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TMI Blog2019 (12) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... ) all such interest which is not directly attributable to any particular income or receipt ought to be considered. 3. The CIT(A) erred in restricting the disallowances of the net aircraft expenditure to Rs. 45,60,000/- without appreciating the fact that the CIT(A) himself has held in his order that the assessee not only failed to substantiate the purpose for which the aircraft was used but also failed to produce details regarding the passengers who were flown in the aircraft and the details of landing. 4. The CIT(A) erred in holding that the payment of Rs. 20.00.000/- towards purchase of movie right was revenue expenditure without appreciating the fact that neither the movie was sold during the year nor was it disclosed as a stock-in trade and therefore as the assessee had acquired the movie rights, the right were as asset. 5. The CIT(A) erred in deleting the protective addition of Rs. 1.71,07,416/- made u/s 36(1)(iii) on loans advanced to sister concern and subsidiary companies holding that interest of Rs. 1,71,07,416/- was considered for the purpose of disallowance under rule 8D(2)(ii) and therefore was a double disallowance without appreciating the fact that the CIT(A) had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid towards loans taken which could not be directly attributable to any particular income or receipt and hence was liable to be considered for disallowance under rule 8D(2)(ii). Further, it is required to be noted that Section 14A is based on the premise that the assessee have certain incomes which do not form part of the total income, that is, certain incomes are exempt from tax. It has been the case t 1 ra t the assessee incurs expenditure in relation to the exempt income but the expenditure is claimed as deduction against the incomes which are taxable. This leads to double benefits to the assessee. Firstly, the income itself is exempt from tax. Secondly, the expenditure incurred in relation to the exempt income is claimed as deduction against the taxable incomes. To plug this loophole, section 14A was inserted by the Finance Act 2001 with retrospective effect from 01.04.1962. sub-section (2) of Section 14A was inserted with effect from 01.04.2007 by the Finance Act 2006 wherein, it has been laid down that the AO shall determine the amount of expenditure incurred in relation to such income which does not Form part of the total income under the Income-tax Act in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular income or receipt. There should be verifiable and direct nexus and proximity between the particular income or receipt and the source should be that part of borrowed muds in regard to which interest expenditure has been incurred. In absence of such direct relationship, no part of interest expenditure can be excluded from the mechanism laid down in clause (ii) of the sub-rule (2) of Rule 8D. It speaks about the particular income or receipt not about business as a whole. It speaks about interest directly attributable to a particular receipt or income. It does not exclude the interest paid on the current account or working capital loans. The capital borrowed by way of working capital loan is a capital of general nature. It is used by the assessee not for earning a particular income or receipt. It is for the business as a whole. Such borrowed capital is deployed in business assets which appear in the balance sheet. The assets appearing in the balance sheet may be of any nature or category that is movable or immovable, financial or non-financial, stock or debtors etc. Hence, in view of the above, the additions made by the Assessing officer is justified and in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has failed to substantiate or produce any details regarding the passengers who have flown in the aircraft, details of landing, details of passengers and the purpose for which the aircraft is used even before the Ld.CIT(A) during the course of appeal hearing. Ground 4: It is observed during the course of scrutiny proceedings that the said movies have not been sold during the year under relevance nor has it been shown as assets in the balance sheet as a stock-in-trade. The assessee company has submitted before the CIT(A) that no liability was created against amount of Rs. 32,00,000/- paid in the AY 2010-11 as there was no certainty of completion of those movies. But, it has to be noted that the assessee has acquired movie rights which is an asset. Considering the same, the purchase of movie rights is taken as asset of the assessee and added to the balance sheet of the company. Ground 5 & 7: It is observed during the course of scrutiny proceedings that the assessee company has given share application money of Rs. 65.21 Crore to its sister concern and subsidiaries. In accordance with the decision of -the Hon'ble High Court of Karnataka in the case of CIT Vs. Myth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, disallowance was made by the AO under section 14A of Rs. 192,11,402/- which includes an amount of Rs. 64,12,770/- out of interest expenditure and Rs. 127,98,632/- out of administrative expenses to the extent of Rs. 0.5% of average amount of tax exempt investments. The second disallowance out of administrative expenses has been confirmed by the CIT(A) and he has deleted only disallowance made by the AO out of interest expenditure of Rs. 64,12,770/-. In this regard, it is noted by the learned CIT(A) in para 2.7 of his order that the Reserves and Surplus of the assessee increased from Rs. 277.07 crores to Rs. 1000.63 Crores. As per page 5 of assessment order, tax exempt investments as on 31.03.2011 was Rs. 313.11 Crores only and hence, it comes out that the reserve and surplus available with the assessee as on 31.03.2010 at Rs. 1000.63 Crores was much more than this tax-exempt investments of the assessee company. In the light of these facts, now we examine the applicability of the judgment of Hon'ble Karnataka High Court rendered in the case of CIT Vs. Microlabs (supra) on which reliance has been placed by the learned AR of the assessee. In this case, Hon'ble Karnataka High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived and, on this basis, he decided that depreciation on Aircraft of Rs. 2100,08,528/- is allowed. We find that there is no dispute that an amount of Rs. 269,80,969/- was earned by the assessee towards aircraft hire charges and the expenses claimed by the assessee of Rs. 1983.43 lakhs is after reducing the charges received by the assessee of Rs. 269.81 lakhs. Under these facts, we find no infirmity in the order of the CIT(A) as per which it was held by him that the expenses on aircraft including depreciation is allowable. Hence, on this issue also, we find no infirmity in the order of the CIT(A) and we confirm the same. Ground No.3 is also rejected. 6. Regarding ground No.4, we find that in para 13 of assessment order, it is noted by the AO that the assessee company has debited an amount of Rs. 32 lakhs towards movies. It is noted by the AO in the same para of the assessment order that these movies have not been sold in the current year not has it been shown as assets in the Balance sheet or as stock-in-trade. The AO held that this is an asset of the assessee and he disallowed this claim. The learned CIT(A) has held that Rs. 20 lakhs was paid in connection with the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has deleted this disallowance of Rs. 171,07,416/-. Hence, we reproduce these 2 paras i.e., 4.5 and 4.6 from the order of the CIT(A). These paras read as under:- "4.5 It may be mentioned that ownership and use of aircraft for the appellant's business are not disputed by the AO. In addition to the above, the appellant also earned income as hire charges from the aircraft. As per the break-up, major expenses are towards depreciation allowance of Rs. 21,00,08,528/-. However, the AO termed the same as expenditure. In this context, it is relevant to quote certain judicial pronouncements as under: i) In the case of R.B.Jodhamal Kuthiala v. CIT (1971) 82 ITR 570 (SC), the Hon'ble Supreme Court held as under: "The evacuee property ordinance is an ordinance to provide for the administration of evacuee property and not 7management of evacuee property. Theexpression 'Administration', in relation to an estate, in law means management and settings of that estate. It is a power to deal with the estate. The evacuee could not take possession of his property. He could not lease that property. He could not sell that property without the consent of the Custodian. He could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has put the machinery to use, for the purpose of its business, then further inquiry about the degree or type of use is not permitted to be scrutinised by the language of the section. It may be that the assessee's use is to keep it as a stand-by for the whole year ; it may again be that the assessee has to use it for a trial production or for some other purpose for its business, which is not immediately productive of commercial profit ; these would, again, not go against the assessee. Once the assessee can establish bona fide use of the machinery for the purposes of its business, then and in that event, the assessee establishes its right to claim depreciation. iii) The High Court of Andhra Pradesh in CIT v. Orient Longman (P) Ltd. (1997) 227 ITR 68 (AP) held as follows: To claim depreciation under section 32 in respect of buildings, machinery, plant or furniture, one of the conditions to be fulfilled is that they must be owned by the assessee. The requirement of ownership will be deemed to be fulfilled if the assessee has the dominion and control over the property in his own right and not in the right of others. Where the assessee has paid full consideration and has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied before invoking such proviso. The first condition is that the assessee must acquire the asset during the previous year and the second condition is that such asset is put to use for the purpose of business for a period of less than 180 days. The Legislature has used the word 'and' in between these two conditions and, therefore, these conditions are cumulative. There cannot be two years of acquisition, i.e., one for the purpose of global taxation and another for the purpose of Indian taxation. [Para 10] vi) similarly, in the case of Siv Industries Ltd. v. DCIT (2008) 306 ITR 114, the High Court of madras held as under: The claim of the assessee for normal depreciation for the block of assets was restricted to 50 per cent, on the ground that such asset was put to use for a period less than 180 days. The construction of the expression 'put to use' employed in the second proviso to section 32(1) assumes significance. It is axiomatic that in the absence of definition to a word or an expression, the usual course to be adopted is to assign the meaning given to the word or expression in the legal dictionary. [Para 5] when the expression 'put to use', is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wi th the appellant company's business and in absence of details sum of Rs. 45,60,000/- is disallowed as non-business purpose as well as personal expenditure of the directors and their relatives." 8. From these 2 paras reproduced from the order of the CIT(A), it comes out that this interest expenditure of Rs. 171,07,416/- was considered by the AO for making disallowance under section 14A also and out of that, Rs. 64,12,770/- was disallowed by the AO but this disallowance had been deleted by the learned CIT(A) while deciding the issue regarding disallowance under section 14A and this order of CIT(A) has been upheld by us while deciding ground No.2 of the Revenue's appeal. It is further noted by the learned CIT(A) that the same interest of Rs. 171,07,416/- was disallowed by the AO under section 36(1)(iii) of the Income Tax Act, 1961. This disallowance is also deleted by the learned CIT(A) and against such deletion, ground Nos. 6 and 7 of the Revenue's appeal are relevant and hence, we decide ground Nos.5, 6 and 7 together. In this regard, we find that the AO has made disallowance of Rs. 64,12,770/- out of interest expenditure under section 14A and in addition to that, he has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation to various entities and the shares allotted would held (read `hold') as investments. That is main business of the appellant. These investments are made out of its own resources and not from borrowed funds. The fact that investment have been made for the business of the appellant is conceded by the assessing officer by invoking the provisions of section 14A. If the investment were not for the business of the appellant then section14A should not be applied." 6.3 I have carefully considered the appellant's submission put forth above. As already discussed above, share capital, reserves and surplus and loan amount for the current year and previous year are as under: Particulars Y.E.31/3/2010 (Rs.) Y.E. 31/3/2009 (Rs.) Share capital 62,74,660 54,74,650 Reserves & surplus 1000,00,89,176 276,52,46,671 Loan funds 83,10,67,978 - Deferred tax liability 4,89,32,667 1,32,893 Total 1088,63,64,371 277,08,54,214 6.4 The appellant has incurred interest expenses of Rs. 2,29,69,222/-, the break-up of interest on fixed loan is as under: i) Interest paid to YES Bank for aircraft Rs. 58,61,806 ii) Loan against fixed deposits Rs. 1,32,12,143_ ii ..... X X X X Extracts X X X X X X X X Extracts X X X X
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