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.
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.