TMI Blog2012 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... UPS, printers, scanners etc. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing. I.T.A. No.2239/Del./2012[Assessee-AY2008-09] 1. That the CIT(A) erred on facts and in law in sustaining the disallowance of expenditure amounting to ₹ 44,24,562/- u/s 14A of the Income-tax Act, 1961 ( the Act ). 1.1 That the CIT(A) erred on facts and in law in confirming the disallowance u/s 14A of the Act without appreciating that the investment was made out of own surplus funds and no expense was attributed for earning of tax free dividend income. 1.2 That the CIT(A) erred on facts and in law in not appreciating that in terms of section 14A(2) and 14A(3) of the Act read with rule 8D of the Income-tax Rules, 1962 for making disallowance under the said section, the Assessing Officer has to record satisfaction that claim of the appellant regarding amount disallowable under the said section, was incorrect. 1.3 Without prejudice that the CIT(A) erred on facts and in law in not appreciating that only an insignificant amount of expenditure out of the administrative expense c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame mutual fund scheme. The assessee also pointed out that no interest cost was attributable to the investment, the entire investments having been funded out of interest free loans received from its holding company and thus, no expenditure could be attributed to earning of dividend income. The assessee further objected to the invocation of provisions of section 14A of the Act and applicability of rule 8D of the Income-tax Rules, 1962. However, the AO did not accept the submissions of the assessee on the ground that earning of exempt income was not in the nature of passive activity having no input. Accordingly, while referring to provisions of sec. 14A of the Act read with Rule 8D of the I.T. Rules, 1962 and relying upon decisions in CIT vs. Sharwan Kumar Swarup,210 ITR 886(SC); H.H. Sir Rama Varma Vs. CIT, 205 ITR 433 (SC); CIT Vs. Podar Cement (P) Ltd,. 226 ITR 625 (SC); S. Subhash Vs. CIT,248 ITR 512(Madras); CIT Vs. Shelly Products Ltd., 261 ITR 367(SC); ITO Vs. M/s Daga Capital Management Pvt. Ltd. in I.T.A. No.8057/Mum/2003 and M/s Max Opp Investment Ltd. Vs. ACIT in I.T.A. no.1372/D/05, the AO disallowed an amount of ₹ 27,19,110/-. 3. On appeal, the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir decision dated 20th January, 2012 of in the assessee s own case in I.T.A. no.5051/Del./2011, accordingly, the matter in the year under consideration may be restored to the file of AO for readjudication in the light of decision of Hon ble jurisdictional High Court in M/s Max Opp. Investment Ltd. Vs. ACIT, 203 Taxman 364(Del.). 5. We have heard both the parties and gone through the facts of the case. Indisputably, the findings of the learned CIT(A) in the year under consideration are based on his own findings in the assessee s own case in the AY 2005-06. In that year, the ITAT vide their aforesaid order dated 20.01.2012 in identical circumstances, restored the issue to the file of the AO in the following terms:- 5. We have heard both the parties and their contentions have carefully been considered. Though learned CIT(A) has discussed all the related figures in his order, but, apparently, he has not confronted all these figures to the Assessing Officer. The Assessing Officer had made estimated disallowance of 25% of the dividend income. Keeping in view the entirety of facts, we are of the opinion that it would meet the interest of justice if the matter is resto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:- The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le making the disallowance There is nothing in the assessment order or impugned order as to whether the assessee expressed his willingness to furnish the details desired by the AO nor the AO or the ld. CIT(A) seems to have undertook any exercise to ascertain the details of expenditure objectively in managing and supervising the aforesaid huge investments of ₹ 512,670,533/- in mutual funds and securities. In view of the foregoing, especially when the ld. CIT(A) or the AO did not have the benefit of aforesaid decisions including that of the Hon ble jurisdictional High Court, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO for deciding the issue, afresh in accordance with law in the light of aforesaid judicial pronouncements, after allowing sufficient opportunity to the assessee. The assessee is also directed to furnish all the relevant details of expenditure actually incurred in managing and supervising the aforesaid huge investments in mutual funds securities. With these observations, ground nos. 1 in the appeal is disposed of. 8. Ground no.2 in the appeal of the Revenue for the AY 2007-08 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, directed to allow depreciation on UPS, printers and scanner etc. @60% as claimed by the appellant. 10. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the findings in the impugned order. 11.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 Powers Ltd. in I.T. Appeal no. 1266 (Delhi) of 2010, in their decision 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. 11.1 Following the said decision, ITAT in ITO vs. Omni Globe Information Technologies India (P.) Ltd., 131 ITD 280(Delhi) held that if per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est Ltd. Vs. Income-tax Officer, 317 ITR (AT) 86(SB), the AO disallowed an amount of ₹ 1,39,83,342/-. 13. On appeal, the ld. CIT(A) restricted the disallowance to ₹ 44,24,562/- in the following terms:- 6. I have carefully considered the facts of the case, submissions of the appellant and material placed on record. I have also considered the case laws which are being relied upon both by the appellant as well as by the AO. In the instant case, AO has made a disallowance u/s 14A read with Rule 8D of the rules of ₹ 1,39,83,342/- (₹ 99,58,780 on account of interest and ₹ 40,24,562/- on account of administrative expenses). In this regard the foremost contention of the appellant is that AO has not recorded his satisfaction before making a disallowance u/s 14A read with rule 8D. The appellant has relied upon the decisions of ITAT in the case of Wimco Seedlings Ltd. (supra) and, Jindal Photo Ltd. (supra) among other decisions. 6.1 The scope of the above section was recently examined by the Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT reported in 64 DTR 122 wherein it was held that, if an expenditure has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as from the perusal of Assessing Officer s order, it is seen that the addition u/s 14A read with Rule 8D has two components viz interest disallowance of ₹ 99,58,780/- and disallowance on account of administrative cost ₹ 40,24,562/-. 6.3.1. With regard to the disallowance of interest component, after verifying the facts and evidences, I agree with the appellant s submissions that the interest relating to vehicle lease, TDS, sales tax and bank charges have no relation with the investments, the income from which yield the exempt income. Further with regard to the interest on short terms currency loan (buyer s credit) it is seen that these are given as payments to the suppliers from whom the imports are made by the appellant, obviously, therefore, these loans are not related to the investment which gives rise to exempt income, hence, therefore, the interest on foreign currency loan for the purpose of disallowance u/s 14A should not be considered. Same logic goes for the interest on loan taken from CISCO, from whom the appellant has purchased assets on the basis of sales and lease bank agreement . In view of the above, I therefore, hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges of ₹ 96,61,717/- might include interest on overdraft and the ld. CIT(A) has not recorded any findings on this aspect in the impugned order. The ld. DR elaborated that the assessee had taken short term loans on account of certain purchases and since payments were deposited in the same bank account, these might have been utilized towards investments and not merely for repayment of loans. 14.1. On the other hand, the ld. AR on behalf of the assessee while relying upon decision in Maxopp Investment Ltd.(supra) argued that bank charges did not include any interest on overdraft especially when the assessee had turn over more than ₹ 387/- crores. Moreover, short term foreign currency loans could not be utilized for investments in India. While referring to decisions in CIT vs. Bombay Samachar Ltd,74 ITR 723(Bom.), followed by Hon ble Delhi High Court in Regal Theatre vs. CIT,225 ITR 205(Del.), the ld.AR vehemently argued that borrowed funds were used for the purpose of the business and not for the purpose of investment,yielding exempt income .The ld. AR, relying upon decision in Maxopp Investment Ltd.(supra),argued that the ld. CIT(A) rightly concluded that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of total income.. The assessee submitted before the AO in its letter dated 27.8.2010 that only expenditure of 28,380/- i.e salary of shri Niraj Murarka, had been incurred by it, which had any proximate connection to earning of tax free dividend income and all the investments made as per directives of HCL Technologies Ltd. were out of their own funds and the assessee had no discretion in any investment avenue. A perusal of details of investments in the balancesheet reveals that the assessee had investments of ₹ 512,670,533/-/- in mutual funds as on 31.3.2007 which increased to ₹ 1,097,154,427/-as on 31.3.2008. The assessee claimed that investments were made out of its own funds and it had not debited any interest towards investments in the year under consideration. The ld. CIT(A), after analyzing the details of inter est, found that interest relating to vehicle lease, TDS, sales tax and bank charges had no relation with the aforesaid investments while short terms currency loan were in the nature of buyer s credit and in fact, were payments to the suppliers from whom the imports were made . Similarly, interest on loan taken from CISCO, from whom the assessee purchased ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny have been placed before the lower authorities and even before us nor it is informed as to how such expenditure has been dealt with in the books of the holding company or the assessee. In any case, no material was placed before the AO in order to enable him to record his satisfaction while the ld.CIT(A) specifically concluded that he was not satisfied with the correctness of claim of the assessee that no expenditure was incurred in relation to income which did not form part of total income. Hon ble Apex Court in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 and again in Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466 (SC) observed that it is the duty of the assessee to bring to the notice of the Income tax Officer particular items in the books of account or portions of documents which are relevant. The law casts a duty on the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Not even a whisper has been made before us as to whether or not relevant accounts were placed before the AO or the ld. CIT(A) in order to enable them to examine the claim of the assessee. The object or purpose of the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the AO is required to verify the correctness of such claim. In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO has to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act, Hon ble High Court concluded. Following the view taken in this decision, Hon ble jurisdictional High Court in CIT vs. Machino Plastic Ltd in their decision dated 28.2.2012 in ITA no. 92 of 2011, restored the matter to the file of the AO, being handicapped because of failure of the assessee to furnish relevant details and particulars. In the instant case also, the AO was handicapped, because of failure of the assessee to furnish relevant details/particulars and accounts while making the disallowance in terms of provisions of sec. 14A of the Act. There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details accounts before the AO nor these authorities seems to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) upheld the findings of the AO in the following terms:- 8 I have gone through the above submission of the appellant and have considered the facts and evidences placed on record and have also perused the Assessing Officer s order. It is seen that the only ground on which the appellant has claimed depreciation on elevators under the head plant and machinery is that elevators can be dismantled and removed to another location. In this regard, I am in agreement with the observations of the Assessing Officer that it is the functional and location usage which wills determine whether a particular item is plant and machinery or not. In the present case, the elevators are being used as a part and parcel of the building and therefore, depreciation on the same can only be allowed at the rate applicable to building. The addition of ₹ 1,31,400/- made by Assessing Officer on this account is, therefore, confirmed. 20. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld.AR on behalf of the assessee relied on the decisions in CIT vs. Jyoti Ltd.,163 ITR 274(Guj) VD Talwar(Deceased) vs. CIT,225 ITR 439(M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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