TMI Blog2012 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The order of the learned CIT(A) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in restricting the addition u/s 14A of the Act to Rs.72,14,080/- as against Rs. 9,90,51,302/- made by the AO. 2.1 The learned CIT(A) ignored the finding recorded by the AO and the fact that the addition was correctly made by the AO in accordance with the provisions of rule 8D of I.T. Rules. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.2,07,104/- made on by disallowing excess depreciation on computer peripherals. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total disallowance 9,90,51,302/- 3. On appeal, the learned CIT(A) reduced the disallowance to Rs.72,14,080/- in the following terms:- "I have considered the written submission on behalf of the appellant, the findings of the Assessing Officer in the assessment order as well as in the remand report and the facts on record. The issue involved in the appeal was decided by the Delhi Special Bench of ITAT in the case of Cheminvest Ltd. vs. Income Tax Officer (2009) 121 ITD 318 (Delhi)(SB)/124 TTJ 577(Delhi)(SB)/27 DTR (Del.) (SB) (Trib.) 82. Reference may also be made to the decisions of the Hon'ble Supreme Court in the case of CIT, Mumbai vs. M/s Walfort Share and Stock Brokers Pvt. Ltd. 41 DTR (Supreme Court) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee has not preferred any appeal against the findings of learned CIT(A). 5. We have heard both the parties and gone through the facts of the case. Indisputably, the assessee engaged in the business of business of design engineering, software development and consultancy, besides having taxable business profits, earned exempt dividend income of Rs.2,59,86,788/-. Inter alia, the assessee claimed deduction of interest of Rs.7,68,73,025/- on their borrowings. We find that neither before the AO nor before the ld. CIT(A), the assessee furnished details and evidence that funds borrowed by it were utilized for the purpose of their business alone and not by way of investments in equity shares/mutual 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 ascertaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable under the Act, is not an allowable expenditure. Dividend income is exempt under Section 10(33) of the Income Tax Act and so much so, dividend earned by the assessee on the shares acquired by her with borrowed funds does not constitute total income in the hands of the assessee. So much so, in our view, disallowance was rightly made by the Assessing Officer. In fact, the Tribunal itself has estimated disallowance of Rs.2 lakhs by applying Section 14A. We do not know how the Tribunal can restrict the disallowance to Rs.2 lakhs and allow balance above Rs.15 lakhs when the whole borrowed funds were utilised by the assessee for purchase of shares in the company. In our view, the reasoning 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 227 (Cal.) while adjudicating a similar issue concluded as under: "9. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. On appeal, the learned CIT(A) while following the decision of Delhi Bench of the ITAT in the case of Container Corporation of India Ltd. (supra) allowed the claim of the assessee. 8. The Revenue is now in appeal before us against the aforesaid conclusion of the ld. CIT(A).The learned DR supported the order of the AO while the ld. AR for the assessee relied on the order of the ld. CIT(A). 9. We have heard both the parties and gone through the facts of the case. We find that the Hon'ble Delhi High Court in the case of CIT v. BSES Rajdhani Power Ltd. In I.T. Appeal No. 1266 (Delhi) of 2010, dated 31-8-2010 while adjudicating a similar issue, held as 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(Del ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
