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TMI Blog2012 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... rals. 3.1 The learned CIT(A) ignored the facts recorded by Assessing Officer and the fact that the depreciation on computer peripherals is allowable @25% as per provisions of section 32 of the Act as against 60% claimed by the assessee. 4. The assessee craves leave to add, alter or amend the grounds of appeal at or before the hearing." 2. Adverting first to ground nos.2 and 2.1 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.33,26,59,111/- filed on 31st March, 2003 by the assessee, engaged in the business of design engineering, software development and consultancy, was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). Subsequently the assessment was reopened u/s 147 of the Act, after recording the reasons in writing and accordingly, a notice u/s 148 was served upon the assessee on 26.03.2009. During the course of reassessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee made investment in shares and earned dividend income of Rs.2,59,86,788/- exempt u/s 10(34) of the Act. To a query by the A.O, the assessee merely replied that no expenditure wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt) 233: 192 Taxman 211 (S.C.) and of Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd. Mumbai vs. DCIT (2010)234 CTR (Bom) 1. From the conjoint reading of the judgments cited above, the following propositions emerge:- a) when the dividend is not taxable at all, the expenditure on rent, taxes, salaries, interest, etc. pertaining to that would also not be allowable because there is no taxable income of the assessee against which such expenditure can be allowed. b) The disallowance u/s 14A could be made in a year in which no exempt income had been earned or received by the assessee; c) The allowance of expenditure in relation to dividend income would not be admissible in computing the income of an assessee under the Act in both the situations, whether the shares are held as investment or held on trading account as stock-in-trade; d) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March, 2008 shall apply with effect from assessment year 2008-09 and e) Even prior to assessment year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual funds. Thus, the assessee failed to discharge the onus placed upon them in establishing that the borrowed funds had indeed been utilized for the purpose of their business purposes nor the assessee proved that the aforesaid investment had been made in the shares out of their own interest free funds. Resultantly, the AO disallowed an amount of Rs.9,90,51,302/-, including interest of Rs.7,02,99,365/- in terms of Rule 8D of the IT Rules,1962. The ld. CIT(A),without even ascertaining as to how the funds borrowed by the assessee were utilized, following few judicial pronouncements including in Godrej and Boyce Mfg.Co.Ltd. Mumbai vs. DCIT,(2010) 234 CTR (Bom.)1 concluded that Rule 8D was not applicable in the year under consideration and disallowed proportionate amount of Rs.72,14,080/- out of expenses of Rs.15,57,24,404/- on the ground that disallowance to the aforesaid extent is reasonable. The basis for working of the aforesaid disallowance was not evident from the impugned order nor has been explained before us by the ld. AR on behalf of the assessee. Hon'ble Bombay High Court in their decision dated 12.8.2010 in case of Godrej and Boyce Mfg.Co.Ltd. Mumbai(supra) while holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with, reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g given by the Tribunal for disallowance of Rs.2 lakhs i.e. by applying Section 14A, squarely applies for the interest paid on borrowed funds because it is on record that the entire funds borrowed were utilised for acquisition of shares by the assessee in the company. In fact, in our view, assessee would be entitled to deduction of interest under Section 36(1)(iii) of the Act on borrowed funds utilised for the acquisition of shares only if shares are held as stock in trade which arises only if the assessee is engaged in trading in shares. So far as acquisition of shares is in the form of investment and the only benefit assessee derived is dividend income, which is not assessable under the Act, the disallowance under Section 14A is squarely attracted and the Assessing Officer, in our view, rightly disallowed the claim. As already pointed out, the Calcutta High Court decision which pertains to the period prior to introduction of Section 14A, has no application. The decision of the Supreme Court also does not apply because in this case apart from investment in shares of the company, there is nothing to indicate that the assessee's business was fully linked with the business of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment." 5.5 In the light of view taken in the aforesaid decisions, we are of the opinion that the utilisation of borrowed funds for acquisition of shares will not entitle the assessee for claiming deduction of interest paid on such borrowed funds. As already pointed out, the assessee did not furnish complete details of utilization of their borrowed funds before the AO/ld. CIT(A). As a result, the AO or the ld. CIT(A) did not have any occasion to ascertain as to whether or not borrowed funds have indeed been utilised for the purpose of business of the assessee and were not utilised in acquiring the aforesaid shares/mutual funds. Even before us, situation is no better. Since the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent." 9.1 Following the said decision, ITAT in ITO vs. Omni Globel Information Technologies India (P.) Ltd., 131 ITD 280(Delhi) held that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. Earlier Kolkata Bench in the case of Income Tax Officer vs. Samiran Majumdar (2006) 98 ITD 119, held that the printer and scanner are integral part of the computer system and, therefore, entitled to higher rate of depreciation @.60 per cent. A similar view was taken by the Delhi Bench in the aforecited decision in the case of Container Corporation of India Ltd. (supra). In the light of view taken in the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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