TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 1177
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....ear: 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. 32,11,000/- invoking provisions of Sec 14A r w Rule 8D of the Act. 7. Ld. CIT(A) er....
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....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 new assets, actual cost of which exceeds Rs. 100 crores. The AO concluded that therefore, as per provisions of Section ....
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....ation 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 aggregate is more than Rs. 100 crores and hence the assessee is eligible for deduction u/s 32AC . The AO rejected this contenti....
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....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 assessee company submitted that the assessee was wrongly denied the benefit of deduction u/s 32AC of the 1961 Act. It was sub....
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....or 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 the Section 32 and 34 of the 1961 Act as they stood prior to their amendment w.e.f. 01.04.1988. The ld. Counsel for the assesse....
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.... '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 assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asse....
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....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" acquired and installed during the year under consideration, exceeding Rs. 100 crores. The dispute has arisen between rival parties as to the inclusion of Pollution Control Equipment's of Rs. 10,80,64,368/- admitt....
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....ipment'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 the depreciation which is allowable i.e. 100% on Pollution Control Equipment's , may be owing to its usage for less than 180 days in the year and second proviso to Section 32(1) getting attracted, for considering the claim of the assessee ....
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....pees; 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 asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as t....
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.... 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, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years." 7.5 Thus, it could be seen that Section 32AC is a beneficial provision which was inserted as a measure to promote socio-economic growth, and it provided Incentive for acquisition and installation of eligible "new assets" being plant or machinery by company engaged in the business of manufacture or production of any article or thi....
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....tual 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-section (4) of Section 32AC, and shall be ineligible for claim of deduction u/s 32AC. The language used in clause (v) of sub-section (4) of Section 32AC is as under: (4) For the purposes of this section, "new asset" means any new plant or machinery (other than ship or aircraft) but does not include- (i) to (iv) ***** v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or other....
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....nd 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 computing income chargeable to tax under the head " Profits and Gains of Business or Profession" in any previous year, and merely because owing to second proviso to Section 32(1) , the depreciation is allowed @50% in the year in which such Pollution Control Equipment's are acquired and put to use for less than 180 days in the first year, and the remaining 50% of the depreciation is to be allowed in subsequent year, then a myopic view cannot be taken that the depreciation allowed for Pollution Control Equipment's is 50% owing to its use during the c....
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....6,46,85,197/-, 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 hence the written down value of Pollution Control Equipment's cannot be added to other eligible "new assets" because of its exclusion at threshold by virtue of clause (v) of sub-section (4) of Section 32AC. Moreover, Section 32AC speaks of aggregating the amount of actual costs of eligible "new assets" , and we cannot do violence to statute by including "written down value" of Pollution Control Equipment's , while computing threshold limit of Rs. 100 crores. The relevant portion of Section 32AC is reproduced hereunder: '32AC. Investment in n....
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....d 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 assessment year for which onus is entirely on the assessee to demonstrate and prove by evidence before the AO that it is eligible and entitled for deduction u/s 32AC, the AO is directed to consider the claim of the assessee for deduction u/s 32AC for immediately succeeding year viz. ay: 2015-16, on merits in accordance with law. Reference is drawn to CBDT circular No. 14 of 1955, dated 11.04.1955. The grounds of appeal numbers 1 to 5 are partly allowed , in the manner indicated above. We order accordingly. 8. The second issue by way of grounds of appeal number's 6 & 7 raised....
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.... 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 assessment order, filed first appeal , which also stood dismissed by ld. CIT(A). The assessee reiterated its contentions before ld. CIT(A) as were made before the AO. The assessee also demonstrated that its own funds available were to the tune of Rs. 260.19 crores including share capital and reserves, while the investments were to the tune of Rs. 4.05 crores as at the year end, which were Rs. 58.78 crores as at the beginning of the year. That , it did not invested in any securities/ mutual funds during the year , and rather sold securities during the year under consideration. Th....
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....ited 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 , thus, for limited purposes , we are remitting the matter back to the file of the AO for verification of this aspect and if it is found that own interest free funds are sufficient to cover investments made in securities/mutual funds , no disallowance of interest expenses shall be made as it will be presumed that the assessee has invested its own interest free funds for making investment in securities/mutual funds . The assessee is directed to file relevant records with the AO. So far as disallowance of administrative expenses of Rs. 15,75,000/- by authorities below, by invok....