TMI Blog2010 (9) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... ra ORDER PER P.M. JAGTAP, A.M. This appeal by the assessee is directed against the order of ld. CIT(A) X, Mumbai dated 23.1.09. 2. The issues relating to its claim for depreciation on goodwill and non-compete fees are raised by the assessee company in this appeal in ground No. 1 to 3 which read as under:- 1) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of depreciation ₹ 3,33,246/- in respect of goodwill acquired by the Appellant in earlier years. 2) The learned Commissioner of Income Tax (Appeals) failed to consider that vide the relevant Business Purchase Agreements, the appellant had acquired the intellectual property rights/intangible assets in the form of distribution rights, technical support and trademarks. 3) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of depreciation ₹ 2,96,631/- in respect of non-compete fees paid by the appellant on acquisition of business in earlier years. 3. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that similar issues involved in assessee s own case for the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation on goodwill and non-compete fees. Ground No. 1 to 3 of the assessee s appeal are accordingly allowed. 5. The issues relating to the disallowance made by the A.O. and confirmed by the ld. CIT(A) out of interest expenses and other expenses by invoking the provisions of section 14A are raised by the assessee in ground No. 4 to 8 of this appeal which read as under:- 4) The learned Commissioner of Income Tax (Appeals) erred in holding that disallowance under section 14A was required to the computed as per Rule 8D. The learned Commissioner of Income Tax (Appeals) erred in holding that Rule 8D was retrospective in nature and applicable to the assessment year under consideration. 5) The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of ₹ 33,20,000/- under section 14A read with Rule 8D(ii). 6) The learned Commissioner of Income Tax (Appeals) failed to consider that the Appellant had proved that investments had been made from its own funds and that no borrowings were utilized. 7) The learned Commissioner of Income Tax (Appeals) failed to consider that disallowance can be made only of expenditure which is incurred in relation to exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perated with IDBI Bank wherein surplus funds were deposited for making the investment in shares. It was contended that interest expenditure incurred by the assessee company thus was not at all attributable to earning of dividend income and no disallowance out of the said expenditure u/s 14A was called for. 7. The A.O. did not find the submission of the assessee to be acceptable. According to him, although the assessee had enough surplus funds to make investment in shares, he could have utilized the said funds for repaying the borrowings instead of making the investment in shares. He held that it was thus an indirect case of diversion of borrowed funds by the assessee for making investment in shares so as to earn dividend income and since such dividend income was exempt from tax, interest attributable to the borrowed funds utilized for making investment in shares was liable to be disallowed u/s 14A. Since the investment in shares of ₹ 30.42 crores made by the assessee was to the extent of 31.61% of the total funds of ₹ 96.18 crores, he treated the borrowed funds of ₹ 31.98 crores to the extent of ₹ 10.10 crores as utilized for making investment in shares on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its own funds. As pointed out by him, the said borrowed funds to the extent of ₹ 21.59 crores were availed by the assessee in the earlier year and in the assessment completed for A.Y. 2004-05, the A.O. had accepted after verification of the relevant record that the borrowed funds to that extent were utilized by the assessee company for the purpose of its business and the investment in shares was made by it out of its own funds. As further pointed out by him, even the investment in shares in the year under consideration was made by the assessee company from a separate current account maintained in IDBI where the surplus funds generated in that year were deposited. Sufficient evidence thus was brought on record by the assessee company to establish that investment in shares was made by it out of its own funds and the borrowed funds were entirely utlised for the purpose of its business. As a matter of fact, even the authorities below have not disputed this position. According to them, the assessee, however, could have utilized its surplus funds in repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) to the extent of 2% of the total exempt income earned by the assessee and the same being reasonable, the assessee has accepted it. We, therefore, direct the A.O. to verify this aspect from the assessment records of the earlier years and accordingly restrict the disallowance out of common administrative expenses to 2% of the total exempt income. Ground No. 8 of the assessee s appeal is thus partly allowed. 11. Ground No. 9 raised by the assessee in this appeal reads as under: 9) Both the lower authorities erred in reducing the written Down value of the block of assets in respect of capital subsidy received by the Appellant for its Pothepally Unit (A.P). The Appellant has filed an appeal to the Tribunal in assessment Year 2003-04 and submits that consequential effect be given in the current year depending on the ultimate decision of the Tribunal in that year. 12. The issue raised in ground No. 9 thus is consequential to the decision of the Tribunal in A.Y. 2003-04 which as pointed out by the learned counsel has already been rendered by the Tribunal vide its order dated 10.9.09 (supra) in para No. 8 which reads as under:- In the case of P.J. Chemicals Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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