Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (8) TMI 708 - ITAT DELHI

2015 (8) TMI 708 - ITAT DELHI - [2015] 40 ITR (Trib) 185 (ITAT [Del]) - 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 M .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 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. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

A ought to have been made on the basis of exempt income and taxable income 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 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 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

I 914 - SUPREME COURT] in which it has been held that the club membership 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 take .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 115JB accords with the mandate of circular issued by the Central Board 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 c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and plant". Item at Sl. No. (5) covered under Item III of the Appendix is : "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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e and equal number by the Revenue relate to the assessment years 2006-07, 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 thr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 14A. On being called upon to explain as to why no disallowance was offered 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. Thi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d remuneration of Chief Finance Officer and directors and, thereafter, allocating 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& .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nistrative and other expenses incurred in earning the exempt income, by 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 Assess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, the failure of the learned Commissioner of Income-tax (Appeals) to consider 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s towards exempt income. We, therefore, approve the view taken by the learned 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 otherwi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

77; 8,61,948. Whereas ground No. 2 is not allowed, ground No. 3 is partly 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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

same is, therefore, dismissed. 10. In the result, the appeal filed by the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the assessee is business expenditure allowable under section 37 of the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at ₹ 1,04,89,137 towards interest and the second disallowance of ₹ 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

llowance under section 14A made by the Assessing Officer in this year has 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 Commi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on'ble Bombay High Court in CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (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 b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Appeals) to ₹ 8,93,534. In this regard, we find that the learned Commissioner 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 disa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fringe benefit tax of ₹ 3.65 crores from the net profit while computing 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 24. Ground No. 6 is against the deletion of disallowance of training expenses 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 ta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n on computer peripherals at 60 per cent. 27. We have heard the rival submissions 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. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of 15 per cent. We, therefore, uphold the view taken by the learned Commissioner 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 ₹ 2,94,3 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urred by the assessee in relation to the exempt income which were not offered 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he rival submissions and perused the relevant material on record. The assessment 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 asse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tents of para 3.3.1 of the assessment order, as under : "3.3.1 It is 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

carrying of exempt income." 34. It can be further noticed that the 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 correc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r satisfaction by the Assessing Officer. 36. The learned authorised representative 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 requ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ule 8D(2) at 0.5 per cent. of the average value of investment, which amount 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) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

applies then the assessee's claim that interest is not disallowable 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 appl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he interest paid is not directly attributable to any particular income or 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 inte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing exempt income. This judgment is relevant in the context of rule 8D, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ty with the law laid down in Taikisha Engineering (supra), after allowing 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 disa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

judgment dated October 17, 2014, reported in [2014] 90 CCH 681 (Delhi) and 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 Revenu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Revenue's appeal is against the deletion of addition of ₹ 15,14,019 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 additio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ate which was installed in the factory. The Assessing Officer rejected the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ltd. [2013] 358 ITR 47 (Delhi). Following the same, we uphold the action 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Appendix is : "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 Com .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version