TaxTMI 
TaxTMI 
2025 (7) TMI 1491
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.... the "PCIT"] is bad in law, invalid and requires to be quashed, the same may kindly be quashed. 3. The Ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the AO was erroneous as well as prejudicial to j the interest of the revenue on the ground that the order has been passed by the AO without making enquiries/verification, which should have been made in respect of alleged(i) excess claim of depreciation on plant & machinery of Rs. 2,47,520/- (ii) excess claim of depreciation on residential building of Rs. 3,05,260/- (iii) excess claim of depreciation on Camera and Air-conditioner of Rs. 17,19,392/-. The order passed by PCIT requires to be quashed and may kindly be quashed. 4. The Ld. PCIT erred in law and on facts in arriving at a conclusion to the effect that the assessment order passed by the AO was erroneous as well as prejudicial to the interest of the revenue on the ground that the AO has not made proper inquiry in respect of disallowance u/s. 14A r.w.r. 8D for exempt income earned by the appellant during the year. The order passed by PCIT requires to be quashed and may kindly be quashed. ....
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....ed to the tune of Rs. 17,19,392/- on the said two assets. 5. With respect to disallowance of expenses u/s 14A of the Act, the assessee was noted to have earned exempt income of Rs. 1,63,692/- but no expenses incurred for earning the same was noted to be disallowed in terms of section 14A of the Act. 6. The Ld. PCIT confronted these issues to the assessee who filed his contentions with regard to the same and after considering the same the Ld. PCIT held the assessment order passed in the present case be erroneous causing prejudice to the revenue and directed the AO to pass a fresh order and disallow the claim of excess depreciation and also make disallowance u/s. 14A r.w.s. 8D of the Act. Her findings in this regard are contained at para 18 of the order as under: "18. By virtue of the powers vested in me u/s. 263 of the IT Act, I hereby set-aside the order u/s. 143(3) rw.s 1448 of the Income Tax Act, 1961 dated 29/05/2021 on the issues discussed above and direct the Assessing Officer to pass a fresh assessment order and disallow the claim for excess depreciation and also make disallowance u/s 14A r.w Rule 8D of the Act." 7. We have heard both the parties. Considerin....
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....t of Rs. 17,19,392/- and consequent short levy of tax. 11.1 The assessee has in its submission vide point D of para 6 submitted that the cameras and air conditioners on which additional depreciation is claimed is actually installed at the factory to keep the manufacturing are under close surveillance and cool. The assessee has also submitted the photos of the said factory premises where such appliances have been installed as Exhibit 1. In this regard, the assessee has placed reliance on the following decisions: (i) Decision of Gujarat High Court in case of CIT vs. ElconEngg. Co. Ltd. [1974] 96 ITR 672 (Gujarat) (8) Decision in case of CIT vs. Tarun Commercial Mills Ltd. [1985] 151 ITR 75 (Guj.). (iii) Decision in case of CIT vs. Subrata Dutta Choudhary [2010]c32 (I) ITCL 120 (P&H-HC) 11.2 On perusal of the submissions made by the assessee, it was observed that the assessee has claimed additional depreciation on cameras and air conditioners on the ground that they were installed at the factory premises for keeping the manufacturing activity under close surveillance and cool. With this regard, it is submitted that if such assets are integr....
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....thus qualify for additional depreciation under s.32(1)(iia) of the Act. For this proposition, the learned AR for the assessee referred to the decision of Hon'ble Gujarat High Court in CIT vs. Nathubhai H Patel (2006) 154 TAXMAN 117 (Guj). We find force in the plea of the assessee noted above. The assessee cannot be denied additional depreciation in the facts narrated above. The aforesaid issue is thus sottled in favour of the assessee. In the decisions referred supra, similar matters were dealt by the respective courts and the assessee's claim of additional depreciation on cameras and air conditioners was allowed on the grounds that as the aforesaid appliances are installed and utilized at the factory premises and it is in nature of plant and machinery which is eligible for additional depreciation, the same are considered to be an integral part of the Plant & Machinery and are eligible for claiming additional depreciation. 11.3 The assessee has claimed in its submission along with the photos of factory premises brought on record and the judicial pronouncements relied upon by the assessee that the cameras and air conditioners were installed at the factory p....
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....egard are contained in para 10 to 10.2 of the order as under: "10. Regarding the claim of excess depreciation on residential buildings, it is stated that during the year under consideration the assessee has claimed depreciation on residential buildings at the rate of 10% on the opening WDV of Rs. 61,05,195/However, the rate of depreciation applicable to residential buildings is only 5% which has resulted in excess claim of depreciation amounting to Rs. 3,05,260/- consequent to which there is under assessment and short levy of lax. 10.1 The assessee in its submission vide point C of para 6 submitted that it has claimed depreciation @10% on its buildings used for the staff. It being a company cannot use any building for residential purpose and has relied on the decision of Madras High Court in case of CIT vs. Ashok Leyland Limited [2019] 266 taxmann.com 406. 10.2 On perusal of the submissions made by the assessee, it was observed that the assessee has claimed depreciation @ 10% on residential buildings on the ground that the said buildings were used for the staff and not for its residential purpose. In this regard, it is relevant to refer to the decision of....
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.... of error by the Ld. PCIT with regards to the issue of claim of depreciation of residential building of staff @10% is itself flawed and incorrect, based on the decision of the ITAT, while the assessee had pointed out the decision of the Hon'ble High Court of Madras ruling in its favour, which the Ld. PCIT had not cared to distinguish at all. The finding of error by the Ld. PCIT in the order of the AO in this regard being flawed her direction to the AO to disallow the excess claim of depreciation on the residential building is, therefore, not sustainable in law. 13. Taking up the next issue of disallowance of expenses u/s. 14A of the Act, the assessee was noted to have made investment in an LLP, which investment was found to have substantially increased at the end of the year from that made at the beginning of the year. 14. The Ld. PCIT noted the assessee to have earned exempt income from the LLP and finding the AO to have made no disallowance of expenses u/s. 14A of the Act pertaining to the expenses incurred for the purposes of earning exempt income, she held the assessment order passed in the present case to be erroneous causing prejudice to the Revenue. 15. As noted abo....
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....o exempt income cannot be accepted for following reasons: (i) It is undisputed fact that assessee has made investments in shares and earned exempt income in books of accounts. It is matter of fact that whether assessee has earned exempt income or not, provisions of Section 14A is applicable as Investments made by assessee are capable of earning such income. It may happen that in some years, assessee may not earn exempt income but incurs huge administrative expenditure but as per assessee's interpretation, no disallowance would be made as no exempt income is earned and same is incorrect. It may happen that in some other years, assessee eams exempt Income but there is no expenditure debited in Profit & loss account and even in this scenario, no disallowance would be made as no expenditure is debited in Profit & loss account. Thus, disallowance u/s 14A of the Act is depended upon investments made by assessee and not on earning of exempt income or incurring of expenditure for earning exempt income. (ii) The Assessee has claimed that during the course of assessment proceedings, assessee has submitted all the relevant details and assessment order u/s 143(3) rw.s 144....
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....hat before invoking the provisions of Section 14A of the Act the AO has to record his satisfaction, having regard to the accounts of the assessee, that the claim made by the assessee of the expenditure incurred/ not incurred for earning exempt income, is incorrect. The Hon'ble apex court settled the proposition in the land mark case of Maxopp Investments Ltd. vs. CIT (2018) 91 taxmann.com 154. 17. In the facts to the present case, the onus of the AO to record dis-satisfaction with the explanation of the assessee has been assumed by the Ld. PCIT. It is the PCIT who has rejected the explanation of the assessee as not being sufficient for explaining its claim that no expenses were attributable to the earning of exempt income. This clearly is not as per law interpreted by the Hon'ble Apex Court. It was for the AO to record dis-satisfaction and the Ld. PCIT could not usurp this power and further after usurping this power and recording dis-satisfaction with the explanation of the assessee, she could not have directed the AO to make disallowance by invoking the Rule 8D of the IT Rules. The Ld. PCIT, at best, ought to have directed the AO to consider the explanation of the assessee and ....
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....f the additional depreciation was allowable to the assessee in the preceding year. The balance 50%, since it pertained to the preceding year, but was not allowed to the assessee due to non-utilization of assets for the specified period, the said balance claim of additional depreciation ought to have been reduced from the WDV of assets before allowing depreciation to the assessee on the WDV of the assets. The Ld. PCIT has dealt with this issue at para 5 to 5.4 of her order as under: "5. Regarding the claim of excess depreciation of Rs. 2,47,520/-, it is submitted that the assessee company has computed/claimed general depreciation allowance @15% on the opening WDV of Rs. 19,31,47,982/- which includes the amount of 50% additional depreciation of Rs. 16,50,136/- which resulted into claim of excess depreciation @1.5%. 5.1 On perusal of facts on record and submission filed by the assessee company. it was found that the assessee company has claimed depreciation of Rs. 5,81,72,224/-, which includes additional depreciation of Rs. 16,50,136/- relating to an asset put to use for less than 180 days in immediately preceding year ie. AY 2017-18. 5.2 Further it was noti....
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....machinery or plant shall be allowed as deduction under clause (ii):" On perusal of the above, it can be observed that the intention to introduce such section was to encourage investment in plant & machinery by the manufacturing and the power sector, for which additional depreciation of 20% of the cost of new plant or machinery acquired and installed was to be allowed. On the lines of allowability of general depreciation allowance, the second proviso to section 32(1) provides that the additional depreciation would be restricted to 50% when the new plant or machinery acquired and installed by the assessee, is put to use for a period of less than 180 days. However, non-availability of 100% additional depreciation for acquisition and installation of new plant and machinery in the second half of the year would motivate the assessee to defer such investment to the next year for availing full 100% of additional depreciation in the next year. In order to remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, the amendment proposing the allowance of 50% additional depreciation in t....