Case Law Details
ACIT Vs Apraava Energy Pvt. Ltd. (ITAT Ahmedabad)
ITAT Ahmedabad held that motor vehicles qualify as self-propelled vehicles and accordingly depreciation at the rate of 33.40% available on the same.
Facts- AO observed that assessee has claimed exempt income amounting to Rs.2,66,445/-. Further, from a perusal of the profit & loss account of the assessee, the AO observed that the assessee has claimed expenditure on account of interest payment on loans. Accordingly, after taking the submissions of the assessee on record, the AO made disallowance of Rs.41,23,26,600/- u/s. 14A read with Rule 8D. CIT(Appeals) in the appellate proceedings, restricted the disallowance to the amount of income claimed to be exempt by the assessee amounting to Rs.2,66,445/-. Accordingly, being aggrieved, department has preferred the present appeal.
Further, AO observed that on verification of Tax Audit Report it was found that the assessee has claimed depreciation on “self-propelled vehicles” @33.40% for an amount of Rs.1,30,17,767/-. AO was of the view that as assessee’s claim for depreciation falls under category (p)- “any other assets not covered above” of the Appendix IA to Rule 5(1A) and depreciation thereon is allowable at the rate of 7.69%, while the assessee has claimed depreciation under category (k)-“self-propelled vehicle” and has claimed depreciation at the rate of 33.40% on motor vehicles. CIT(A) allowed the appeal. Accordingly, being aggrieved, department has preferred the present appeal.
Conclusion- We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt.
We are of the considered view that motor vehicles qualify as self-propelled vehicles and accordingly, we find no infirmity in the order of Ld. CIT(Appeals), who has allowed relief to the assessee with respect to this issue.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The appeal filed by the Revenue and Cross Objection filed by the assessee are against the order of the National Faceless Appeal Centre (NFAC), Delhi, in proceeding u/s. 250 vide order dated 12/07/2022 passed for the assessment year 2016-17.
2. The Department has taken the following grounds of appeal:-
“1) “Whether the CIT(A) has erred in law and on facts in deleting the disallowance of Rs 41,23,26.600/- U/S.14A r.w.r. 8D of the IT Act made while computing income under normal provisions of the Act?
2) “Whether the CIT(A) has erred in law and on facts in deleting the disallowance of Rs 41,23,26,600/- u/s.14A r.w.r. 8D of the IT Act made to income computed u/s. 115JBof the Act?”
3) “Whether the CIT(A) has erred in law and on facts in deleting the disallowance of excess claim of depreciation of Rs 91,07,912/-without appreciating facts brought by the A.O.?”
4) The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary
5) It is, therefore, prayed that the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored.”
3. The assessee has taken the following grounds in the cross objection:-
“1. In law and on the facts and in the circumstances of the appellant’s case, the impugned Appellate Order passed u/s 250 of the Act by the NFAC, Delhi is void and deserves to be quashed.
2. In law and on the facts and in the circumstances of the appellant’s case, the NFAC, Delhi has erred in passing the Appellate Order by restricting the impugned disallowance to Rs.2,66,445/- u/s 14A r.w.r 8D when no such disallowance is called for.
3. The appellant craves to add to, alter, amend and/or withdraw any ground or grounds of appeal eith before or during the course of hearing of the appeal.”
4. At the outset, the counsel for the assessee submitted that he shall not be pressing for the cross objections.
Accordingly, the cross objections filed by the assessee are being dismissed as not pressed.
We shall not now take up the Department’s grounds of appeal.
Ground number 1: CIT(A) has erred in deleting the disallowance of Rs.41,23,26,600/- u/s 14A of the Act read with Rule 8D
5. The brief facts in relation to this ground of appeal are that the AO observed that assessee has claimed exempt income amounting to Rs.2,66,445/-. Further, from a perusal of the profit and loss account of the assessee, the AO observed that the assessee has claimed expenditure on account of interest payment on loans. Accordingly, after taking the submissions of the assessee on record, the AO made disallowance of Rs.41,23,26,600/- under section 14A read with Rule 8D.
6. The assessee filed appeal against the order of AO and filed various judicial precedents in support of its contention that disallowance under section 14A read with Rule 8Dcannot exceed the amount of income claimed to be exempt by the assessee. Accordingly, Ld. CIT(Appeals) in the appellate proceedings, restricted the disallowance to the amount of income claimed to be exempt by the assessee amounting to Rs.2,66,445/-. While passing the order, Ld. CIT(Appeals) made the following observations:
“It has now been settled law/that disallowance u/sj/i4A is to be restricted to the amount of exempt income received during the year. In the following case laws, the same was held, as under: –
1. Principal Commissioner of Income Tax, Patiala v. State Bank of Patiala
Where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed—held yes….as reported in 99 taxmann.com 286 (SC) [2018].
2. Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd.
Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 -Expenditure incurred in relation to income not included in total income (Rule 8D) – Assessment year 2009-10 – High Court by impugned order held that upper disallowance cannot exceed exempt income of relevant year and; therefore, where for year in question, finding of fact was that assessee had not earned any tax free income, corresponding expenditure could not be worked out for disallowance – Whether Special leave petition filed against impugned order was to be dismissed – Held, yes [Para 25 and 26][ln favour of assessee]——as reported in 112 taxmann.com 322 (SC) [2019]
5.1.3 Further, there are other case laws which say that disallowance under Section 14A, read with Rule 8D(2)(iii), should be restricted only to investments giving rise to exempt income [Assessment year 2009-10] [Partly in favour of assessee] as was held in Tata Power Co. Ltd. V. Principal CIT [2020] as reported in 121 taxmann.com 127 (Mumbai – Tribunal)and also average value of investment which has yielded income during year shall only be considered for purpose of disallowance under section 14A [Assessment year 2013-14] [In favour of assessee]as was held in Anant Raj Ltd. v. Asstt. CIT [2020] 116 taxmann.com 741/184 ITD 820 (Delhi). Further, In computing expenditure incurred in relation to income not includible in total income under Section 14A, read with Rule 8D (2)(iii), investments which are not capable of yielding dividend income need to be excluded from total investment [Assessment year 2009-10] [In favour of assessee] as was held in Dy. CIT v. Diamond Co. Ltd.[2016] 76 taxmann.com 127/ [2017] 162 ITD 131 (Kolkata).
5.1.4 In the background of position of law as above and after considering the facts of the case, the Ld. AO is directed to restrict the impugned addition of Rs. 41,23,26,600 u/s 14A of the Act to an: amount of Rs.2,66,445 i.e., the amount which was the amount of exempt income during the year. Ground no. 2 to 6 are, therefore, partly allowed.”
7. The Department is in appeal before us against the aforesaid additions deleted by the Ld. CIT(Appeals) in appellate proceedings. The DR primarily placed reliance on the observations made by the AO in the assessment order. In response, the counsel for the assessee submitted that it is well-settled position that disallowance under section 14A read with Rule 8D cannot be in excess of the income claimed to be exempt the assessee.
8. We have heard the rival contentions and perused the material on record. We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt. The Hon’ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon’ble Supreme Court in the case of Chettinad Logistics (P.) Ltd.[2018] 95 taxmann.com 250 (SC)dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80 (Delhi) held that section 14A would not be applicable if no exempt income was received or receivable during relevant previous year. The Delhi High Court in the case of Amadeus India (P.) Ltd.[2022] 145 taxmann.com 311 (Delhi), held that section 14A envisages that there should be an actual receipt of income which is not includible in total income; hence, section 14A will not apply where no exempt income is received or receivable during relevant previous year. The Ahmedabad ITAT in the case of Edelweiss Financial Advisors Ltd. [2021] 124 taxmann.com 361 (Ahmedabad – Trib.) held that disallowance of expenses under section 14A read with rule 8D could not exceed amount of exempted income. The Ahmedabad ITAT in the case of Addlife Investments (P.) Ltd.[2021] 124 taxmann.com 572 (Ahmedabad – Trib.) held that disallowances made under section 14A read with rule 8D could not exceed amount of exempt income earned by assessee during year. In the case of Asian Grantio India Ltd [2020] 113 taxmann.com 445 (Ahmedabad – Trib.), the Ahmedabad ITAT held that Disallowance of expenses under section 14A read with rule 8D of 1962 Rules cannot be made in absence of exempt income.
9. Accordingly, in light of the judicial precedents on the subject referred to above, we find no infirmity in the order of Ld. CIT(Appeals), so as to call for any interference.
10. In the result, ground number 1 of the Department’s appeal is dismissed.
Ground number 2: CIT(Appeals) erred in deleting the disallowance of Rs. 41,23,26,600/- under section 14A read with Rule 8D made to income computed u/s 115JB of the Act
11. This ground relates to Ld. CIT(Appeals) deleting from the determination of book profit done by the Ld. Assessing Officer the inclusion of disallowance of Rs. 41,23,26,600/- made under section 14A of the Act read with Rule 8D, while computing income under section 115JB of the Act. The counsel for the assessee submitted that this issue is directly covered in favour the assessee by various judicial precedents on the subject. Accordingly, the Ld. CIT(Appeals) has correctly given relief on this issue to the assessee. In response, DR relied upon the observations made by the assessing officer in the assessment order.
12. We have heard the rival contentions and perused the material on record. Recently the Supreme Court of India in the case of Atria Power Corporation Ltd. [2022] 142 taxmann.com 413 (SC) dismissed the SLP of the Department against High Court ruling that disallowance made under section 14A could not be added in assessee-company’s income for purpose of computation of income under section 115JB of the Act. The Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad – Trib.) held that disallowances made under section 14A read with rule 8D could not be applied to provision of section 115JB of the Act. The Delhi ITAT in the case of Vireet Investment (P.) Ltd [2017] 82 taxmann.com 415 (Delhi – Trib.) (SB) held that computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. In view of the consistent position of law on this issue, we are hereby dismissing the Department’s appeal with respect to ground number 2.
13. In the result, ground number 2 of the Department’s appeal is dismissed.
Ground number 3: CIT(A) erred in deleting the disallowance of excess claim of depreciation of Rs.91,07,912/-
14. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO observed that on verification of Tax Audit Report, it was found that as per Annexure-4 of clause 18 of Form 3CD, the assessee has claimed depreciation on “self-propelled vehicles” @33.40% for an amount of Rs.1,30,17,767/-. The AO was of the view that as assessee’s claim for depreciation falls under category (p)- “any other assets not covered above” of the Appendix IA to Rule 5(1A) and depreciation thereon is allowable at the rate of 7.69%, while the assessee has claimed depreciation under category (k)-“self-propelled vehicle” and has claimed depreciation at the rate of 33.40% on motor vehicles. The assessee submitted before the AO that the assessee claimed depreciation under the straight-line method (SLM) on the block of assets. The assessee pointed out that Appendix-IA for rate of depreciation under SLM method does not provide for depreciation @15% on vehicles. Further, the assessee’s case is squarely covered under category (k)-“self-propelled vehicles” and is eligible for depreciation at the rate of 33.40%. Without prejudice to the above, the assessee also submitted that the assessee has already claimed depreciation on vehicles for movement of goods and people in the block of “self-propelled vehicles” at the rate of 33.47% in the past several years and the same has been accepted by the Department. Accordingly, once the assessee has claimed depreciation on the block of assets namely “self-propelled vehicles” which has been accepted by the Department in the earlier years, depreciation cannot be disallowed in the hands of the assessee. However, the AO rejected the arguments of the assessee and made disallowance of Rs.91,07,912/-with the following observations in the assessment order:
“4.4 It is pertinent to mention here that as per Appendix-IA of Rule 5(1A) of the Income-tax Rule, 1962 there is no asset classified as ‘Vehicle’. In absence of such classification, the asset of the assessee falls under the category ‘(p) Any Other assets not covered above’ on which allowable depreciation is @ 7.69% and not 33.40% as claimed by the assessee. The assessee in its submission dated 17.12.2018 has contended that the depreciation @33.40% is claimed on the ground that vehicles for movement of goods and people are included in the block of self-propelled vehicle and claim of depreciation is justified @33.40%. To counter the argument of the assessee, attention is invited to two things;
i. Firstly, in the same Appendix-1 A of Rule 5(1 A) of the Income-tax Rule, 1962, under the head ‘class of asset’ at Serial No. (n) under sub-head ‘Apparatus let on hire’ there is an asset ‘Motor’ on which allowable depreciation is @ 12.77%. Depreciation on asset let-out on hire cannot be less than used for personal effect, as the claim of assessee that Motor Vehicle is included in ‘self propelled vehicle1 is liable for depreciation @33.40%.
ii. The above rebut can be more seen from Appendix-l of Rule 5 of the Income-tax Rule, 1962, wherein ‘Motor cars, other than those used in business of running them on hire’ qualifies for depreciation @15% against ‘those used in the business of running them on hire’ qualifies @30%.
Thus, from the above the intent of the legislature is clear that vehicles used for hire depreciates more quickly the normal vehicle and hence depreciation is allowable on hired vehicles is high in compare to others vehicles.
4.5 In light of the above facts, the depreciation allowable is re-computed as hereunder:
In light of the above facts as discussed in herein above, excess claim of depreciation amounting to Rs. 91,07,92/- is disallowed and added back to the income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act is initiated separately for filing inaccurate particulars of income.
(Disallowance of Rs. 91,07,912/-)”
15. In appeal, Ld. CIT(Appeals) allowed the appeal of the assessee on this issue.
16. The Department is in appeal before us against the aforesaid relief provided by the Ld. CIT(Appeals) on this issue to the assessee. Before us, the DR placed reliance on the observations made by the AO in the assessment order. In response, the counsel for the assessee argued firstly that motor vehicles qualify as self-propelled vehicles and invited our attention to the definition of self-propelled vehicle in the English dictionary. Secondly, the counsel for the assessee submitted that the assessee has already claimed depreciation on the block named “self-propelled vehicles” and depreciation on this of block of assets had been allowed to the assessee in the previous years by the Department. Accordingly, now, the Department cannot disallow the depreciation on such block of assets.
17. We have heard the rival contentions and perused the material on record. It would be useful to refer to some of the judicial precedents which have thrown light on the meaning of self-propelled vehicles. In the case of Crompton Engg. Co. (Madras) Ltd.93 ITR 483 (Madras), the High Court made the following observations in this regard:
Merely because the jeep has four-wheel propulsion and is used through jungles and hilly terrains, it would not make it different from a motor car particularly when the motor car and the jeep have the following common features.
(a) both the vehicles are mounted on wheels upon which they run over the surface of the land.
(b) both the vehicles are guided and controlled by a person riding upon or in them.
(c) both are designed and intended to carry one or more persons; and.
(d) both are propelled by power not supplied from any source external to themselves but which is for the time being stored and generated within themselves and both are self-moving vehicles.
17.1 In the case of John Energy Ltd. v. DCIT 59 taxmann.com 75 (Ahmedabad – Trib.), the Ahmedabad ITAT observed as under:
“…..Fire engine also called fire truck is a self-propelled mobile piece of equipment used in fire fighting….”
17.2 In the case of Gotan Lime Stone Khanij Udyog 170 Taxman 442 (Rajasthan), the High Court held that
10. Under the scheme of the Motor Vehicles Act, 1939, the “road transport vehicle” has not been specifically defined but the “motor vehicle” or “vehicle” has been defined under section 2(28) of the said Act, which reads as under :
“(28) ‘motor vehicle’ or ‘vehicle’ means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from an external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres.”
11. From a bare reading of this sub-section, it is clear that any mechanically propelled vehicle adapted for use on roads is a motor vehicle but does not include a vehicle running upon fixed rails or a vehicle of a special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding twenty-five cubic centimetres.
17.3 In the case of Gujco Carriers122 Taxman 206 (Gujarat), the Gujarat High Court held that under:
Lorry or truck would, therefore, mean not only any motor vehicle designed to carry freight or goods but also to perform special services like fire fighting. Fire engine also called fire truck is a self-propelled mobile piece of equipment used in fire fighting.
17.4 In light of the observations, we are of the considered view that motor vehicles qualify as self-propelled vehicles and accordingly, we find no infirmity in the order of Ld. CIT(Appeals), who has allowed relief to the assessee with respect to this issue.
18. In the result, ground number 3 of the Department’s appeal is dismissed.
19. The balance grounds of appeal raised by the Department are general in nature and do not require any specific adjudication.
20. In the combined result, the Appeal of the Department is dismissed and the Cross Objections filed by the assessee are also dismissed.
Order pronounced in the open court on 25-04-2023
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