as under:- 30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No. 2 of 1996 w.e.f. A.Y. 1997-98 and the unabs....
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....ii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year; (iii) if the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and Clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in sub-clause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick in....
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.... unabsorbed depreciation. The Act has also clarified that in computing the profits and gains of business or profession for any previous year, deduction of depreciation under section 32 shall be mandatory. 30.3 Under the existing provisions, no deduction for depreciation is allowed on any motor car manufactured outside India unless it is used (i) in the business of running it on hire for tourists, or (ii) outside in the assessee's business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." 37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation ....
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....s unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. Similar is the ratio of ....
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....dered all the case laws including the decision of Hon'ble Supreme Court in the case of Peerless General Finance and Investment Co. Ltd. V/s CIT (380 ITR 165) and held as under:- 4. The short issue, which falls for consideration, is as to whether, in the facts and circumstances of the case, the Tribunal was right in permitting the assessee to carry forward the depreciation loss pertaining to the assessment year 1997-98 to the present assessment year namely 2006-07, which is beyond the eight year period mandated under the provisions of section 32 of the Act. 5. The revenue is before us by referring to the decision of the High Court of Calcutta in the case of Peerless General Finance & Investment Co. Ltd. v. CIT [2016] 73 taxmann.com 257/242 Taxman 209 and submitting that an identical issue was considered by the Calcutta High Court wherein the assessee was not granted relief. It is further submitted that the said decision of the Calcutta High Court was tested for its correctness by the Hon'ble Supreme Court and the special leave petition filed against the judgment of the Calcutta High Court was dismissed in the decision in Peerless General Finance & Investmen....
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....1-4-2002 and would accordingly apply in relation to the assessment year 2002-03 and the subsequent years whereas in the assessee's case, the depreciation loss, which they sought to carry forward is for the assessment year 1997-98. 10. The proper manner, in which, the modification has to be understood, is to the effect that from the assessment year 2002-03, if the eight years' period was not lapsed, then the assessee would be entitled to carry forward the loss without any restriction on the time limit. This aspect has been dealt with elaborately in the decision of the Division Bench of the Gujarat High Court in the case of General Motors India (P.) Ltd. v. Dy. CIT [2012] 25 taxmann.com 364/210 Taxman 20/[2013] 354 ITR 244 wherein the relevant portions are as follows: "37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set-off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed....
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.... to be treated as unabsorbed depreciation and it is taken to the next succeeding year. Where there is current depreciation for such succeeding year the unabsorbed depreciation is added to the current depreciation for such succeeding year and is deemed as part thereof. If, however, there is no current depreciation for such succeeding year, the unabsorbed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set-off against the profits and gains of subsequent years, without any limit whatsoever." 1....
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....e from long term capital gains and income from other sources for the assessment year 2001-2002.' 13. Recently, in the decision of a Division Bench of the Bombay High Court in the case of Pr. CIT v. Gunnebo India (P.) Ltd. [2019] 104 CCH 227, the issue was considered in favour of the assessee after referring to the decision of the Division Bench of the Gujarat High Court in the case of General Motors India (P.) Ltd., wherein the relevant portions read thus: "3. The Revenue carried the matter in appeal. The Appellate Tribunal dismissed the appeal of the Revenue making the following observations- "16. We have observed that the current year's depreciation is allowed to be set-off against the income from business as well as against the other heads of income and unabsorbed depreciation in carry forward and become part of the depreciation of the subsequent year and the total depreciation becomes current year's depreciation as per section 32(1) of the Act, which is allowed to be set-off against the income under any head of income. As per the provisions of section 32(2) of the Act r.w.s. 70, 71 and 72 of the Act, it becomes very clear that the total de....
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....bed depreciation becomes the depreciation allowance for such succeeding year. We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st April, 2002 (asst. yr. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set-off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from asst. yr. 1997-98 up to the asst. yr. 2001-02 got carried forward to the asst. yr. 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set-off against the profits and gains of subsequent years, without any limit whatsoever." 14. In our considered view, the above decisions will clearly enure to the benefit of the respondent - assessee. 15. Accordingly, the above tax case appeal is dismissed and the substantial question of law is answered against the Revenue. No costs. Same view has been taken by Hon'ble Court in subsequent decision of CIT V/s KMC Specia....
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....ded that the expression 'expenditure incurred' in Section 14A of the Act refers to actual expenditure and not some imaginary expenditure, in relation to or in connection with or pertaining to exempt income and that unless the Assessing Officer establishes that specific expenditure has been incurred by the assessee for earning exempt income, there can be no disallowance under Section 14A of the Act. 18. It is also contended by the assessee that under Section 14A(2) of the Act, expenditure can be determined as prescribed under Rule 8D of the Rules only where the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim that the expenditure made by the assessee in relation to income, which does not form part of total income under the Act. 19. It is further contended by the assessee that the assessee already disallowed an expenditure for the relevant assessment years for earning dividend income and hence, no further notional expenditure could be deducted from the said income. He again submits that the Assessing Officer is bound to give cogent reasons in terms of Section 14A(2) of the Act with regard to....
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....de by the assessee would be out of the interest free funds available with the assessee and no disallowance was warranted under Section 14A of the Act. 23. Reliance is also placed by the assessee on the decision of the Gujarat High Court in the case of CIT Vs. Gujarat State Fertilizers & Chemicals Ltd. [reported in 85 CCH 273] to support his argument that if the assessee has sufficient funds available with it, no ad hoc disallowance of dividend income under Section 14A of the Act could be made. Further, according to the assessee, while computing disallowance under Section 14A of the Act, only those investments made in the current assessment year that yielded dividend income should be taken. 24. With these submissions, the learned counsel for the assessee contends that specific questions of law were raised before the Tribunal. However, the Tribunal has not considered the same, but disposed of the matter by following the decision of the Delhi High Court in the case of M/s. Joint Investments Private Limited. 25. In our considered view, the disallowance under Section 14A of the Act has been a point of dispute in several cases. Therefore, we opine that the Trib....
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....that all the loans taken by the assessee were for business purposes and no borrowed funds were used for the purpose of making investments. It was also submitted that own share capital, reserves and surplus far exceeded the investment made by the assessee. The attention was also drawn to the fact that the dividend income was received only on two scrips. Further, Ld. AO did not record any objective satisfaction, having regards to the accounts of the assessee, as to why the suo-moto disallowance offered by the assessee was not sufficient. The Ld. AO mechanically applied Rule 8D without proving any infirmity or mistake in the disallowance made by the assessee and Ld. AO was duty bound to deal with assessee's explanation on merits which was not done. The Ld. AO did not prove that there was proximate connection between any particular expenditure and earning of tax-free income. Another argument was that the disallowance could not exceed the exempt income earned by the assessee. Further, the investment which did not yield any exempt income was to be excluded while computing disallowance as per Rule 8D. The Ld. CIT(A) concurred with assessee's submissions that own funds of Rs. 30456....
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.... Ltd. and M/s. J.K. Paper Ltd., which are within the same group viz. JK Organisation. 2.5 The Commissioner of Income Tax (Appeals) ought to have appreciated that such investments had been made by the assessee to promote their business through these companies and were on account of business expediency. Therefore, the investments made by the assessee in its subsidiary is not be reckoned for disallowance u/s. 14A r.w. Rule 8D. EIH Associated Hotels Ltd. V/s CIT reported in 2013-TIOL-796-ITAT-Mad, Ay-2008-09, Dt. 17.07.2013. 2.6 The Commissioner of Income Tax (Appeals) ought to have appreciated the fact that the appellant had own funds of Rs. 304.56 Crores whereas the investments during the year was only Rs. 14.76 Crores, evidencing the fact that the investment was made wholly out of the own funds and that no borrowings were used for the same. 2.7 The Commissioner of Income Tax (Appeals) failed to appreciate that as per Rule 8D(2)(ii), only the amount of expenditure by way of interest which is not directly attributable to any particular income or receipt alone should be considered while working out the disallowance. In the present case, the interest expenditu....
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....re the AO to ascertain the expenditure incurred in relation to income not includible in the total income of the assessee. 2.4 The CIT(A) has erred in directing the AO to restrict the disallowance u/s. 14A by applying the Rule 8D to the extent of exempt income earned without considering the fact that the assessee as not discharged the onus cast upon it, In the absence of accounts maintained by the assessee in regard to its investment. 16. Having heard rival submissions and after due consideration of various judicial pronouncements as placed before us, our adjudication to this issue would be as given in succeeding paragraphs. 17. Upon careful perusal of factual matrix as enumerated by us in the preceding paragraphs, it could be seen that the assessee has earned exempt dividend income of Rs. 260.22 Lacs during the year and offered suo-moto disallowance u/s. 14A for Rs. 2.22 Lacs. The said disallowance was worked as by taking a portion of staff salary which could be said to have been dedicated by the assessee towards investment activity. However, Ld. AO, without recording any objective satisfaction, having regards to the accounts of the assessee, as to why the disallowan....
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....expenditure under section 14A, in absence of reason why assessee's claim for disallowance under section 14A had to be rejected, Assessing Officer was not justified in recomputing disallowance. Further Hon'ble Apex Court in Maxopp Investment Limited V/s CIT (91 Taxmann.com 154) at para-32 observed that it is that expenditure alone which has been incurred in relation to the income which is not includible in total income, is to be disallowed. If expenditure has no casual connection with the exempt income, such expenditure would be an allowable expenditure. 19. Proceeding further, different facets of the issue are that it was observed by Ld. CIT(A) that own funds in the shape of share capital and reserves far exceeded the investments made by the assessee. Therefore, unless nexus of borrowed funds vis-à-vis investments made by the assessee was established by Ld. AO, a presumption was to be drawn in assessee's favor that the investments were sourced out of own funds. We find that no such finding has been recorded by Ld. AO. Therefore, interest disallowance, in our considered opinion, could not be made in such a case. This proposition is duly supported by the decisio....
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....not maintained separate books of accounts which would have facilitated computation of disallowance u/s. 14A and the issue would not have arisen. In fact, for the same very reason, the provisions of Rule 8D has been invoked. These grounds stand dismissed as infructuous. Ground No. 2, 2.3, 2.4,2.6, 2.7, 2.8, 2.10 and 3 stand allowed for statistical purposes. Ground No. 2.2, 2.5, 2.9 stand dismissed. 25. In AY 2009-10, the assessee earned exempt income of Rs. 265.19 Lacs and offered suo-moto disallowance of Rs. 3.21 Lacs. However, Ld. AO computed aggregate disallowance of Rs. 802.72 Lacs and added the differential of Rs. 799.51 Lacs to the income of the assessee. The Ld. CIT(A) directed Ld. AO to restrict the disallowance to the extent of exempt income earned by the assessee. The disallowance was to be made while computing income under normal provisions as well as while computing Book-Profits u/s. 115JB. Aggrieved, the assessee as well as revenue is in further appeal before us. In AY 2010-11, the assessee earned exempt income of Rs. 569.75 Lacs and offered suo-moto disallowance of Rs. 2.80 Lacs. However, Ld. AO computed aggregate disallowance of Rs. 643.78 Lacs and added the dif....