TMI Blog2019 (12) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for depreciation on the Aircraft. He has further noted that the Aircraft was acquired to run it on hire and air craft charges are in fact received and, on this basis, he decided that depreciation on Aircraft of ₹ 2100,08,528/- is allowed. We find that there is no dispute that an amount of ₹ 269,80,969/- was earned by the assessee towards aircraft hire charges and the expenses claimed by the assessee of ₹ 1983.43 lakhs is after reducing the charges received by the assessee of ₹ 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. Section u/s 14A disallowance - HELD THAT:- This is the main claim of the assessee before CIT(A) that the assessee is a registered NBFC and the main business of the assessee is to lend money and to invest in equity shares of various companies. It is also claimed before the CIT(A) that the assessee has earned interest income of about ₹ 41 Crores and the assessee has a share capital reserve of ₹ 1001 Crores. Out of this capital and reserve of ₹ 1000.63 Crores, if we reduce investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ₹ 1.71,07,416/- made u/s 36(1)(iii) on loans advanced to sister concern and subsidiary companies holding that interest of ₹ 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 allowed the appeal on the issue of the disallowance under rule 8D(2)(ii). 6. The CIT(A) erred in holding that the interest disallowance of ₹ 1.32,12,143/- was not justified as the assessee had paid interest of ₹ 1,32.12.143/- on loan against fixed deposits and it had received income from FDs of ₹ 40,54.25,289/- without appreciating the fact that the company had advanced money to its sister concern without charging interest or interest at a subsidized rate 7. The CIT(A) erred in deleting the entiredisallowance u/s 36(1) of ₹ 1,71,07,416/- without deliberating on the 'interest to others' of ₹ 38.95.27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture 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 such method as may be prescribed. It is also laid down in sub-section (3) that the provisions of sub-section (2) shall also apply in relation to a case wherein assesses claims that no expenditure has been incurred by him in relation to the exempt income. Rule 8D contains the method in accordance with which the AO shall determine the amount of expenditure incurred in relation to the exempt income. Rule 8D has three components. First - the amount of expenditure directly relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come 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 with law and may be requested to be upheld. (ii) The assessee had also advanced share application monies to sister concern and subsidiaries without charging interest for no specific business put pose. The assessee also did not specifically explain the commercial and business expediency for doing this. Hence, the balance of the interest of ₹ 1,71,07,416/- as rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. 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 ₹ 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 ₹ 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. Mythreyi Pai (152 ITR 247) and in the case of United Breweries Ltd. (321 ITR 546) wherein it was held that expenditure incurred towards purchase of shares is a capital expenditure and it is not qualified for deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70/- out of interest expenditure and ₹ 127,98,632/- out of administrative expenses to the extent of ₹ 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 ₹ 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 ₹ 277.07 crores to ₹ 1000.63 Crores. As per page 5 of assessment order, tax exempt investments as on 31.03.2011 was ₹ 313.11 Crores only and hence, it comes out that the reserve and surplus available with the assessee as on 31.03.2010 at ₹ 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 has followed the judgment of Hon ble Bombay High Court rendered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this basis, he decided that depreciation on Aircraft of ₹ 2100,08,528/- is allowed. We find that there is no dispute that an amount of ₹ 269,80,969/- was earned by the assessee towards aircraft hire charges and the expenses claimed by the assessee of ₹ 1983.43 lakhs is after reducing the charges received by the assessee of ₹ 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 ₹ 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 ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money advanced and vice versa. As per para No.4.5 and 4.6 of his order, the learned CIT(A) has deleted this disallowance of ₹ 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 ₹ 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has inexorably lapsed. If it is found that during that year, the machinery cannot be said to have been used for the purpose of the assessee's business, then depreciation cannot be allowed but once it is shown that the assessee 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be allowed where the asset is used for less than 180 days. That means that the assessee would be entitled to 50 per cent of the normal depreciation even if the asset is used for a single day in the business carried on by the assessee. [Para 9] A perusal of the second proviso to section 32(1) shows that two conditions must be satisfied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose for which the aircraft was issued. Even at the time of appeal hearing no such details were furnished to ascertain purpose of utilisation of air craft. The air craft was acquired by erstwhile company M/s Jupiter Ariction Service Pvt. Ltd. and after merger with appellant company, became asset of the appellant company with effect from 01/01/2010 and utilised for its business purpose. I find merit in Assessing Officer s findings and after cons ider ing the duration of the as s e t wi th the appellant company's business and in absence of details sum of ₹ 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 ₹ 171,07,416/- was considered by the AO for making disallowance under section 14A also and out of that, ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14A and under section 36(1)(iii). The appellant is a registered NBFC. The main business of the appellant is to lend money and to invest in equity of various companies. The appellant has earned interest income of about ₹ 41 crores. The appellant has a share capital and reserves of about ₹ 1001 crores. The appellant has a borrowing of ₹ 83 crores. There was no borrowing during the earlier years. Out of the borrowing ₹ 17 crores is for purchase of an aircraft. ₹ 26 crores is temporary overdraft for operations of the appellant. The appellant being an NBFC, has made share application 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of interest. 6.6 During the year under consideration, the appellant received interest income of ₹ 40,54,25,829/- from fixed deposits. Considering these facts, there is merit in the appellant's contention that interest paid on loan against fixed deposits of ₹ 1,32,12,143/- , in this way also disallowance of further interest of ₹ 1,71,07,416/- is not justified. Therefore, the disallowance of ₹ 1,71,07,416/-is deleted. 9. From the above paras reproduced from the order of the CIT(A), it is seen that this is the main claim of the assessee before CIT(A) that the assessee is a registered NBFC and the main business of the assessee is to lend money and to invest in equity shares of various companies. It is also claimed before the CIT(A) that the assessee has earned interest income of about ₹ 41 Crores and the assessee has a share capital reserve of ₹ 1001 Crores. Out of this capital and reserve of ₹ 1000.63 Crores, if we reduce investment in shares considered for 14A disallowance of ₹ 313.11 Crores as on 31.03.2010, then also, surplus amount of approx. ₹ 688 Crores remains to ta ..... 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