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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 19.03.2018
+ ITA 303/2018, C.M. APPL.10257/2018
+ ITA 310/2018, C.M. APPL.10604/2018
VEDANTA LIMITED (SUCCESSOR TO CAIRN INDIA
LIMITED) ..... Appellant
versus
PRINCIPAL COMMISSIONER OF INCOME TAX-9,
NEW DELHI ..... Respondent
Present: Sh. Ajay Vohra, Sr. Advocate with Sh. Prakash Kumar,
Advocates for appellant.
Sh. Ruchir Bhatia, Sr. Standing Counsel for the Revenue.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE A. K. CHAWLA
S. RAVINDRA BHAT, J.
Admit.
The following questions of law arise for consideration:
"(i) Did the Tribunal err in law in regard to disallowances
made under Section 14A of the Income Tax Act, 1961 [hereafter
"the 1961 Act"] read with Rule 8D(2)(iii) of the Income Tax
Rules, in the facts and circumstances?
(ii) Did the Tribunal fall into error in holding that the
transactions between the assessee and its Associated Enterprise
(AE) had to be disregarded for the purpose of Arms Length
ITA 303/2018 & ITA 310/2018 Page 1 of 8
Price (ALP) determination under Section 92C of the 1961
Act?"
2. The third question urged by the assessee is with respect to the
interpretation of Section 32(1)(iia). This is the compulsory allowance of the
claim of additional depreciation amounting to 538,66,55,780/- under
Section 32 (iia) of the Act holding the same as mandatory.
3. Facts in respect of this issue are that the assessee claimed depreciation
amounting to 503.24 crore apart from additional depreciation (538.66
crore) in the revised return. Later, by a letter dated 07.01.2005 filed during
the course of assessment proceedings, the assessee withdrew the claim of
additional depreciation amounting to 538.66 crore. Resultantly, the
original deduction claim under Section 80IB from 2042.81 crore shot up to
2579.07 crore. The Assessing Officer (AO) allowed the claim of additional
depreciation by relying on Explanation 5 to Section 32 (ii) and also holding
that the judgment of the Supreme Court in Goetze India Ltd. Vs.
Commissioner of Income Tax (2006) 284 ITR 323 (SC) ruled out claims
during the course of assessment proceedings after the completion of the time
for filing revised return. The assessee was aggrieved against the decision of
the Assessing Officer in this regard. Its appeal to the ITAT on this aspect
was turned down; the tribunal held, inter alia as follows:
"20. Having heard both the sides and perused the relevant
material on record, we find that the judgment of the Hon'ble
Supreme Court in the case of Goetze India Ltd. (supra) though
restricts the power of the Assessing Officer in entertaining a
new claim made before him otherwise then by way of a revised
return, but such decision does not affect the powers of the
appellate authorities in entertaining such a claim if it is legally
sustainable. However, we find that the on the facts and in the
circumstances of the case, the assessee does not deserve any
ITA 303/2018 & ITA 310/2018 Page 2 of 8
relief on this score.
21. The Hon'ble Supreme Court in the case of Commissioner of
Income Tax Vs. Mahendra Mills (2000) 243 ITR 56 (SC), has
held that "if an assessee does not claim the depreciation and
does not furnish particulars for claiming depreciation, as
prescribed, depreciation cannot thrust upon him." To remedy
the situation flowing from such judgment, the Legislature
brought in Explanation 5 to Section 32 (ii) through the Finance
Act, 2001 w.e.f. 01.04.2002. The Explanation provides that the
"... provisions of this sub-section shall apply whether or not the
assessee has claimed deduction in respect of depreciation in
computing his total income". The effect of this Explanation is
that deduction on account of depreciation has to be
mandatorily allowed under Section 32 (ii) of the Act
notwithstanding the fact that assessee claims or does not claim
it in the computation of its total income.
22. The ld. Authorized Representative contended that the
Explanation does not cover the assessee's case inasmuch as the
amount of additional depreciation originally claimed but
subsequently withdrawn by the assessee is an incentive and not
depreciation, and the same is admissible under Section 32
(iia)(. It was submitted that Explanation 5 operates only for the
purposes of Section 32 (ii) and not Section 32 (iia) of the Act.
23. In order to appreciate the contention, it will be significant
to note the prescription of the relevant parts of Section 32 as
under : -
************* ************
24. In our considered opinion, the contention that additional
depreciation is an incentive and not depreciation has no legal
legs to stand. It can be noticed that Section 32 with caption
"Depreciation" opens through sub-section (1) with the
expression "In respect of depreciation of" and then sets out
tangible and intangible assets owned and used by the assessee
ITA 303/2018 & ITA 310/2018 Page 3 of 8
for the purposes of business or profession and then provides
that ,,the following deductions shall be allowed. Then there are
clauses (i), (ii), (iia) and (iii). This shows that the deduction on
account of depreciation is relevant to all the clauses including
clauses (ii) and (iia). Thus, it is not correct to contend that
relief provided u/s 32(1)(iia) is a separate incentive de hors
depreciation.
25. A cursory look at clause (iia) divulges that the assessee is
entitled to deduction equal to 20% of the actual cost of such
machinery or plant, which shall be allowed as a deduction
under clause (ii). Contention of the ld. Authorized
Representative that the mandate of Explanation 5 does not
apply to relief under clause (iia) as the same has been placed
under clause (ii), in our view, is far-fetched. It is no doubt clear
that Explanation 5 granting mandatory depreciation is placed
in clause (ii) of Section 32 (1) of the Act, but when we consider
the language of clause (iia) providing further deduction for
depreciation @ 20%, it becomes vivid that such further claim
"shall be allowed as deduction under clause (ii)". It ergo
becomes overt that the claim for additional depreciation as
provided under clause (iia) has to be allowed as deduction
under clause (ii). So, for all practical purposes, the claim for
additional depreciation has to be considered and allowed as
deduction only under clause (ii) and there is no separate
provision for allowing additional depreciation under clause
(iia) so as to make the prescription of Explanation 5
inoperative.
26. We agree with the ld. Authorized Representative that the
word "shall" is not always conclusive of the mandatory nature
and can be read as the word "may" in certain circumstances.
However, when we consider the text and the context of the word
"shall" as employed in clause (iia), there remains no doubt
whatsoever that the grant of additional claim at the rate of 20%
has necessarily to be allowed as deduction under clause (ii).
Once the claim of additional depreciation under clause (iia) is
to be allowed as deduction under clause (ii), a fortiori, the
ITA 303/2018 & ITA 310/2018 Page 4 of 8
command of Explanation 5 which applies to clause (ii)
automatically becomes applicable to such a claim of additional
depreciation. Once we hold that the claim for additional
depreciation is allowable as deduction under Section 32 (1) (ii),
the writ of Explanation 5 providing for allowing depreciation
mandatorily, gets magnetized. Explanation 5, even if placed
under clause (ii), applies to sub-section (1) of Section 32, which
also covers clause (iia). We, therefore, hold that the Assessing
Officer was fully justified in granting additional depreciation
amounting to Rs. 538.66 crore under ITA No.1459/Del/2016
clause (iia) read with clause (ii) of Section 32 (1). This ground
is not allowed."
4. Mr. Ajay Vohra, learned senior counsel urged that an Explanation
must be interpreted having regard to the context, purpose and legislative
history. Reliance was placed on M/s. Patel Roadways Ltd. v. MIS. Prasad
Trading Co. (AIR 1992 SC 1514) and Mohanlal Hargovinddas v. State of
M.P.(AIR 1967 SC 1022) and Deputy Commissioner of Income Tax v. Bagri
Foundation (2012) 344 ITR 193 (Del), to advance this proposition. It was
further argued that additional depreciation under Section 32(l)(iia) of the Act
is in the nature of an incentive and cannot therefore, be treated at par with
normal depreciation (on account of wear and tear and obsolescence) and as
mandatory and not optional in nature. Counsel urged that Explanation 5 was
inserted below Section 32(l)(i) and (ii) of the Act and thus applies to normal
depreciation only. He further argued that Section 32 (iia) of the Act was
inserted w.e.f. 01.04.2003. On the other hand, Explanation 5 was inserted
w.e.f. 01.04.2002. The expression "this sub-section" in Explanation 5 thus
only refers to Section 32(l)(i) and 32(l)(ii) of the Act. Mr. Vohra also argued
that Section 32(l)(iia) is in the nature of an incentive providing for
accelerated depreciation and hence cannot be imposed upon the assessee.
ITA 303/2018 & ITA 310/2018 Page 5 of 8
5. The relevant provisions of the Act read as follows:
"Depreciation.
32. (1) In respect of depreciation of--
(i) buildings, machinery, plant or furniture, being tangible
assets;
(ii) know-how, patents, copyrights, trademarks, licences,
franchises or any other business or commercial rights of
similar nature, being intangible assets acquired on or after the
1st day of April, 1998, owned, wholly or partly, by the assessee
and used for the purposes of the business or profession, the
following deductions shall be allowed--
(i) ....
(ii) in the case of any block of assets, such percentage on the
written down value thereof as may be prescribed:
Provided that .....
Explanation 5.--For the removal of doubts, it is hereby declared
that the provisions of this sub-section shall apply whether or
not the assessee has claimed the deduction in respect of
depreciation in computing his total income;
(iia) in the case of any new machinery or plant (other than
ships and aircraft), which has been acquired and installed after
the 31st day of March, 2005, by an assessee engaged in the
business of manufacture or production of any article or thing or
in the business of generation or generation and distribution of
power, a further sum equal to twenty per cent of the actual cost
of such machinery or plant shall be allowed as deduction under
clause (ii) : ............"
6. This court is of opinion that the plain text of the explanation leaves no
room for admitting the interpretive gloss that the assessee wishes to place
over it. There can be a multitude of circumstances where, but for the
provision, the incentive, available to all those for whom the benefit of
additional depreciation was intended, could have been deprived of it.
Undoubtedly, the amount of the assessee's claim for Section 80IB ded uction
ITA 303/2018 & ITA 310/2018 Page 6 of 8
increased, when it sought to withdraw the additional depreciation claim.
However, that single circumstance should not influence this court to ignore
the plain intendment of the statute, since Parliament clearly stated that the
provisions of "this sub-section" would apply, "whether or not the assessee
has claimed the deduction in respect of depreciation in computing his total
income".This court cannot re-write the statute, as is sought to be urged. For
these reasons, the Court is of the opinion that no question of law arises on
this aspect.
7. The last question urged by the assessee is with respect to the
investment in redeemable preference shares that was treated as international
transaction and subjected to adjustment. The Tribunal remitted the matter for
fresh consideration by the Assessing Officer (AO) after decision of the
CIT(A) on that issue in respect of pending appeal for AY 2010-11; the
present appeal pertains to AY 2011-12.
8. This Court is of the opinion that the Tribunal need not have felt
constrained by the pendency of appeal (for another year before the CIT (A))
and could have proceeded to decide the issue on merits since it did not
involve elaborate fact finding. As the highest appellate authority, it has
jurisdiction in its own right to decide such question. Accordingly, the
direction of remand is hereby modified; the Tribunal shall decide this issue
in accordance with law, after hearing parties afresh. It is clarified that the
Tribunal does not need to await the decision of CIT(A) in regard to AY
2010-11 on this issue.
ITA 303/2018 & ITA 310/2018 Page 7 of 8
9. The parties are directed to be present before the Tribunal further to the
limited remand on 09.05.2018 for decision on the last question. The ITAT
shall decide the issue, on merits, after hearing the parties.
10. The appeals are accordingly admitted in respect of the above two
questions. List on 08.08.2018.
Order dasti under the signatures of the Court Master.
S. RAVINDRA BHAT, J
A. K. CHAWLA, J
MARCH 19, 2018/ajk
ITA 303/2018 & ITA 310/2018 Page 8 of 8
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