Gujarat High Court
The Principal Commissioner Of Income ... vs M/S Vishal Exports Overseas Ltd on 10 June, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/125/2024 ORDER DATED: 10/06/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 125 of 2024
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THE PRINCIPAL COMMISSIONER OF INCOME TAX - 3 AHMEDABAD
Versus
M/S VISHAL EXPORTS OVERSEAS LTD
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Appearance:
MR. KARAN SANGHANI, SR.STANDING COUNSEL FOR MRS KALPANA K
RAVAL(1046) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 10/06/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. This appeal is filed under Section 260A of the Income Tax
Act, 1961 (for short "the Act") by the Appellant-Revenue proposing
the following substantial questions of law arising out from the order
dated 19.5.2023 passed by the Income Tax Appellate Tribunal,
Ahmedabad (for short "the Tribunal") in ITA No.1916/Ahd/2014
for the Assessment Year 2007-08.
"(A) Whether on the facts and circumstances of the case and in
law, the ITAT has erred in deleting the addition of
Rs.10,47,07,692/- made on account of additional depreciation u/s
32(1)(ii) of the Act?
(B) Whether on the facts and circumstances of the case and in law,
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the ITAT has erred in restricting the addition of Rs.5,76,368/-
made u/s 14A of the I. T. Act to the extent of exempt income of Rs.
2,85,000/-
2. So far as the question "A" is concerned, the Assessing Officer
made an addition of Rs.10,47,07,692/- on account of additional
depreciation under Section 32(1)(iia) of the Act on the ground that
the respondent assessee did not manufacture any article or things
which is condition precedent for claiming the additional depreciation
claimed on windmill.
3. Feeling aggrieved, the respondent-assessee preferred appeal
before CIT (Appeals). CIT (Appeals) considered the facts of the
case that the asssessee generated power through windmill. It was
held that such electricity generation produced through windmill
would amount to manufacture of an article or things and as the
assessee was already in the business of production/generation of
electricity which is covered under Sale of Goods Act, 1930 i.e.
electricity is an article and thing and that assessee
installed/commissioned windmill during previous year, the assessee
was entitled to additional depreciation under Section 32(1)(iia) of the
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Act. It was also held that such claim made by the assessee was duly
supported by filing Form No.3AA as required under the said section
and the rules.
4. The CIT(Appeals) also took note that with effect from
1.4.2013 by Finance Act, 2012, provisions of Section 32(1)(iia) of
the Act was amended to include the business of "generation or
generation and distribution of power" being eligible for additional
depreciation. The reliance was placed by the CIT(Appeals) to allow
the appeal of the assessee on this issue on the decision of this Court
in the case of Commissioner of Income tax -I Vs. Diamines &
Chemicals Ltd.reported in [2014] 42 taxmann.com.193 (Gujarat).
5. The Tribunal has also upheld the reasoning of the CIT
(Appeals) and dismissed the appeal filed by the revenue observing
as under :-
"27. We have heard the rival contentions and perused the
material on record. We observe that in the case of S.
Srinivasaraghavan v. ACIT 139 taxmann.com 230
(Madras), the High Court held that generation of electricity by
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windmill should be equated to term "manufacturing or
production of article or thing", and, therefore, assessee was
entitled to claim additional depreciation on windmill installed
as per provision of section 32(1)(iia) of the Act. The aforesaid
decision was followed in assesse's own case for assessment
year 2006-07 in DCIT v. Vishal Export Overseas Ltd 143
taxmann.com 305 (Ahmedabad - Trib.), wherein the ITAT
Ahmedabad held that activity of generating electricity by
windmill would be manufacturing in nature, thus, assessee
would be eligible to claim additional depreciation with respect
to windmill installed during relevant year. Accordingly, in
view of the aforesaid decisions, we are of the considered view
that Ld. CIT(Appeals) has not erred in fact and law allowing
the appeal of the assessee on this issue."
6. Considering the above concurrent findings arrived at by the
CIT (Appeals) and the Tribunal to the effect that the respondent
assessee was engaged in the business of generation of electricity
which is an article and thing, the additional depreciation as per
Section 32(1)(iia) is rightly allowed as held by this Court in case of
Diamines & Chemicals Ltd. (Supra) as under:-
"3. Heard Shri K.M. Parikh, learned Counsel appearing on
behalf of the revenue and perused the impugned judgment and
order passed by the ITAT. At the outset, it is required to be
noted that the assessee claimed the deduction under Section
32(1)(iia) of the Income-tax Act with respect to the cost
incurred by it for installation of the Wind Electric Generator.
The Assessing Officer disallowed the same and made the
addition of Rs.1,17,98,030/- by observing that as the assessee
is not in the business of generation an distribution of power,
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the assessee shall not be entitled to deduction under Section
32(1)(iia) of the Income tax Act of Rs.1,17,98,030/-. The said
addition has been deleted by the CIT(A) relying upon the
decisions, the Madras High Court in the case of VTM Ltd
(Supra) and in the case of Hi Tech Arai Ltd. (Supra), In both
the aforesaid decisions, the Madras High Court had an
occasion to consider the similar issue and it is held that while
claiming the deduction under Section 32(1)(iia) of the Income-
tax Act setting up wind-mill has nothing to do with the power
industry and what is required to be satisfied in order to claim
additional depreciation is that the setting up of new machinery
or plant should have been acquired and installed by an
assessee, who was already engaged in the business of
manufacture or production of any article or thing. Considering
the aforesaid facts and circumstances and considering the
relevant provisions of Section 32(1)(iia) of the Income-tax
Act, which was prevailing at the relevant time, i.e. during the
year under consideration, it cannot be said that the ITAT by
applying the ratio of decision of the Madras High Court in the
case of VTM Ltd. (Supra) and in the case of Hi Tech Arai Ltd.
(Supra) has committed any error in deleting the addition of
Rs.1,17,98,030/- on account of disallowance of additional
depreciation of Wind Electric Generator"
7. Learned advocate Mr. Karan Sangani for the appellant
submitted that in case of Diamines & Chemicals Ltd. (Supra),
the assessee was having the business of manufacture and sale of
various specialty in chemicals whereas, in the facts of the present
case the assessee was engaged in business of import/export of agro
commodities ranging from rice, wheat etc. and also engaged in
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generation of power. It was therefore submitted that the decision of
this Court in case of Diamines & Chemicals Ltd. (Supra) would
not be applicable.
8. We are of the opinion that this Court while considering the
applicability of Section 32(1)(iia) of the Act has not taken into
consideration the business of the assessee but has relied upon the
decision of Madras High Court in case of CIT Vs. VTM Ltd.
reported in [2009] 319 ITR 336 and decision in case of CIT Vs.
Hi Tech Arai Ltd. reported in [2010] 321 ITR 477 wherein,
Hon'ble Madras High Court had an occasion to consider the similar
issue and it was held that by claiming the deduction under Section
32(1)(iia) of the Act, setting up of wind mill has nothing to do
with the power industry and what is required to be satisfied in order
to claim additional depreciation is that the setting up of new
machinery or plant should have been acquired or installed by an
assessee, who was already engaged in the business of manufacture or
production of any article and thing. The assessee was engaged in the
business of generation of electricity which is an article or thing and
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as such, it is held by the CIT(Appeals) and the Tribunal have rightly
held that the assessee is entitled to the benefit of additional
depreciation under Section 32(1)(iia) of the Act.
9. With regard to the question No. B qua disallowance under
Section 14A of the Act is concerned, the Assessing Officer has
applied Rule 8D of the Income Tax Rules, 1962 (for short "Income
Tax Rules") and made addition of Rs. 5,76,368/-.
10. However, CIT (Appeals) restricted the said disallowance to
Rs.1.00 Lakh as Rule 8D is not applicable to the year under
consideration i.e. assessment year 2007-2008 as Rule 8D was
inserted with effect from 24.3.2008 i.e. assessment year 2008-2009
On appeal, the Tribunal by concession given by the assessee
enhanced disallwance to Rs.2,85,000/- which was equivalent to
exempt income earned by the assessee during the year under
consideration.
11. Learned advocate Mr.Sanghani submitted that the assessee
only filed reply objecting invocation of Rule 8D of the Rules by the
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assessing officer without providing any bifurcation of the direct or
indirect expenses relatable to the income which is claimed exempt.
It was therefore submitted that CIT (Appeals) and Tribunal ought to
have considered expenses incurred to earn exempt income by the
assessee.
12. However, the Tribunal in the present case has enhanced
disallowance to Rs.2,85,000/- which is claimed as exempt by the
assessee, meaning thereby no exemption is granted to the assessee
and entire income claimed as exempt is brought to tax by
disallowing the expenditure of Rs.2,85,000/- .
13. We are therefore of the opinion that no question of law much
less any substantial question of law arises from the impugned order
of the Tribunal. The appeal is accordingly dismissed.
(BHARGAV D. KARIA, J)
(NIRAL R. MEHTA,J)
BEENA SHAH
