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2023 (8) TMI 1177
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....al") in ITA No. 856/Ahd/2018 for assessment year: 2014- 15, reads as under:- "1. Ld. CIT(A) erred in law and on facts confirming action of AO disallowing deduction of Rs. 16,08,70,789/- claimed u/s 32AC of the Act. 2. Ld. CIT(A) erred in law and on facts in confirming disallowance although the appellant fulfilled all the conditions laid down u/s 32AC of the Act. 3. Ld. CIT(A) erred in law and on facts confirming action of AO to reduce cost of Pollution Control Equipment worth Rs. 10,80,64,368/- on which 100% depreciation is allowable from new additions to fixed assets. 4. Ld. CIT(A) erred in law and on facts in not appreciating that provision of Sec. 32AB refers to 'depreciation allowed' and not ' depreciation allowable' to disqualify purchase of Pollution Control Equipment on which only 50% depreciation was claimed and allowed since put to use after 30.09.2013. 5. Ld. CIT(A) erred in law and on facts confirming reduction by AO of cost of Pollution Control Equipment while considering cost of fixed assets of Rs. 100 crores for benefit u/s 32AB of the Act. 6. Ld. CIT(A) erred in law and on facts confirming disallowance by AO of Rs....
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....n chart of the assessee company, that the assessee has made total additions of Rs. 151,64,97,046/- under the head of fixed assets. The AO observed that , out of that, an combined additions of Rs. 44,37,47,481/- was made in the Block of Factory Building, Vehicles, Office Equipment's, Computers and Furniture & Fixtures, on which the assessee company is not eligible to claim benefit u/s 32AC of the 1961 Act . The AO further observed that the assessee company has also made additions of Rs. 10,80,64,368/- under the Block of Pollution Control Equipment's on which 100% depreciation is allowed. The AO observed that the assessee company is also not eligible to claim deduction u/s 32AC on the Pollution Control Equipment's, on which 100% depreciation is allowed. The AO observed that the remaining block of new plant and machinery added during the year (after excluding the aforesaid assets which as per AO were ineligible for grant of deduction u/s 32AC) were Rs. 96,46,85,197/- on which the assessee company is eligible to claim deduction u/s 32AC, but since the aggregate value is less than Rs. 100 crores, therefore, the assessee failed to meet the conditions of acquisition and installation of ne....
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....le for deduction u/s 32AC, but since the assessee company has failed to meet the condition of acquisition and installation of new assets, actual cost of which exceeds Rs. 100 crores, the assessee company was not granted deduction u/s 32AC by the AO for the impugned assessment year. 3b.The another contention of the assessee company that it has made the addition of Rs. 10,80,64,368/- under the Block of Pollution Control Equipment's on which 100% depreciation is allowed, but since the addition to the aforesaid Pollution Control Equipment was made after 30th September, 2013, the assessee has availed 50% depreciation i.e. Rs. 5,40,32,184/- keeping in view second proviso to Section 32(1), and hence remaining block of Rs. 5,40,32,184/- was available on which the assessee was eligible to claim the benefits u/s 32AC, because the aggregate amount of actual cost of the new assets acquired and installed was Rs. 1,01,87,17,381/- i.e. new plant and machinery of Rs. 96,46,85,197/- which was eligible for deduction u/s 32AC + remaining block of Pollution Control Equipment's after claiming 50% depreciation in the current year i.e. Rs. 5,40,32,184/- , which as claimed by the assessee that aggregat....
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....of the statute . Thus, AO rejected the entire claim of deduction of Rs. 16,08,70,789/- claimed by the assessee company u/s 32AC of the 1961 Act which stood added by the AO to the income of the assessee company , vide assessment order dated 20.10.2016 passed by AO u/s 143(3) of the 1961 Act. The AO also initiated penalty proceedings u/s 271(1)(c) of the 1961 Act against the assessee company for furnishing of inaccurate particulars of the income. 4. Aggrieved by rejection of its claim for deduction u/s 32AC by the AO, the assessee company filed first appeal with ld. CIT(A) and reiterated its submissions as were made before the AO on this issue of denial of deduction u/s 32AC, which contentions of the assessee company stood dismissed by ld. CIT(A), vide appellate order dated 09.02.2018 passed by ld. CIT(A). 5. Still aggrieved by the appellate order passed by ld. CIT(A) denying deduction u/s 32AC of the 1961 Act to assessee company for the impugned assessment year, the assessee has filed second appeal with Tribunal. The ld. Counsel for the assessee, Shri Bandish S. Soparkar, Advocate supported by CA Shri Parin S Shah opened arguments before the Bench. The ld. Counsel's for the as....
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....s. 100 crores and hence the assessee shall be eligible for deduction u/s 32AC. It was further submitted by ld. Counsel's for the assessee as an alternate argument that the depreciation claimed by assessee company and allowed by Revenue was 50% on total investment of Rs. 10,80,64,368/-made in Pollution Control Equipment's i.e. depreciation allowed was Rs. 5,40,32,184/-, keeping in view second proviso to Section 32(1). It was submitted that written down value of Pollution Control Equipment's after deducting actual depreciation allowed for the impugned assessment year 2014-15, was Rs. 5,40,32,184/-(w.d.v.), and if the same is added to the other new assets being plant and machined acquired and installed during the year of Rs. 96,46,85,197/- which are eligible new assets as provided u/s 32AC(4) , the total investments eligible for deduction u/s 32AC comes to Rs. 101,87,17,381/- which is more than Rs. 100 crores. The ld. Counsel's for the assessee heavily relied upon judgment and order of Hon'ble Supreme Court in the case of CIT v. Mahindra Mills & Ors. , reported in (2000) 109 Taxman 225(SC). The ld. Counsel's for the assessee submitted that aforesaid judgment and order dealt with th....
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.... issued for granting deduction u/s 32AC for immediately succeeding assessment year as the investments made by the assessee in 'new assets' eligible for deduction u/s 32AC even after excluding aforesaid Pollution Control Equipment's , had exceeded Rs. 100 crores if the investment made in the eligible new asset for subsequent year is also to be cumulatively considered.It was submitted that the assessee has not claimed deduction u/s 32AC in the immediately succeeding assessment year. 6. The ld, CIT-DR heavily relied upon the appellate order passed by ld. CIT(A) , and submitted that keeping in view facts and circumstances of the case, the authorities below have rightly rejected the claim of the assessee for grant of deduction u/s 32AC for the impugned assessment year. 7. We have considered rival contentions and perused the material on record including cited case laws. The whole controversy between rival parties revolves around the interpretation of Section 32AC , and is within narrow compass. Thus, it is important to reproduce provisions of Section 32AC before we proceed further, which is reproduced hereunder: '32AC. Investment in new plant or machinery.-(1) Where an....
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.... of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year.'. 7.1 The brief facts of the case are that the assessee company acquired and installed fixed assets during the year under consideration , aggregating to Rs. 151,64,97,046/- . Out of the above , the fixed assets acquired towards Factory Building, Administrative Building, Vehicles, Computers, Office Equipment's and Furniture and Fixture, aggregating to Rs. 44,37,47,481/- are admittedly ineligible assets for grant of deduction u/s 32AC, keeping in view provisions of sub-section (4) of Section 32AC, and have to be excluded while computing "new assets' eligible for deduction u/s 32AC, which leaves remaining fixed assets of Rs. 107,24,38,524/- which were acquired and installed during the year under consideration. The threshold limit for availing deduction u/s 32AC is the eligible "new assets" acqu....
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....0th September, 2013 and was put to use for less than 180 days during the year under consideration , and hence by virtue of second proviso to Section 32(1), the assessee is entitled to claim 50% of the depreciation on Pollution Control Equipment's of Rs. 10,80,64,368/- acquired and installed during the year under consideration, as the asset was put to use for less than 180 days during the year under consideration. The ld. Counsels for the assessee has stated before the Bench, that in fact the assessee has made a claim of 50% depreciation on Pollution Control Equipment's acquired and installed during the year under consideration in the return of income filed with department wherein depreciation of Rs. 5,40,32,184/- was claimed by the assessee which stood was allowed by Revenue. Thus, it is claimed that the written down value of the Pollution Control Equipment's as at the end of the year was Rs. 5,40,32,184/- which was carried forward to the next year. The assessee has relied upon the judgment and order of Hon'ble Supreme Court in the case of Mahindra Mills(supra) to claim that what is relevant is the actual depreciation allowed which is 50% on Pollution Control Equipment's, and not t....
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....14, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a). (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new ....
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.... The phrase "new asset" has been defined as new plant or machinery but does not include- (i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; (v) ship or aircraft; or (vi) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year. It is further proposed to provide suitable safeguards so as to restrict the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply in a case of amalgamation or demerger but shall continue to apply to the amalgamated company or resulting company, as the case may be. This amendment will take effect from 1st April, 2014 and will, acco....
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.... sub-section (4) of Section 32AC, the "new asset" shall not include any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any previous year. Thus, in the instant case , Pollution Control Equipment's admittedly carry prescribed rate of depreciation @100% , and hence the entire actual cost of Pollution Control Equipment's is deductible while computing income chargeable to tax under the head "Profits and gains of business or profession" of any previous year. It is merely because the aforesaid Pollution Control Equipment's were acquired and installed after 30th September, 2013 and were put to use for less than 180 days during the year under consideration , the depreciation allowed shall be 50% in the year under consideration while the remaining 50% depreciation shall be allowed in the subsequent assessment year, but the facts remains which cannot be negated is that the whole of the actual cost of Pollution Control Equipment's is deducted at the prescribed rate of depreciation @100%, and is hit by clause (v) sub-....
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.... any office premises or any residential accommodation, including any accommodation in, the nature of a guest-house; (b) any office appliances or road transport vehicles; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession "of any one previous year. *** ***" 7.8 Thus, the law makers consciously chose not to restrict or circumscribed Section 32AC to allow deduction only when the actual cost of the new asset is allowed as deduction (whether by depreciation or otherwise ) in computing the income chargeable under the head "Profits and Gains of business of profession" of any one previous year, rather it states any previous year. Thus, the whole of the actual cost of Pollution Control Equipment's which carries prescribed rate of depreciation of 100%, the whole of the actual cost of "new asset" is allowed as deduction while com....
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....soever harsh the consequences may be.There is no equity in taxing statute, and literal rule of interpretation is to be followed when there is no ambiguity in the provision itself . The second contention of the assessee that since it was allowed deduction of Rs. 5,40,32,184/- being @50% on Pollution Control Equipment's acquired and installed during the current year , the written down value to be carried forward w.r.t. Pollution Control Equipment's was Rs. 5,40,32,184/- which should be added to the other eligible " new assets" to the tune of Rs. 96,46,85,197/-, which will make total investment in eligible "new assets" to the tune of Rs. 101,87,17,381/- , which is above threshold limit of Rs. 100 crores, and hence deduction u/s 32AC be allowed during the current year, this argument of ld. Counsel for the assessee cannot be accepted as we have already held that the Pollution Control Equipment's carrying prescribed rate of depreciation of 100% is to be excluded by virtue of clause (v) of sub-section (4) of Section 32AC, even if 50% depreciation is allowed in the current year as the said assets were put to use for less than 180 days keeping in view second proviso to Section 32(1), and he....
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....cost of eligible "new assets" , as are adjudicated by us in this order as above. to The assessee has submitted , as an alternate plea, that if the benefit of deduction u/s 32AC cannot be allowed in the current year, then the same be allowed in the immediately succeeding assessment year as is provided u/s 32AC. In our considered view, the assessee, if it meets all other conditions for grant of deduction u/s 32AC, shall be allowed deduction u/s 32AC in the subsequent year, for which the assessee has to meet all the statutory requirements as mandated by Section 32AC , and the onus is entirely on the assessee to demonstrate and prove with evidence before the AO that it is eligible and entitled for deduction u/s 32AC in the immediately succeeding year as it meets all the conditions as are prescribed u/s 32AC. The ld. Counsel for the assessee submitted that the assessee did not claim deduction u/s 32AC in the return of income filed for immediately succeeding assessment year, as the claim was made in the return of income filed for current assessment year. Be it as it may be , if the assessee meets all the stipulated conditions as are prescribed u/s 32AC for immediately succeeding assessme....
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....wance is required to be made u/s 14A. The assessee also relied upon orders passed by ITAT for assessment years 2005-06 and 2007-08 in assessee's own case, where the Tribunal decided this issue in favour of the assessee. The assessee also relied upon orders passed by Hon'ble Courts to reiterate its aforesaid submissions, which are duly found mentioned in assessment order. The AO rejected the contentions of the assessee, as the funds as per AO which were used for making investment in the securities/mutual funds, were mixed used funds and the assessee having failed to show that interest free funds were used to make investments in securities/mutual funds, as the assessee has also borrowed interest bearing funds. The AO made additions u/s 14A r.w. Rule 8D(2)(ii) towards disallowance of interest expenses to the tune of Rs. 16.37 lacs, while further additions were made by the AO to the tune of Rs. 15.75 lacs u/s 14A r.w.Rule 8D(2)(iii) of the 1962 Rules towards disallowance of administrative expenses. Thus, the AO made additions to the tune of aggregate of Rs. 32.11 lacs by invoking Section 14A read with Rule 8D of the Income-tax Rules , 1962. 9. The assessee being aggrieved by assessm....
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.... assessee. Moving forwards, the argument advanced by the ld. Counsel's for the assessee is that the owned funds by way of share capital and reserves are much more than the investments made in the securities/mutual funds , and hence no disallowance could be made for interest expenses u/s 14A read with Rule 8D(2)(ii) , as presumption will apply that the assessee has invested in the securities/mutual funds, out of own interest free funds available with the assessee. The assessee has relied upon the judgment and order of Hon'ble Supreme Court in the case of South India Bank Limited v. CIT (Civil Appeal No. 9606 , 9609-11 & 9615 of 2011, dated 09.09.2021. We are principally in agreement with ld. Counsel's for the assessee that in case if the investments are made out of mixed use funds, the presumption shall apply that the assessee has used its own interest free funds available for making investments in the securities/mutual funds provided the own interest free funds are sufficient to cover the aforesaid investments, but complete facts are not there on record as audited financial statements for relevant period are not filed but are filed for subsequent financial year i.e. 2014-15, and , ....