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ACIT, Circle 12 (1) , New Delhi Versus HT Media Ltd. and vice- versa

2015 (8) TMI 708 - ITAT DELHI

Disallowance under section 14A - whether proportionate disallowance out of interest is not to be made by ignoring the fact that though investments were made in the immediately preceding assessment year out of interest bearing funds? - Held that:- Assessment year under consideration is 2006-07 and, hence, rule 8D cannot be applied for making disallowance under section 14A of the Act. Our view is fortified by the judgment of Maxopp Investment Ltd. v. CIT [2011 (11) TMI 267 - Delhi High Court] wher .....

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o specific disallowance made by the Assessing Officer on account of interest expenditure. It is manifest that the CIT(A) has sustained disallowance by apportionment of total of such expenditure in the ratio of exempt income to taxable income. In view of the fact, that neither the Assessing Officer made any disallowance on account of interest under section 14A nor did CIT(A) go into this aspect by making any enhancement, etc., ground No. 1 raised by the Revenue for sustenance of disallowance towa .....

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me and not the exempt income and gross sales. The viewpoint of the Revenue canvassed for the immediately preceding year seems to have been accepted by the Commissioner of Income-tax (Appeals) who chose to apportion total expenses in the ratio of exempt income to "taxable income" instead of gross sales. The learned Departmental representative could not point out any other more suitable basis for apportioning expenses towards exempt income. We, therefore, approve the view taken by the learned Comm .....

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ot consider the proportionate amount of depreciation, which is otherwise required to be considered. The learned Departmental representative argued that such proportionate amount of depreciation to be included in the amount of disallowance worked out by the learned Commissioner of Income-tax (Appeals) at ₹ 8,11,948, should not be less than ₹ 50,000. The learned authorised representative did not raise any objection to this. As such, accepting the view point of the learned Departmental .....

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p fee for employees incurred by the assessee is business expenditure allowable under section 37 of the Act. - Decided against revenue

Reduction in the amount of disallowance under section 14A - Held that:- Question of disallowance of interest under section 14A in this case because the amount of shareholders' fund is much higher than the amount of investments yielding exempt income. As such, we uphold the view taken by the learned Commissioner of Income-tax (Appeals) in deleting disall .....

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d of Direct Taxes Circular No. 8 of 2005 dated August 29, 2005 . - Decided against revenue

Disallowance of training expenses - CIT(A) allowed claim - Held that:- Training expenses are to be allowed as revenue expenses - Decided against revenue

Depreciation on computer peripherals at 60 per cent - claim restricted by the Assessing Officer to 15 per cent - Held that:- The hon'ble Delhi High Court in the case of BSES Yamuna Powers Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT ), ha .....

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s : "Computers including computer software". Thus, it is ostensible that the viewpoint of the Assessing Officer that the computers are not to be considered as part of the machinery for the purpose of additional depreciation, is not sustainable. The Legislature has not specifically excluded computers used in factory from the ambit of "new plant and machinery" eligible for additional depreciation at 20 per cent. We, therefore, approve the view taken by the learned Commissioner of Income-tax (Appea .....

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, 2007-08 and 2008-09. Since some common issues are raised in these appeals, we are, therefore, disposing of these appeals by this consolidated order for the sake of convenience. Assessment year : 2006-07 2. The only issue raised by the Revenue through various grounds is against the disallowance under section 14A of the Income-tax Act, 1961 (hereinafter also called "the Act"). The first grievance in this regard through ground number 1 is against the holding by the learned Commissioner .....

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fered under this section, the assessee submitted that its main source of income was advertisement revenue, sale of newspapers and periodicals and, hence, no specific expenses were incurred for earning the exempt dividend income. The Assessing Officer rejected the assessee's contention. Applying rule 8D(2)(iii), the Assessing Officer made disallowance equal to half per cent. of the average of the value of investments. This resulted into an addition of ₹ 41,32,830. The learned Commission .....

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llocating it in the ratio of exempt income to taxable income. The remaining amount of disallowance was deleted in the first appeal. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that the assessment year under consideration is 2006-07 and, hence, rule 8D cannot be applied for making disallowance under section 14A of the Act. Our view is fortified by the judgment of the hon'ble jurisdictional High Court in the case of Maxopp Investment Ltd. .....

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picking up rate of disallowance at 0.5 per cent. of the average of the value of investments. There is no specific disallowance made by the Assessing Officer on account of interest expenditure. It is manifest that the learned Commissioner of Income-tax (Appeals) has sustained disallowance by apportionment of total of such expenditure in the ratio of exempt income to taxable income. In view of the fact, that neither the Assessing Officer made any disallowance on account of interest under section 1 .....

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sider proportionate amount of depreciation attributable to furniture, fixture, vehicles, printers and fax machine as a part of the base amount determined at ₹ 2.88 crores. 6. It is manifest from the impugned order that the allocation of total expenses has been made in the ratio of exempt income to taxable income. The Revenue argued before the Tribunal in the preceding year that the disallowance under section 14A ought to have been made on the basis of exempt income and taxable income and n .....

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arned Commissioner of Income-tax (Appeals) in making apportionment of total expenses in the ratio of exempt income to taxable income. 7. As regards the third ground, it is apparent that while taking the expenditure of ₹ 2.88 crores liable to be bifurcated between exempt income and taxable income, the learned Commissioner of Income-tax (Appeals) did not consider the proportionate amount of depreciation, which is otherwise required to be considered. The learned Departmental representative ar .....

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y allowed. 8. Ground No. 4 is against the addition of disallowance of ₹ 8,11,948 in the computation of income under section 115JB. The learned authorised representative did not agitate this issue and fairly conceded that the amount disallowable under section 14A should be properly considered while computing income under section 115JB. We, therefore, direct that the amount of disallowance under section 14A at ₹ 8,61,948 should be added while computing book profit under section 115JB. .....

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he Revenue is partly allowed and that of the assessee is dismissed. Assessment year : 2007-08 11. The first ground of the assessee's appeal was not pressed. The same is, therefore, dismissed. 12. The only other ground which survives in this appeal is against the confirmation of disallowance of club expenses of ₹ 5,37,384. 13. Briefly stated, the facts apropos this ground are that the assessee claimed deduction for club expenses amounting to ₹ 5,37,384 which was not allowed by the .....

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he Act. The facts of the instant case are on all fours with the ratio laid down by the hon'ble Supreme Court in this case. We, therefore, allow this ground of appeal. 15. The first issue raised by the Department in its appeal through some grounds is against the reduction in the amount of disallowance under section 14A. 16. Briefly stated, the facts of the ground are that the assessee made investment during the year under consideration in the securities yielding exempt income and earned divid .....

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₹ 1,09,34,433, being half per cent. of the average value of investment as per rule 8D. The total disallowance was made under section 14A at ₹ 2,14,23,570. The learned Commissioner of Income-tax (Appeals), following the view taken by him in apportioning the total expenses in the ratio of exempt income to taxable income, sustained disallowance towards administrative and other expenses at ₹ 8,39,534. The other part disallowed by the Assessing Officer towards interest was deleted b .....

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s two components, viz., interest and other expenses. In so far as interest aspect is concerned, the Assessing Officer made disallowance of interest amounting to ₹ 1,04,89,137 by applying rule 8D(2)(ii), which the learned Commissioner of Income-tax (Appeals) deleted by observing that the assessee had its own capital to finance the investment in securities fetching exempt income. The finding recorded by the learned Commissioner of Income-tax (Appeals) that investment in securities yielding e .....

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(Bom) has held that no disallowance of interest can be made under section 14A if the assessee's own capital is more than the investments fetching exempt income. Similar view has been taken by the hon'ble Gujarat High Court in CIT v. Suzlon Energy Ltd. [2013] 354 ITR 630 (Guj). In view of these precedents, it becomes ostensible that there can be no question of disallowance of interest under section 14A in this case because the amount of shareholders' fund is much higher than the amou .....

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ommissioner of Income-tax (Appeals) has followed the same yardstick of apportioning total expenditure in the ratio of exempt income : taxable income, which has been upheld by us for the earlier year. We, therefore, approve the apportionment of expenses in the ratio of exempt income to taxable income. However, as regards the non-consideration of depreciation on furniture, fixture, vehicle, etc., we increase the amount of disallowance by ₹ 1 lakh to ₹ 9,39,534. This disposes of grounds .....

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uting book profit under section 115JB of the Act. 22. Briefly stated, the facts of this ground are that the assessee deducted the amount of fringe benefit tax amounting to ₹ 3.65 crores in the computation of book profit for the purposes of section 115JB of the Act. The Assessing Officer did not approve the action of the assessee. However, the learned Commissioner of Income-tax (Appeals), relying on the Central Board of Direct Taxes Circular No. 8 of 2005 dated August 29, 2005 ([2005] 277 I .....

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xpenses amounting to ₹ 2,08,90,762. The Assessing Officer made the disallowance of training expenses amounting to ₹ 2.08 crores incurred by the assessee, by treating it as a capital expenditure. The learned Commissioner of Income-tax (Appeals), however, directed to consider it as revenue expenditure. 25. After considering the rival submissions and perusing the relevant material on record, we find that the view taken by the learned Commissioner of Income-tax (Appeals) accords with the .....

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bmissions and perused the relevant material on record. It is observed that the assessee claimed depreciation on computer peripherals at 60 per cent. which was restricted by the Assessing Officer to 15 per cent. The learned Commissioner of Income-tax (Appeals), following the judgment of the hon'ble jurisdictional High Court in CIT v. BSES Yamuna Powers Ltd. [2013] 358 ITR 47 (Delhi), accepted the assessee's claim. 28. Having heard the rival submissions and perused the relevant material on .....

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issioner of Income-tax (Appeals) on this issue. 29. In the result, the appeals of the assessee and the Revenue are partly allowed. Assessment year 2008-09 30. Ground No. 1 of the Revenue's appeal and ground No. 1 of the assessee's appeal is against disallowance under section 14A. 31. Briefly stated, the facts of these grounds are that the assessee earned income from mutual fund investments amounting to ₹ 2,94,38,025 which was claimed as exempt income. The assessee offered disallowa .....

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fered for disallowance. Rejecting the assessee's contention, the Assessing Officer computed disallowance as per rule 8D amounting to ₹ 8,97,49,579 consisting of three amounts, namely, ₹ 3 lakhs, being the amount of expenditure directly incurred relating to exempt income under clause (i) of rule 8D(2) ; ₹ 6,86,27,884, being the interest expenditure incurred under clause (ii) of rule 8D(2) ; and ₹ 2,08,21,695, being the amount equal to 0.5 per cent. of the average value .....

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sessment year under consideration is 2008-09. As per the judgment of the hon'ble jurisdictional High Court in the case of Maxopp Investment (supra), rule 8D is applicable from this assessment year onwards. As such, the disallowance, if any, under section 14A is required to be computed as per rule 8D. 33. The learned authorised representative argued that the Assessing Officer did not record any satisfaction about the assessee not properly offering expenditure incurred in relation to the exemp .....

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s further observed that the earning of exempt income is not in nature of passive activity having no input. In fact in present situation making of investment, maintaining or continuing investment and time of exit from investment are well informed and well co- ordinated management decisions involving not only inputs from various source but also acumen of senior management functionaries. Therefore, cost is in-built into even so called 'passive' investment. There are incidental expenditures .....

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Assessing Officer also continued with his recording of satisfaction in para 3.6, reading as under : "3.6 In view of the facts and circumstances and legal position on the issue as discussed above, I am satisfied that the assessee has incurred expenses to manage its investments which may yield exempt income, and the assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and correct picture of its income and expenses. Therefore, undersigned is left wit .....

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esentative argued that the learned Commissioner of Income-tax (Appeals) failed in sustaining the disallowance at 0.5 per cent. of the average value of investment towards administrative and other expenses. We are not convinced with the submission advanced by the learned authorised representative on this score. The obvious reason is that when rule 8D has come into the picture and has become applicable, the disallowance is required to be computed with reference to the mandate given in rule 8D, if t .....

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unt is obviously much less than the actual expenditure incurred and claimed as deduction by the assessee, we fail to appreciate the contention for reducing the amount of such disallowance to a lower level on an ad hocism. We uphold the disallowance under clause (iii) of rule 8D(2) at ₹ 2,08,21,695. 37. As regards the Revenue's contention about the deletion of disallowance of interest under clause (ii) of rule 8D(2), we find that the Assessing Officer computed disallowance at ₹ 6. .....

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on the ground of "own funds", is not acceptable. It has been laid down by their Lordships that : "the decisions relied upon by the Tribunal in the case of CIT v. Tin Box Co. [2003] 260 ITR 637 (Delhi), CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), CIT v. Suzlon Energy Ltd. [2013] 354 ITR 630 (Guj) and East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC) could not be now applicable, if we apply and compute the disallowance under rule 8D of the Ru .....

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r receipt then the formula prescribed would apply. Under clause (ii) to rule 8D(2) of the Rules, the Assessing Officer is required to examine whether the assessee has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt. In case the interest paid was directly attributable to any particular income or receipt, then the interest on loan amount to this extent or in entirety as the case may be, ha .....

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which is applicable from the assessment year 2008-09. Thus, the reasoning given by us for deleting such disallowance under section 14A on account of interest for the immediately preceding year, being the own funds and interest-free funds higher than the amount of investments, cannot be applied to the assessment year 2008-09 onwards, when the mandate of rule 8D has come into force. Ergo, we find no force in the contention of the learned authorised representative and the resultant view canvassed b .....

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g a reasonable opportunity of being heard to the assessee. 39. In so far as the first component of disallowance at ₹ 3 lakhs is concerned, we find that it is this amount which was offered by the assessee voluntarily as disallowable under section 14A. When the assessee offered this amount for disallowance, the action of the Assessing Officer in again adding this amount under clause (i) of rule 8D amounted to double disallowance to this extent. We, therefore, order for the deletion of additi .....

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nd in a couple of other judgments has held that the disallowance under section 14A cannot exceed the amount of exempt income. The Assessing Officer is, therefore, directed to take into consideration the ratio of these judgments while computing finally disallowable amount under section 14A. The ground taken by the assessee is dismissed and that by the Revenue is allowed for statistical purposes. 41. Ground No. 3 of the Revenue's appeal is against the deletion of addition of ₹ 2,26,02,31 .....

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,14,019 made by the Assessing Officer on account of club expenses. Here again we find that similar issue has been decided by us in the assessee's appeal for the assessment year 2007-08. Following the view taken hereinabove, we uphold the action of the learned Commissioner of Income-tax (Appeals) in deleting this disallowance. 44. The only issue which survives in the Revenue's appeal is against the deletion of addition of ₹ 1,04,38,807 made by the Assessing Officer on account of dep .....

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he assessee's contention for allowing depreciation on computer peripherals at 60 per cent. and also repelled the assessee's contention for allowing additional 20% depreciation on computer to plate. The learned Commissioner of Income- tax (Appeals) accepted the assessee's claim of allowing depreciation at 60 per cent. on computer peripherals except computer to plate, on which rate of depreciation was restricted to 15 per cent., but, additional depreciation at 20 per cent. was granted. .....

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n of the learned Commissioner of Income-tax (Appeals) in allowing depreciation at 60 per cent. on computer peripherals. 47. As regards the assessee's claim for allowing depreciation at 60 per cent. on computer to plate, it is noticed that section 32(1)(iia) of the Act provides for allowing additional depreciation in the case of any new machinery or plant acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing, et .....

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