Income Tax Appellate Tribunal - Mumbai
Aarti Drugs Ltd, Mumbai vs Addl Cit Rg 6(1), Mumbai on 10 February, 2017
आयकर अपीलीय अिधकरण ए " " यायपीठ म । मुबं ई IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI सव ी राजे , लेखा सद य एवं संजय गग , याियक सद य Before S/Shri Rajendra, A.M. and Sanjay Garg,J.M. आयकर अपील सं./ITA No. 6783-84/Mum/2014, िनधा रण रण वष /Assessment Year: 2010-11 & 2011-12 Aarti Drugs Limited Addl. CIT, Range-6(1) Plot No.109, 'D' 3rd Floor, Mahendra Aayakar Bhavan, Mumbai.
Vs. Indl Estate.Sion(E), Mumbai-400 022.
PAN: AAACA 4410 D
(अपीलाथ /Appellant) ( यथ / Respondent)
Revenue by: Shri Rajesh Kumar Yadav
Assessee by: Shri Anuj Kisnadwala
सुनवाई क तारीख / Date of Hearing: 18.01.2017
घोषणा क तारीख / Date of Pronouncement: 10 .02.2017
आयकर अिधिनयम ,1961 क धारा
254(1) अ तग त के आदेश
Order u/s.254(1)of the Income-tax Act,1961(Act)
लेखा सद य,राजे के अनुसार -Per Rajendra,AM:
Challenging the orders dated 12/08/2014 of CIT (A)-14,Mumbai the assessee has filed appeals for the above-mentioned two AY.s.Assessee-company is engaged in the business of manufactur- ing speciality chemicals and bulk drugs. As the issues involved in both the years are common, so,we are passing a common order.The details of dates of filing of returns,returned incomes, assessment comes etc.can be summarised as under:
AY. ROI filed on Returned income Asstt.date Assessed Income 2010-11 30.09.2010 Rs.40.86 crores 09.03.2013 Rs.42.23 crores 2011-12 30.09.2011 Rs.18.37 crores 31.10.2013 Rs.20.27 crores ITA/6784/Mum/2014,AY.2010-11.
2.First effective Ground of appeal is about disallowance u/s.14 A of the Act, amounting to Rs. 6.28 lakhs.During the assessment proceedings, the AO found that assessee had received a dividend income of Rs.50,944/- and had claimed the same as exempt from tax u/s.10 (34) of the Act.He directed the assessee to submit details of expenditure incurred in relation to above exempt income and to file working of disallowance as per section 14 A read with rule 8D of the Income Tax Rules,1962 (Rules). After considering the submissions of the assessee, the AO made a disallowance of Rs.8.28 lakhs (Rs. 7.46 lakhs under the head interest expenditure and Rs. 82, 210/-on account of 0.5% of the average investments for the year under consideration). As the assessee itself had made disallowance of Rs. 2 lakhs, so, he restricted it to Rs.6.28 lakhs.
6783-83/M/14910-11(11-12- Aarti Drug Limited 2.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before her,it was argued that the assessee had not incurred any admission to expenses to all exempt income, that it had disallowed 10% of salary of executives and 15% of administrative overheads i.e.Rs. 2 lakhs on its own.
After considering the submission of the assessee and the assessment order, the FAA held that provisions of section 14A read rule 8D of the Rules were applicable for the year under appeal, that the assessee was having mixed fund, that it had not kept separate accounts for investment and business.She referred to cases of Lakshmi Ring Travellers(TS-210-ITAT-2012),JK Indust - ries(ITA/7088/Mumbai/2011, dated 21/11/2012) Daga Capital Management Private Ltd (26SOT603) and upheld the order of the AO.
2.2.During the course of hearing before us, the Authorised Representative (AR) argued that no interest disallowance could be made u/s.14 A when the assessee owned sufficient funds to cover of the value of investments, that the disallowance had to be restricted to the amount of exempt income earned by the assessee during the year, that for the purpose of disallowance only those investments were to be considered from which exempt income had been received, that no disallowance could be made if the investment was in subsidy/group company, that the AO had not recorded dissatisfaction before invoking the provisions of section 14 A read with Rule 8D of the Rules, that funds available with the assessee for the year under appeal amounted to Rs.1, 41, 09, 15, 920/-and that assessee had made investment of Rs. 21.37crores, that it had earned exempt income of Rs.50,944/-. He relied upon the cases of Reliance Utilities Ltd(313ITR340),HDFC Bank Ltd.(366 ITR 505) Joint Investments(372 ITR 694)ACB India(374 ITR 108) Cheminvest Ltd. (378 ITR 33).The Departmental Representative (DR) supported the order of the FAA.
2.3.We have heard the rival submissions and perused the material before us. We find that during the year under consideration the assessee had claimed exemption of Rs.50,944/-u/s.10 (34) of the Act, that it had made a disallowance of Rs. 2 lakhs on its own, that the AO made a disallowance of Rs. 7.46 lakhs and Rs. 82, 210/-on account of interest expenditure and administrative expenses respectively,that the FAA upheld the order of the AO, that the assessee had sufficient own funds (Rs.141.09 crores) to make investment of Rs. 21.37 crores. As per the settled principles of taxation dealing with the provisions of section 14A if the assessee's own funds are sufficient to 2 6783-83/M/14910-11(11-12- Aarti Drug Limited make investments no disallowance under the head interest expenditure should be made. In the case of Reliance Utilities the Hon'ble Bombay High Court has held as follow:
"if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments."
Section 14A was introduced to prevent the misuse of double deductions i.e. claiming exemptions against the exempt income so that disallowance has to be restricted to exempt income only. Here, we would like to reproduce relevant portion of the judgment of Joint Investments(supra), of Hon'ble Delhi High Court and it reads as under:
"Section 14A or rule 8D of the Income-tax Rules, 1962, cannot be interpreted so as to mean that the entire exempt income is to be disallowed. The window for disallowance was indicated in section 14A and was only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income".This proportion or portion of the exempt income surely cannot swallow the entire amount."
As the suo motu disallowance made by the assessee is far more than the exempt income earned by it, so,in our opinion there was no justification for making any further disallowance. Reversing the order of the FAA,we decide first ground of appeal in favour of the assessee.
3.Second Ground of appeal is about disallowance of additional depreciation of Rs. 1.31 crores. During the assessment proceedings, the AO found that the assessee had claimed additional depreciation to the tune of Rs. 1.85 crores which was 10% of the additional depreciation since the assets put to use were for the period less than six months.He held that assessee was not entitl
-ed to claim such deduction as per the provisions of section 32 (1) (iia) of the Act.
3.1.During the appellate proceedings before the FAA,the assessee contended that additional depreciation was mandatorily required to be allowed, that the provisions of section 32 (1) (iia) did not stipulate that the additional depreciation had to be allowed only in the first year of claim, that the proviso to section 32 (1) did not take away the balance claim even if the assets were put to use for less than 180 days,that it was an incentive provision and had to be interpreted liberally.
3.2.After considering the submission of the assessee and the assessment order, the FAA held that the assessee had claimed 50% of the additional depreciation in the previous year, that clause (ii 3 6783-83/M/14910-11(11-12- Aarti Drug Limited
a)to section 32 (1) was inserted by the Finance Act, 2002 w.e.f.01/04/2003, that it was introduced as an incentive for fresh investment in the industrial sector, that additional depreciation could be claimed only in the year of acquisition and not in later years, that the second proviso to section 32 (1) (iia) puts restriction on claiming additional depreciation in the later years, that the concept of actual cost was relevant only in the year of acquisition of assets, that the additional depreciation had to be computed with reference to the actual cost, that the concept of actual cost would not survive in the second year/subsequent years of acquisition of the assets. She referred to the case of Brakes India Ltd (96 DTR 281) and stated that the assets in question were required in the AY.2009-10 and were put to use in the same year, that the additional depreciation could be claimed in the year of acquisition and not later, that assessee could not claim balance additional depreciation during the current AY.Finally, she upheld the order of the AO.
3.3.Before us the AR argued that the amended provisions regarding additional depreciation were not considered by FAA while deciding the appeal,that the assessee was entitled to claim 50% of the additional depreciation i.e. 10% during the year under consideration.He relied upon the case of Rittal India Pvt. Ltd.-No.1(380 ITR 423). The DR supported the order of the FAA.
3.4.We have heard the rival submissions and perused the material before us.We find that the FAA had disallowed the claim made by the assessee u/s.32(1)(iia),that she was of the opinion that it was available for one year only i.e.in initial year,that the assessee had claimed 50% of the deduction as the machinery was used for a period less than 180 days in the last AY.,that it had claimed the balance deduction in the year under appeal.We find that in the case of Rittal India Pvt. Ltd. -No.1(supra) the Hon'ble Karnataka High Court has dealt the identical issue.
Facts of the case were that the assessee was an existing industrial undertaking, when it had acquired and installed new plant and machinery in the FY.2006-07,that it had claimed 50% of additional 20% depreciation(i.e.,10% additional depreciation) u/s.32(1)(iia) of the Act in the corresponding AY.2007-08,that the new machinery was acquired after 01/10/ 2006,that the machinery was put to use for the purpose of business for a period of less than 180 days,that u/s. 32(1)(iia), read with the second proviso to section 32(1)(ii) of the Act, for the AY. 2007-08,the assessee was granted benefit of 50% of the 20% of the amount of depreciation allowable.Dispute 4 6783-83/M/14910-11(11-12- Aarti Drug Limited arose with regard to the allowance of the balance 10 % depreciation in the next AY. i.e. for the AY.2008-09.The AO, as well as the FAA disallowed the claim of the assessee, whereas the Tribunal,allowed the appeal of the assessee.Challenging the same,the Revenue filed appeal before the Hon'ble Court raising the following two substantial questions of law :
"(i) Whether the Tribunal is correct in extending the benefit of sec tion 32(1)(iia) of the Act to the next AY. when the Income tax Act does not provide for such carryover, thereby violating the legal principles of 'casus omissus' which states that the courts cannot compensate for what the Legislature has omitted to enact ?
(ii) Whether the Tribunal was correct in holding that additional depreciation allowed u/s.32(1)(iia) is a one-time benefit to encourage industrialisation and the relevant provisions has been con strued reasonably and purposive without appreciating that the addi tional depreciation is allowed in the year of purchase and if in the year of purchase the assessee is eligible only for 50 per cent depreciation,the balance 50 per cent.cannot be carried forward for the subsequent year on the claim cannot be allowed in any other year ?"
The Hon'ble Court after referring to the provisions of section 32(1) dealt with the Clause (iia)of the section and held as under:
7. Clause (iia) of section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from April 1, 2006. Prior to that, a proviso to the said clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant AY..
8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been done away by substituting clause (iia) with effect from April 1, 2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialisation, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to clause (ii) of the said section makes it clear that only 50 per cent. of the 20 per cent.would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, it nowhere restricts that the balance per cent.would not be allowed to be claimed by the assessee in the next AY..
9. The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is per cent. additional depreciation. By virtue of the proviso referred to above, only per cent.can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent AY., otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for per cent.deduction which shall be allowed.
10. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the 5 6783-83/M/14910-11(11-12- Aarti Drug Limited 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. We are in full agreement with such observations made by the Tribunal."
3.4.1.Respectfully,following the above judgment, we hold that the assessee was entitled to claim 10% additional depreciation during the year under appeal.Reversing the order of the FAA,we decide the second ground of appeal in favour of the assessee.
ITA/6783/Mum/2014- AY.2011-12
4.First ground of appeal is about disallowance of Rs. 32.61 lakhs and Rs. 10.66 lakhs under the heads interest expenditure and administrative expenses as per the provisions of section 14 A read with Rule 8D of the Rules.Considering the facts -that the exempt income earned by the assessee for the year under consideration was Rs.73, 557/-, that it had made disallowance of Rs. 2 lakhs on its own, that it had made investment of Rs. 24.61 crores during the year under appeal, that the own funds of the assessee amounted to Rs. 156.51 crores ,we hold that the FAA was not justified in confirming the disallowance made by the AO. Following our order for the earlier year,we decide first Ground in favour of the assessee.
4.1.Second ground is about disallowance of additional depreciation of Rs. 91.01 lakhs as per the provisions of section 32(1) (iia) of the Act for the machineries put to use in the earlier years. While deciding the appeal for the last AY.,we have dealt with the issue. Following the same, Ground No. 2 is decided in favour of the assessee.
As a result, appeal filed by the assessee for both the AY.s stand allowed.
फलतः िनधा
रती ारा दािखल क गई दोन िन . व. क अपील मंजूर क जाती ह .
Order pronounced in the open court on 10th February, 2017.
आदेश क घोषणा खुले यायालय म "दनांक 10 फरवरी, 2017 को क गई ।
Sd/- Sd/-
(संजय गग /Sanjay Garg) (राजे
/ RAJENDRA)
याियक सद
य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांक/Dated : 10.02.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ 2. Respondent /
यथ
6
6783-83/M/14910-11(11-12- Aarti Drug Limited
3.The concerned CIT(A)/संब अपीलीय आयकर आयु , 4.The concerned CIT /संब आयकर आयु
5.DR " A " Bench, ITAT, Mumbai /िवभागीय ितिनिध, खंडपीठ,आ.अ. याया.मुंबई
6.Guard File/गाड फाईल स यािपत ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
7