Case Law Details
DCIT Vs Agile Electric Sub Assembly Pvt. Ltd. (ITAT Chennai)
Admittedly, the assessee has filed a tabular chart explaining date of purchase of machinery and completion of commissioning of such machinery, as per which all the plant and machinery was commissioned before 30.03.2013. The assessee had also placed on record commissioning report for installation and commissioning of plant and machinery . It is also an admitted fact that before Assessing Officer, the assessee has placed on record details of finished goods produced from the new plant and machinery installed and put to use for the relevant assessment year. The learned CIT(A), after considering the relevant submissions of the assessee has recorded categorical finding that assessee has completed installation and commissioning of plant and machinery on or before 30.03.2013. However, concurred with the findings of the Assessing Officer that in one day so many units of finished goods cannot be produced. We find that reasons given by the Assessing Officer to disallow depreciation on plant and machinery is not on sound footing, because it is a well settled principles of law by the decision of the Hon’ble Bombay High Court in the case of Whittle Anderson Ltd. Vs. CIT (supra) that when machinery kept ready for use at any moment from which taxable profits are earned, machinery can be said to be used for business purpose of section 10(2)(vii), the second proviso and depreciation on such plant and machinery can be allowed. The jurisdictional High Court of Madras in the case of CIT Vs. Chennai Petroleum Ltd.(supra) has considered an identical issue and held that where assessee’s business was a going concern and machinery could not be put to use due to raw material paucity beyond assessee’s control, depreciation claimed u/s.32 of the Act could not be denied. The sum and substance of ratio laid down by the above two decisions of Hon’ble High Courts are that even if plant and machinery is not put to use for the relevant assessment year, but was installed and ready for use, then depreciation claim can be allowed on such plant and machinery .
FULL TEXT OF THE ORDER OF ITAT CHENNAI
PER G.MANJUNATHA, AM:
This appeal filed by the Revenue and Cross Objection filed by the assessee are directed against the order of the learned CIT(A)-1, Chennai dated 31.01.2018 and pertains to assessment year 2013-14. Since, facts are identical and issues are common, for the sake of convenience, the appeal filed by the Revenue and Cross Objection filed by the assessee were heard together and are being disposed off by this consolidated order.
2. The Revenue has raised the following grounds of appeal:-
“1. The order of the learned CIT(A) is contrary to law, facts and circumstances of the case.
2.1 The learned CIT(A) erred in holding that the provisions ofsection 14A are not applicable, since the assessee had not earned any exempt income during the relevant assessment Year, without appreciating the fact that exempt income bearing investments are held by the assessee, and therefore the provisions of section 14A read with Rule 8D will get
2.2 The learned CIT(A) erred in following the decision of thejurisdictional high Court decision in the case of M/s. Redington (India) Limited, without appreciating the fact that the decision of the Hon’ble High court pertains to A.Y. 2007-08, which is prior to introduction of rule 8D, and the case in hand relates to the Y. 2013 14, thereby a decision of the High Court in the pre 8D era cannot be applied to a case in the 8D era.
2.3 The learned CIT(A) ought to have appreciated the circular in 5/2014 dated, which clearly explains that the provisions of section 14A read with Rule 8d are applicable even in a situation, when the assessee does not earn any exempt income but exempt income bearing investments are held by the assessee, and the Board’s circular is
3.1 The learned CIT(A) erred in deleting disallowance of depreciation claimed of 1.61 crores though it was not established that plant and machinery was put to use during the relevant previous year.
3.2 The learned CIT(A) while agreeing that the assessee couldnot have produced such volumes thereby agreeing with the AO that the machinery could not have been put to use on the last day of the relevant year, erred in holding that depreciation was allowable on plant and machinery if it was ready for use relying on the jurisdiction Hon’ble HC’s decision in the case of Chennai Petroleum Corporation v CIT (1971) ITR 790 ITR 613.
3.3 The learned CIT(A) failed to appreciate that the relied upon decision in the case of Chennai Petroleum Corporation v CIT (1971) ITR 790 ITR 613 has not been accepted by the Department and the SLP preferred against the said decision is pending adjudication before the Apex
3.4 For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.”
3. At the outset, learned AR for the assessee submittedthat the cross objection filed by the assessee is time barred by 66 days for which necessary petition for condonation of delay along with affidavit explaining the reasons for the delay has been filed. The AR further submitted that the assessee could not file cross objection within the time allowed under the Act, due to the fact the Authorized Representative was out of town. The delay in filing cross objection is neither intentional nor willful but for the unavoidable reasons, therefore, delay may be condoned in the interest of advancement of substantial
4. The learned DR, on the other hand, strongly opposing condonation of delay petition filed by the assessee submitted that the reasons given by the assessee do not come within the ambit of reasonable and bonafide reasons, which can be considered for condonation of delay and hence, appeal filed by the assessee may be dismissed as not
5. Having heard both sides and considered the petition filedby the assessee for condonation of delay, we are of the considered view that reasons given by the assessee for not filing the cross objection within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of cross objection is condoned and the cross objection filed by the assessee is admitted for
6. Brief facts of the case are that the assessee company isengaged in the business of manufacture of components, subassembly for motors and tools filed its return of income for the assessment year 2013-14 on 29.11.2013 admitting total income of Rs. 3,58,42,730/-. The case was selected for scrutiny and assessment has been completed u/s. 143(3) of the Act on 30.03.2016 and determined total income at Rs.7,14,81,039/- by making additions towards disallowance of expenses relatable to exempt income u/s.14A of the Act and disallowance of depreciation claimed on plant and machinery on the ground that assets were not put to use in the business of the assessee for the relevant assessment year. The assessee carried the matter in appeal before the first appellate authority. The learned CIT(A) for the detailed reasons stated in his appellate order dated 31.01.2018 deleted additions made by the Assessing Officer towards disallowance u/s.14A and disallowance of depreciation u/s. 32 of the Income Tax Act, 1961. Aggrieved by the learned CIT(A) order, the Revenue is in appeal before us.
7. The first issue that came up for our considerationfrom ground 2 of revenue appeal is disallowance of expenses relatable to section 14A of the Income Tax Act, 1961. During the course of assessment proceedings, the Assessing Officer noticed that assessee has made huge investments in shares and securities, but did not make suo moto disallowance of any expenses relatable to exempt income and hence, invoked Rule 8D of Income Tax Rules, 1962 and computed disallowance of Rs.1,95,18,258/- u/s.14A of the Act. On first appeal, the learned CIT(A) by following the decision of the Hon’ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. Vs.Addl.CIT (2016) 97 CCH 219 (Mad), deleted additions made towards disallowance u/s.14A by holding that when there is no exempt income earned for the relevant assessment year, then there cannot be any disallowance relatable to such exempt income.
8. The learned DR submitted that the learned CIT(A) haserred in holding that the provisions of section 14A are not applicable, when the assessee had not earned any exempt income during the relevant assessment year without appreciating fact that provisions of section 14A will come into operation, even though there is no exempt income for the year under The DR further submitted that the learned CIT(A) has erred in following the decision of the Hon’ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. Vs. Addl.CIT (supra) without appreciating fact that said decision pertains to assessment year 2007-08, which is prior to insertion of Rule 8D, whereas the case in hand relates to assessment year 2013-14, where it is mandatory to compute disallowance u/s.14A as per Rule 8D of Income Tax Rules, 1962. The DR further referring to CBDT circular No.5/2014 submitted that circular issued by the Board clearly explains that provisions of section 14A is applicable even in a situation, where the assessee does not earn any exempt income. Therefore, he submitted that the learned CIT(A) has completely erred in deleting additions made by the Assessing Officer towards disallowance of expenses u/s.14A of the Act.
9. The learned R for the assessee, on the other hand, submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt.Ltd.(2018) 95 taxmann.com 250(SC), where the Hon’ble Supreme Court has dismissed SLP filed by the Revenue against High Court ruling that section 14A cannot be invoked, where no exempt income was earned by the assessee in relevant assessment year .
10. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The issue of disallowance of expenses relatable to exempt income u/s.14A, in a situation where there is no exempt income earned for the relevant assessment year has been subject matter of deliberations by various High Courts, including the Hon’ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd. Vs. Addl.CIT (supra), in the light of the provisions of section 14A of the Act, where it was clearly held that provisions of section 14A r.w.r 8D cannot be made applicable in a vacuum i.e., in the absence of exempt income. The Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt.Ltd. (supra) has upheld the findings of the Hon’ble Madras High Court that section 14A cannot be invoked, where no exempt income was earned by the assessee in the relevant assessment year . In this case, the learned CIT(A) has recorded categorical finding that the assessee has not earned any exempt income for the relevant assessment year. Therefore, we are of the considered view that findings recorded by the learned CIT(A) in light of the decision of Hon’ble Jurisdictional Madras High Court in the case of M/s. Redington India Ltd. Vs.Addl.CIT (supra) is in accordance with law and does not call for any interference from our end and hence, the findings of the learned CIT(A) is upheld and ground raised by the Revenue is rejected.
11. The next issue that came up for our consideration from ground no.3 of revenue appeal is deletion of disallowance of depreciation made by the Assessing Officer on the addition of plant and machinery. The facts relating to the impugned dispute are that during the year the assessee has made various additions to plant and machinery and such plant and machinery was acquired and installed before 30.03.2013. The assessee has claimed depreciation as per the provisions of section 32 of the Act and further, wherever assets were put to use for less than 182 days, the assessee has claimed half of actual depreciation allowable as per the Act. The Assessing Officer has disallowed depreciation claimed on plant and machinery on the ground that although plant and machinery was installed and commissioned before 30.03.2013, but the same has not been put to use in the business of the assessee. Therefore, claim of depreciation cannot be allowed unless the assets are put to use in the business of the assessee for the relevant assessment year . To come to said conclusion, the Assessing Officer has relied upon production of finished goods furnished by the assessee and argued that in one day such a huge quantity of finished goods cannot be produced. He has also held that assets were not in fact, put to use in the business and hence rejected the depreciation claim on said plant and machinery.
12. The learned CIT(A), on appeal deleted additions made by the Assessing Officer by following the decision of Hon’ble Madras High Court in the case of CIT Vs. Chennai Petroleum Corporation (2013) 358 ITR 314(Mad) and also the decision of Hon’ble Bombay High Court in the case of Whittle Anderson Ltd. Vs. CIT (1971) 79 ITR 613(Bom) on the ground that where machinery is ready for use though actually not used, depreciation is admissible.
13. The learned DR submitted that the learned CIT(A) has erred in deleting disallowance of depreciation, though it was not established that plant and machinery was put to use during the relevant previous year . The DR further submitted that although the learned CIT(A) while agreeing that the assessee could not have produced such volumes of finished goods in one day thereby in agreement with the findings of the Assessing Officer that plant and machinery could not have been put to use on the last day of the relevant assessment year, but erred in holding that depreciation was allowable on plant and machinery, even though the same is ready for use by relying on the decision of jurisdictional Madras High Court in the case of CIT Vs. Chennai Petroleum Corporation (supra).
14. The learned A.R., on the other hand, supporting the order of the learned CIT(A) submitted that assessee has placed all evidences to prove that plant and machinery was put to use in the business of the assessee and based on the evidences placed by the assessee, the learned CIT(A) has rightly held that the assessee has put to use the plant and machinery in the business for the relevant assessment year to delete the additions made towards disallowance of depreciation. The A.R further referring to the paper book filed by the assessee submitted that the assessee has placed on record plant and machinery installation report, as per which plant and machinery was installed on 30.03.2013 and the same was put to use for production of finished goods . The assessee has also placed on record finished goods produced from plant and machinery installed and commenced. Therefore, it is incorrect on the part of the Assessing Officer to come to the conclusion that although plant and machinery was installed, but the same was not put to use in the business of the assessee, without bringing on any evidence to prove that said plant and machinery was not put to use in the business of the assessee. He further submitted that findings of the Assessing Officer was purely on suspicious and conjectures and without there being any evidence to prove that plant and machinery was not installed in business of the assessee.
15. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee has filed a tabular chart explaining date of purchase of machinery and completion of commissioning of such machinery, as per which all the plant and machinery was commissioned before 30.03.2013. The assessee had also placed on record commissioning report for installation and commissioning of plant and machinery . It is also an admitted fact that before Assessing Officer, the assessee has placed on record details of finished goods produced from the new plant and machinery installed and put to use for the relevant assessment year. The learned CIT(A), after considering the relevant submissions of the assessee has recorded categorical finding that assessee has completed installation and commissioning of plant and machinery on or before 30.03.2013. However, concurred with the findings of the Assessing Officer that in one day so many units of finished goods cannot be produced. We find that reasons given by the Assessing Officer to disallow depreciation on plant and machinery is not on sound footing, because it is a well settled principles of law by the decision of the Hon’ble Bombay High Court in the case of Whittle Anderson Ltd. Vs. CIT (supra) that when machinery kept ready for use at any moment from which taxable profits are earned, machinery can be said to be used for business purpose of section 10(2)(vii), the second proviso and depreciation on such plant and machinery can be allowed. The jurisdictional High Court of Madras in the case of CIT Vs. Chennai Petroleum Ltd.(supra) has considered an identical issue and held that where assessee’s business was a going concern and machinery could not be put to use due to raw material paucity beyond assessee’s control, depreciation claimed u/s.32 of the Act could not be denied. The sum and substance of ratio laid down by the above two decisions of Hon’ble High Courts are that even if plant and machinery is not put to use for the relevant assessment year, but was installed and ready for use, then depreciation claim can be allowed on such plant and machinery .
16. In this case, on perusal of various details filed by the assessee including commissioning report of plant and machinery, we find that all plant and machinery were acquired and installed before the end of the financial year. In fact, the assessee has placed on record production details of finished goods from newly installed plant and machinery. Therefore, we are of the considered view that the Assessing Officer has erred in disallowing depreciation on plant and machinery on assumption and surmises that in one day so much units of finished goods cannot be produced without understanding fact that in one day so many lakhs of units can be produced depending upon installed capacity of the plant and machinery. In this case, the observations of the Assessing Officer that so much units cannot be produced in one day was nothing but assumption or surmises, but not based on any facts and figures. Therefore, we are of the considered view that on this ground depreciation claimed on plant and machinery which were installed and put to use in the business of the assessee cannot be denied. Be that as it may, even assuming for a moment, the asset was not put to use in the business of the assessee, but when the plant and machinery is installed and ready for use in the business for the relevant assessment year, then claim of depreciation can be allowed. Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) to delete disallowance of depreciation on plant and machinery. Hence, we are inclined to uphold findings of the learned CIT(A) and reject the ground taken by the Revenue.
16. In the result, appeal filed by Revenue is dismissed.
17. The assessee has filed cross objection against the order of the learned CIT(A) and raised various grounds. Since the appeal filed by the Revenue on both issues were dismissed, the cross objection raised by the assessee becomes infructuous and hence, the same is dismissed as not
18. In the result, the appeal filed by the Revenue is dismissed and cross objection filed by the assessee is also dismissed.
Order pronounced in the open court on 21st April, 2021
