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2015 (8) TMI 844 - ITAT KOLKATA

2015 (8) TMI 844 - ITAT KOLKATA - TMI - Disallowance of depreciation by applying Explanation 10 to section 43(1) - CIT(A) deleted disallowance - Held that:- Capital subsidy scheme is exactly identical as was in AY 2007-08 in assessee’s own case considering that in AY 2003-04 & 2004-05, no such partial disallowance of depreciation was made by reduction of subsidy from actual cost/w.d.v of fixed assets along with the act that in last year, such partial disallowance of depreciation was deleted by m .....

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ccordingly, this issue is covered in favour of the assessee and against the revenue. Hence, we confirm the finding of CIT(A) and this issue of revenue is dismissed. - Decided in favour of assessee.

Disallowance of expenses qua interest against exempt income by invoking the provision of section 14A - CIT(A) deleted disallowance - Held that:- Now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid .....

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rest free funds. In view of the above, we confirm the order of CIT(A) on this common issue. - Decided against revenue. - I.T.A No.1989/Kol/2013 and I.T.A No. 1010/Kol/2013 - Dated:- 14-8-2015 - Shri Mahavir Singh and Shri B. P. Jain, JJ. For The Appellant: Smt. Sucheta Chattopadhyay, JCIT For The Respondent: Shri P. R. Kothari, FCA ORDER Per Shri Mahavir Singh, JM: Both these appeals by revenue are arising out of separate orders of CIT(A)-IV, Kolkata in Appeal Nos. 14/CIT(A)-IV/2010-11 and 193/C .....

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of the act. For this, revenue has raised identically worded grounds in both the assessment years i.e. AY 2008-09 and 2009-10. The relevant ground as raised in ITA No.1989/Kol/2013 reads as under: 1. That the Ld. CIT(A) erred in law in deleting the disallowance of ₹ 6294085/- on account of depreciations without appreciating the fact that in the instant case the AO correctly made the said disallowance by applying Explanation 10 to section 43(1). The facts and circumstances are exactly ident .....

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the assessee claimed depreciation on the assets including the capital subsidy of the assets. But the AO reduced the case of subsidy from the assets and thereby disallowed to the extent of ₹ 62,94,085/- by observing in para 4 as under: 4. Although the assessee had treated the above receipts as capital subsidy, full depreciation was charged and availed on all assets including on the value of the assets which have been reimbursed to the assessee through sales tax remission. In other words, t .....

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vered under capital subsidy comes to ₹ 62,94,085/-. Hence the said amount is hereby disallowed as inadmissible depreciation and the same is added back to the total income of the assessee. 5. During the relevant year, the assessee derived dividend income of ₹ 6,31,807/- which is exempt u/s. 10(34) of the I. T. Act, As per the computation of income sheet, only 1% of said exempt income being ₹ 6,318/- has been t5reated as expense & offered for taxation. As the said expense is .....

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t that in the scrutiny assessments u/s. 143(3) of the Income Tax Act1961 for AY 2003-04 & 2004-05, the subsidy received in those years was accepted as capital receipt by the Department without reduction of said subsidy amount from the actual cost/w.d.v. of any fixed assets for allowing depreciation in view of the appellant s plea that subject subsidy was given by Government of Wes Bengal to realize the possibility of industrial resurgence of the Sate and the same was not given to meet direct .....

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y of industrial resurgence of the State. Upon perusal of West Bengal Incentive Scheme, 1999 under which the subsidy has been given to the appellant, it is noticed that appellant was given a remission of sales tax on sale of finished goods for 11 years (9+2 years) subject to a maximum ceiling of 125% (100% + 25%) of gross value of certain fixed capital assets and also subject to an overall aggregate monetary ceiling of ₹ 75 crores. There is nothing in the said scheme to suggest that the Wes .....

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in the State. Considering the above position and considering that in AY 2003-04 & 2004-05, no such partial disallowance of depreciation was made by reduction of subsidy from actual cost/w.d.v of fixed assets along with the act that in last year, such partial disallowance of depreciation was deleted by my predecessor in office and also considering the judgments cited by the appellant, the action of the AO in reducing the subsidy from the cost/w.d.v of assets for allowing depreciation u/s. 32 .....

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nfirmed by Hon ble Calcutta High Court in GA No.2684 of 2014, ITAT No. 138 of 2014 dated 05.09.2014, whereby only question admitted was regarding computation of disallowance of expenses qua exempt income by invoking the provision of section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the Rules ). Ld. Counsel for the assessee drew our attention to the Memo of Appeal u/s. 260A of the Act before Hon ble High Court whereby the question regarding depreciation .....

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n given specifically for purchase of capital assets? But Hon ble High Court has not admitted this ground but admitted another ground vide order sheet in GA No. 2684 of 2014 ITAT No. 138 of 2014 dated 05.09.2014, which reads as under: Let the appeal be admitted and be heard on the following question: Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal, B Bench Kolkata erred in law in holding that for computing disallowance u/s. 14A of the Income Tax .....

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AY 2007-08 and Hon ble High court has not admitted the question referred to by revenue u/s. 260A of the Act regarding depreciation on capital subsidy. Once Hon ble High Court has declined to admit the question, order of Tribunal has become final. Accordingly, this issue is covered in favour of the assessee and against the revenue. Hence, we confirm the finding of CIT(A) and this issue of revenue is dismissed. 6. Exactly identical issue is also raised by revenue in ITA No. 1010/Kol/2013 for AY 20 .....

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d in law in restricting the disallowance u/s. 14A at 0.5% of the exempted income since the decisions of the Ld. CIT(A) is without any basis and in contravention to the judgment of Godrej Boyce Mfg. Co. Lltd. Vs. DCIT (2010) 328 ITR 81 (Bom) which Ld. CIT(A) highlighted in his order. 8. Briefly stated facts are that the AO disallowed interest paid by assessee on loans invested in the assets earning exempt income at ₹ 5,85,519/-. The AO disallowed by invoking Rule 8D(2)(ii) of the Rules by o .....

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n 14A of the I.T. Act read with Rule 8D of the I.T. Rules. The expenses is accordingly worked out as under:- Expenses disallowable u/r 8D(2)(ii) (A) Interest paid Rs.1.46,37,967/- (B) Average investment ₹ 3,64,69,118/- (C) Average assets Rs.83,89,75,676/- (A) X (B) divided by (C) ₹ 5,85,519/- Expenses disallowable u/r8D(2)(ii): Average investment ₹ 3,64,69,118/- ½ % of average investment ₹ 1,82,346/- The aggregate of expenses relatable to incomes which does not for .....

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hich is also from common funds. According to CIT(A), the assessee has own sufficient funds to meet the cost of investment and in view of this, he deleted the disallowance by observing in para 5.2 as under: 5.2 I have carefully considered the observations of AO made in the assessment order and submission made by the appellant, in the light of the material on record. So far as the disallowance of interest portion under section 14A is concerned, there is no finding that there is/was any direct nexu .....

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