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www.taxpublishers.in Income Tax Act, 1961, Section 14A read with Income Tax Rules, 1962, Rule 8D Disallowance under section 14A--*Expenditure against exempt income--Whether disallowance could exceed exempt income earned during the year* *Conclusion:* Disallowance under section 14A could not exceed the exempt income earned by assessee during the year. AO made disallowance of expenses by invoking provisions of section 14A read with rule 8D. CIT (A) upheld the disallowance. Assessee-company contended that it suo-moto disallowed exempt income earned during the year but Revenue authorities ignored the same and made disallowance under section 14A read with rule 8D. Assessee further contended that disallowance under section 14A could not exceed the exempt income earned. *Held:* In view of decision of High Court in the case of Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC), disallowance under section 14A should be restricted to exempt income earned. Since exempt income earned by assessee, was already offered to tax, no disallowance in that regard was called for and hence, disallowance made under section 14A read with rule 8D, was deleted. *Decision:* In assessee's favour *Followed:* Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC) Income Tax Act, 1961, Section 32(1) Depreciation--*Higher rate--Vehicle canters--Canters not hired for running but used for assessee's own business* *Conclusion:* Where vehicle canters were not hired for running but used for assessee's own business and also there was no hire income shown in Profit and Loss Account to reflect any hire charges received, said vehicle canters would be eligible for depreciation @15%. Assessee-company claimed depreciation @30% on vehicle canters, which were used to transport auto components manufactured by it to its buyer, i.e., an entity 'M'. AO only allowed depreciation on canters @15% instead of @30% on the ground that assessee was not engaged in business of running vehicles on hire. Commissioner (Appeals) confirmed the view of AO. Assessee contended that its substantial sale was to 'M' and that canters were specially designed trucks made to carry goods/components to 'M', therefore, they were eligible for depreciation @30%. *Held:* Since vehicle canters were not hired for running but used for assessee's own business and also there was no hire income shown in Profit and Loss Account to reflect any hire charges received, said vehicle canters were eligible for depreciation @15% and not @30% as claimed by assessee. *Decision:* In assessee's favour IN THE ITAT, DELHI BENCH SHAMIM YAHYA, A.M. & YOGESH KUMAR U.S., J.M. Krishna Maruti Ltd. v. ACIT ITA No. 2387/DEL/2022 & ITA No. 2388/DEL/2022 3 April, 2024 Assessee by: Mohit Gupta, C.A., Neeraj Singh, C.A., & Nitin Sharma, C.A. Revenue by: Indu Bala Saini, Sr. D.R. ORDER *Shamim Yahya, A.M.* These appeals by the assessee are directed against the orders of the learned Commissioner (Appeals)-29, New Delhi both dated 28-7-2022 for the assessment years 2017-18 & 2018-19. 2. One issue raised in ITA No. 2387/DEL/2022 read as under:- On the facts and circumstances of the case, the learned Commissioner (Appeals) has erred, both on law and facts, in confirming disallowance of expenses amounting to Rs. 60,53,665 by invoking the provision of section 14A of the Act without appreciating the fact that assessee has earned exempt income amounting to Rs. 11,138 during the assessment year 2017-18 and no expense has been incurred to earn such exempt income. Also, assessee has suo-moto disallowed expenses to the extent exempt income earned during the year. 3. At the outset, in this case, learned counsel for the assessee submitted that assessee has suo-moto disallowed exempt income earned amounting to Rs. 11,138 but the authorities below have ignored the same and made disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D amounting to Rs. 60,53,665. Learned counsel for the assessee pleaded that Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC) has held that disallowance under section 14A should be restricted to the exempt income earned. Since the exempt income earned has already been offered for tax by the assessee, no disallowance in this regard is called for. Accordingly, following the above precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 4. One common ground raised in both the appeals is that learned Commissioner (Appeals) has erred in confirming the disallowance of depreciation on account of allowance of depreciation @ 15% instead of depreciation claimed by the assessee @ 30% on Canter used for supply of goods to customers. 5. Brief facts of the case are that the assessing officer has made disallowance being excess 15% depreciation claimed by the assessee on canters of the assessee. In the depreciation chart prepared as per the Income Tax Act, the assessee has claimed depreciation @ 30% on vehicle canter. These canters are used to transport auto components manufactured by the assessee company to the buyer of its products, M/s. Maruti Suzuki India Ltd. The assessing officer made the disallowance on the ground that the assessee was not engaged in the business of running the vehicles on hire. Hence, he has allowed depreciation on canters @ 15% instead of 30% as claimed by the assessee. The assessee has submitted that its substantial sale was to M/s. Maruti Suzuki India Ltd. and that the canters were specially designed trucks made to carry goods/components to Maruti Suzuki India Ltd. 6. Upon assessee's appeal, learned Commissioner (Appeals) confirmed the addition. 7. Against the above order, assessee is in appeal before us. We have heard both the parties and perused the records. We note that further findings of the learned Commissioner (Appeals) read as under:- As per Income Tax Rules 1962 the higher rate of depreciation of 30% is admissible in respect of motor buses, motor lorries and motor taxis used in a business of running them on hire by the assessee. Thus the higher rate of depreciation of 30% is applicable only when the vehicles are used in the business of running them on hire. In this case, the vehicles owned by the appellant are being used to supply the goods manufactured by the appellant to its customers. There is no Agreement to Hire signed by the appellant with the purchasers to give on hire its canters to the purchasers of its goods. Also it is important to note that there is no Hire Income shown in the Profit & Loss account of the appellant to reflect that Hire Charges have been received by its. Further, since no Hire charges have been paid by the purchasers of the appellants goods no Tax Deducted at Sources has been deducted on the said Hire charges. The appellant is a manufacturer of auto parts supplying goods to OEMs. It is not engaged in the business of running the vehicles on hire. The canters are not used to carry the goods of others and hence no hire charges have been derived for use of the canters. 8. We find that authorities below have passed reasonable order. It is undisputed that vehicles used are not hired for running but were used for assessee's own business. There is no hire income shown in the profit and loss account to reflect any hire charges received. In these circumstances, in our considered view, authorities below have passed well-reasoned order which does not require any interference on our part. Accordingly, we affirm the same on this issue. 9. In the result, the appeal being ITA No. 2387/DEL/2022 is partly allowed and the appeal being ITA No. 2388/DEL/2022 is dismissed. Order pronounced in the open court on this 3-4-2024.

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Income Tax Act, 1961, Section 14A read with Income Tax Rules, 1962, Rule 8D

Disallowance under section 14A--Expenditure against exempt income--Whether disallowance could exceed exempt income earned during the year

Conclusion: Disallowance under section 14A could not exceed the exempt income earned by assessee during the year.

AO made disallowance of expenses by invoking provisions of section 14A read with rule 8D. CIT (A) upheld the disallowance. Assessee-company contended that it suo-moto disallowed exempt income earned during the year but Revenue authorities ignored the same and made disallowance under section 14A read with rule 8D. Assessee further contended that disallowance under section 14A could not exceed the exempt income earned. Held: In view of decision of High Court in the case of Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC), disallowance under section 14A should be restricted to exempt income earned. Since exempt income earned by assessee, was already offered to tax, no disallowance in that regard was called for and hence, disallowance made under section 14A read with rule 8D, was deleted.

Decision: In assessee's favour

Followed: Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC)

Income Tax Act, 1961, Section 32(1)

Depreciation--Higher rate--Vehicle canters--Canters not hired for running but used for assessee's own business

Conclusion: Where vehicle canters were not hired for running but used for assessee's own business and also there was no hire income shown in Profit and Loss Account to reflect any hire charges received, said vehicle canters would be eligible for depreciation @15%.

Assessee-company claimed depreciation @30% on vehicle canters, which were used to transport auto components manufactured by it to its buyer, i.e., an entity 'M'. AO only allowed depreciation on canters @15% instead of @30% on the ground that assessee was not engaged in business of running vehicles on hire. Commissioner (Appeals) confirmed the view of AO. Assessee contended that its substantial sale was to 'M' and that canters were specially designed trucks made to carry goods/components to 'M', therefore, they were eligible for depreciation @30%. Held: Since vehicle canters were not hired for running but used for assessee's own business and also there was no hire income shown in Profit and Loss Account to reflect any hire charges received, said vehicle canters were eligible for depreciation @15% and not @30% as claimed by assessee.

Decision: In assessee's favour

IN THE ITAT, DELHI BENCH

SHAMIM YAHYA, A.M. & YOGESH KUMAR U.S., J.M.

Krishna Maruti Ltd. v. ACIT

ITA No. 2387/DEL/2022 & ITA No. 2388/DEL/2022

3 April, 2024

Assessee by: Mohit Gupta, C.A., Neeraj Singh, C.A., & Nitin Sharma, C.A.

Revenue by: Indu Bala Saini, Sr. D.R.

ORDER

Shamim Yahya, A.M.

These appeals by the assessee are directed against the orders of the learned Commissioner (Appeals)-29, New Delhi both dated 28-7-2022 for the assessment years 2017-18 & 2018-19.

2. One issue raised in ITA No. 2387/DEL/2022 read as under:-

On the facts and circumstances of the case, the learned Commissioner (Appeals) has erred, both on law and facts, in confirming disallowance of expenses amounting to Rs. 60,53,665 by invoking the provision of section 14A of the Act without appreciating the fact that assessee has earned exempt income amounting to Rs. 11,138 during the assessment year 2017-18 and no expense has been incurred to earn such exempt income. Also, assessee has suo-moto disallowed expenses to the extent exempt income earned during the year.

3. At the outset, in this case, learned counsel for the assessee submitted that assessee has suo-moto disallowed exempt income earned amounting to Rs. 11,138 but the authorities below have ignored the same and made disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D amounting to Rs. 60,53,665. Learned counsel for the assessee pleaded that Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Delhi) : 2015 TaxPub(DT) 3520 (Del-HC) has held that disallowance under section 14A should be restricted to the exempt income earned. Since the exempt income earned has already been offered for tax by the assessee, no disallowance in this regard is called for. Accordingly, following the above precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

4. One common ground raised in both the appeals is that learned Commissioner (Appeals) has erred in confirming the disallowance of depreciation on account of allowance of depreciation @ 15% instead of depreciation claimed by the assessee @ 30% on Canter used for supply of goods to customers.

5. Brief facts of the case are that the assessing officer has made disallowance being excess 15% depreciation claimed by the assessee on canters of the assessee. In the depreciation chart prepared as per the Income Tax Act, the assessee has claimed depreciation @ 30% on vehicle canter. These canters are used to transport auto components manufactured by the assessee company to the buyer of its products, M/s. Maruti Suzuki India Ltd. The assessing officer made the disallowance on the ground that the assessee was not engaged in the business of running the vehicles on hire. Hence, he has allowed depreciation on canters @ 15% instead of 30% as claimed by the assessee. The assessee has submitted that its substantial sale was to M/s. Maruti Suzuki India Ltd. and that the canters were specially designed trucks made to carry goods/components to Maruti Suzuki India Ltd.

6. Upon assessee's appeal, learned Commissioner (Appeals) confirmed the addition.

7. Against the above order, assessee is in appeal before us. We have heard both the parties and perused the records. We note that further findings of the learned Commissioner (Appeals) read as under:-

As per Income Tax Rules 1962 the higher rate of depreciation of 30% is admissible in respect of motor buses, motor lorries and motor taxis used in a business of running them on hire by the assessee. Thus the higher rate of depreciation of 30% is applicable only when the vehicles are used in the business of running them on hire. In this case, the vehicles owned by the appellant are being used to supply the goods manufactured by the appellant to its customers. There is no Agreement to Hire signed by the appellant with the purchasers to give on hire its canters to the purchasers of its goods. Also it is important to note that there is no Hire Income shown in the Profit & Loss account of the appellant to reflect that Hire Charges have been received by its. Further, since no Hire charges have been paid by the purchasers of the appellants goods no Tax Deducted at Sources has been deducted on the said Hire charges. The appellant is a manufacturer of auto parts supplying goods to OEMs. It is not engaged in the business of running the vehicles on hire. The canters are not used to carry the goods of others and hence no hire charges have been derived for use of the canters.

8. We find that authorities below have passed reasonable order. It is undisputed that vehicles used are not hired for running but were used for assessee's own business. There is no hire income shown in the profit and loss account to reflect any hire charges received. In these circumstances, in our considered view, authorities below have passed well-reasoned order which does not require any interference on our part. Accordingly, we affirm the same on this issue.

9. In the result, the appeal being ITA No. 2387/DEL/2022 is partly allowed and the appeal being ITA No. 2388/DEL/2022 is dismissed.

Order pronounced in the open court on this 3-4-2024.