TMI Blog2016 (9) TMI 1527X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside to the record of the Assessing Officer therefore the issue of disallowance of interest expenditure under Section 14A of the Act to the extent of old investment is set aside to the record of the Assessing Officer with same direction as given for the Assessment Year 2006-07. Since there is a dividend income for the Assessment Year 2009-10 therefore the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT [ 2015 (9) TMI 238 - DELHI HIGH COURT] was not applicable for the Assessment Year 2008-09 regarding disallowance of administrative expenditure being 0.5% of the average investment. Assessee has submitted that the investment for the purpose of disallowance of administrative expenditure should be considered only on which the assessee has earned dividend from mutual funds. AR has submitted that only ₹ 90 Crores and ₹ 2,58,000 can be considered as investment for the purpose of disallowance as per Rule 8D(2)(iii). Accordingly, we direct the Assessing Officer to recompute the disallowance as per Rule 8D(2)(iii) by considering the investment in mutual funds which has yielded dividend income. Disallowance of claim of depreciation on goodwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Act, 1961 (in short 'the Act') r.w. Rule 8D of Income Tax Rules. For the Assessment Year 2007-08, the CIT (Appeals) has deleted disallowance on the ground that the borrowed fund has been utilized by the assessee for the business purpose and therefore the assessee has not used the borrowed fund for the purpose of investment in question. The CIT (Appeals) has also relied upon the order passed on the investment issue of disallowance under Section 14A for the Assessment Year 2006-07. 5. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The ld. DR has submitted that the CIT (Appeals) has not examined the direct nexus of assessee's own fund and investment made in this year and therefore the finding of the CIT (Appeals) is based on the presumption that the borrowed fund has been utilized by the assessee for the business purpose and not for the purpose of investment. He has further submitted that for the Assessment Year 2006-07, the Tribunal has set aside the order of the CIT (Appeals) vide order dt.24.11.2014 and remitted the issue to the record of the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the finding on this issue for the Assessment Year 2006-07. The Tribunal in assessee's own case for the Assessment Year 2006-07 has remitted this issue in ITA Nos.84 85/Bang/2014 vide order dt.24.11.2014 in paras 6 7 as under : 6. With the assistance of the learned representatives, We have duly considered the rival contentions and gone through the record carefully. The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd (Supra) has held that Rule 8D is applicable from assessment year 2008-09, that does not mean that prior to the introduction of this Rule, no amount can be considered as incurred for the purpose of earning tax free income. The disallowance has to be made, first examining the accounts of the assessee and if the Assessing Officer is satisfied that the accounts do not depict true picture, then he can work out the disallowance on the basis of a reasonable and acceptable method of apportionment. The learned CIT (A) ought to have not deleted the disallowance in Toto, rather ought to have examined whether any disallowance is possible or not. In other words, she should have examined whether any expenditure attributable to earning exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-Rule8D 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, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such borrowed fund is otherwise not allowable under Section 36(1)(iii) as well as 37 of the IT Act being not laid out wholly and exclusively for the purpose of business of the assessee. Even otherwise when there is no dividend income the said interest expenditure is also not allowable under Section 57 of the Act as the purpose of taking the loan is not claimed by the assessee for the investment in shares. Therefore in any case, the interest expenditure on the borrowed fund which is not utilized for the purpose of assessee s business is not an allowable claim. Therefore without going into the controversy of whether the disallowance can be made under Section 14A on account of interest expenditure when the assessee has not earned any dividend income we would like to deal with the issue on the point that whether the assessee was having sufficient fund for making the investment in the shares and mutual funds. The assessee has filed the following details of investments and its own funds as well as the dividend income : Description 2007-08 (Rs.) 2008-09 (Rs.) 2009-10 (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s own fund is much more than the amount of investment made during these two assessment years. Accordingly, we are of the view that so far as fresh investment is concerned the assessee s own fund is more than sufficient to cover them and therefore to that extent no disallowance is called for under Section 14A on account of interest expenditure. As records the old investment which was made prior to the Assessment Year 2007-08, the issue has a direct bearing of the finding and final outcome on this issue for the Assessment Year 2006-07. Since the said issue is also set aside to the record of the Assessing Officer therefore the issue of disallowance of interest expenditure under Section 14A of the Act to the extent of old investment is set aside to the record of the Assessing Officer with same direction as given for the Assessment Year 2006-07. Since there is a dividend income for the Assessment Year 2009-10 therefore the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (supra) was not applicable for the Assessment Year 2008-09 regarding disallowance of administrative expenditure being 0.5% of the average investment. The ld. AR of the assessee has submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets on the basis of replacement method and after reducing the depreciation from the replacement price, the FMV has been arrived by the valuer Sri A. V. Sethi Associates. Thus the difference between the fair value and consideration was shown as goodwill. The Assessing Officer did not accept the contention of the assessee and observed that the instead of fair value of asset based on the replacement value of the asset adopted in the valuation report the Fair Market Value (FMV) of assets should have been adopted in the books of accounts and consequently the valuation of the goodwill would be reduced by ₹ 24.48 Crores. The Assessing Officer has also observed that on the land valuation, the valuer has adopted the guidance rate without considering the sale incidents of comparable land. Thus the Assessing Officer observed that if the replacement of cost of building, plant and machinery and higher value of land is taken to the books, there would not be any goodwill. The Assessing Officer concluded that differential amount being shown as goodwill cannot be considered as amount paid for brewing license as the assessee has not got the valuation of the license. Accordingly, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer has not determined the correct valuation if the valuation report produced by the assessee was doubted or found to be incorrect. The Assessing Officer has assigned more value to the tangible asset which means the depreciation on the tangible asset has been accepted on the higher valuation. The method adopted by the value is well accepted method of valuation and therefore without giving any valuation by the Assessing Officer the claim of depreciation cannot be rejected only by doubting the valuation of the assessee. 13. On the other hand, the ld. DR has submitted that the Assessing Officer has clearly brought on record that there is no justification of the valuation of the goodwill when the assessee has not acquired any intangible asset from the KBDL and further the alleged license has not been valued by the assessee. Therefore, the valuation of the said license at a value of ₹ 62.30 Crores under goodwill is not based on the actual valuation of the alleged license. He has further contended that even otherwise the claim of depreciation cannot be allowed in the hand of the assessee more than the depreciation which would have been allowed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odwill by holding that the assessee has not acquired any intangible assets in pursuant to the amalgamation of its subsidiary with the assessee and therefore as per the Assessing Officer the goodwill was not at all in existence. It is pertinent to note that the Assessing Officer has the jurisdiction and power to examine the valuation of the assets as per Expln.3 to Section 43(1) of the Act which reads as under: 43 (1) .. Explanation 1 - .. Explanation 2 - .. Explanation 3.-Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business or profession and the Assessing Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Assessing Officer may, with the previous approval of the Joint Commissioner, determine having regard to all the circumstances of the case. As it is clear from the Expln.3 to Section 43(1) that if the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing arbitrary value to the goodwill. Therefore the entire assets taken over by the assessee under the amalgamation are subjected to the Expl.3 of Section 43(1) of the Act and if the Assessing Officer finds that the assessee has claimed excess claim of depreciation by enhancing the cost of goodwill then actual cost of goodwill can be determined only by considering the actual cost of the other assets so acquired under amalgamation. 15. There is another aspect involved in this issue of claiming depreciation on the enhanced cost of goodwill in cases of succession / amalgamation as it is restricted in the hand of successor or amalgamated company only to the extent as apportioned between the amalgamating and amalgamated company in the ratio of number of days for which the assets used by them. Further the deduction shall be calculated at the prescribed rate as if the amalgamation has not taken place. For ready reference, we quote the provisions to section 32(1) as under : Section 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, fran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cases are exempted from capital gain which is otherwise chargeable to tax on transfer of assets. In the case on hand the business of the subsidiary was transferred to the assessee by way of amalgamation therefore it would not be regarded as transfer of asset for the purpose of capital gain. Hence the claim of depreciation on the assets acquired under the scheme of amalgamation is restricted only to the extent if such amalgamation has not taken place. The Assessing Officer made a reference to 5th proviso to Section 32 in para 5.7 as under : 5.7 As highlighted above, the company paid ₹ 180.52 Crores in the preceding year as consideration for acquiring shares of KBDL from original owners and thereby KBDL became a subsidiary last year. Thus, the consideration paid is for shares but not for individual assets. IN this year, KBDL which had earlier become subsidiary got amalgamated with the assessee company. As per 5th proviso under section 32(1)(ii), the aggregate deduction in respect of depreciation on any tangible or intangible assets allowable to amalgamating company and the amalgamated company shall not exceed the deduction calculated at the prescribed rat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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