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TMI Blog2020 (7) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration the assessee had entered into international transactions with its Associated Enterprise (AE) and the value of such transactions exceeded Rs. 15 Crores, the case was referred to the Transfer Pricing Officer (TPO) u/s 92 CA of the Act for computing the Arm's Length Price (ALP). As per the order of the TPO, no adjustment was proposed on account of ALP of the international transactions. However, the following additions/disallowances were made by the Assessing Officer (AO) while completing the assessment proceedings: (i) Disallowance of license fee - Rs. 61,01,74,000/- (ii) Disallowance u/s 14A - Rs. 39,25,411/- (iii) Addition of interest u/s 244A - Rs. 8,01,12,224/- (iv) Disallowance of depreciation - Rs. 35,29,482/- (v) Addition of subsidy from Government of Goa - Rs. 25,00,000/- 2.1 Thus, the income was assessed at Rs. 798,95,13,887/- by the AO. 2.2 Aggrieved, the assessee approached the Ld. First Appellate Authority challenging the additions and disallowances. The Ld. CIT (A) allowed the assessee's appeal partly by deleting the addition of Rs. 61,01,74,000/- made on account of license fees. The Ld. CIT (A) also restricted the disallowance made u/s 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer in disallowing expenditure to the extent of Rs. 32,93,106/- invoking section 14A of the Income Tax Act, 1961 ('the Act'), read with Rule 8D of the Income-tax Rules. 1.1 That the CIT (A) erred on facts and in law in confirming the aforesaid disallowance without appreciating that no expenditure was actually incurred in earning the exempt dividend income. 1.2 That the CIT (A) erred on facts and in law in not appreciating that assessing officer made the disallowance invoking the provisions of section 14A of the Act without recording his satisfaction that having regard to the books of accounts of the appellant certain expenditure was actually incurred for earning the exempt dividend income. 1.3 That without prejudice, the CIT (A) erred on facts and in law in not appreciating that disallowance, if any, under section 14A of the Act had to be restricted to Rs. 8,34,934 as per calculation provided by the appellant. 2. That the CIT (A) erred on facts and in law in confirming the addition of Rs. 8,01,12,224/- made by the assessing officer in relation to the interest received under section 244A of the Act by the appellant during the relevant previous year, not appreciating that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT vs. Maxopp Investment Limited, reported in 347 ITR 272 (Delhi) wherein it had been held by the Hon'ble Delhi High Court that before making any disallowance under the provisions of Section 14A read with Rule-8D, the Assessing Officer has to record a finding that he is not satisfied with the correctness of the claim of the expenditure incurred. Alternatively, it was pleaded that the disallowance, if any, u/s 14A of the Act should be restricted to Rs. 8,34,934/- as per the computation provided by the assessee. 3.0.1 It was also submitted by the Ld. AR that the assessee's ground No.1 was connected to ground No. 2 of the Department's appeal. It was also submitted that the assessee had substantial interest free funds and, therefore, the disallowance under Rule-8D (iii) of the Act was not warranted. A chart depicting surplus fund available with the assessee for making investments was pointed out by the Ld. AR and it was submitted that since interest free funds were available with the assssee to the tune of Rs. 578 Crores, the Ld. CIT (A) had rightly deleted the disallowance. 3.1 With respect to Ground No. 2 pertaining to addition on account of interest earned by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning exempt income. The Ld. CIT-DR submitted that the Assessing Officer had rightly invoked the provisions of Rule-8D. 4.0.1 The Ld. CIT-DR also submitted that the action of the Ld. CIT (A) in allowing partial relief to the assessee on the ground that the assessee company had significant surplus funds was incorrect as it could not be established by the assessee that it was the surplus funds which had been utilized for making the investments. 4.1 With respect to assessee's ground No.2 challenging the addition on account of interest u/s 244A, the Ld. CIT-DR supported the orders of the Ld. CIT (A). 4.2 With respect to assessee's ground No.3 challenging the directions of the Ld. CIT (A) to reduce the value of the subsidy from the cost of capital investment, the Ld. CIT-DR vehemently argued that the conditions prescribed in the subsidy scheme were not fully met by the assesee and, therefore, the Ld. CIT (A) had erred in directing that the subsidy should be treated as capital investment. 5.0 Arguing on the grounds raised by the Department, the Ld. CIT-DR fairly accepted that ground No.1 of the Department's appeal challenging the action of the Ld. CIT (A) in deleting the addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Department's appeal wherein the issue under dispute pertains to disallowance u/s 14A of the Act. The Assessing Officer had made a disallowance of Rs. 39,25,411/- u/s 14A of the Act r.w.Rule-8D of the Rules, 1962 and the Ld. CIT (A) restricted the disallowance to Rs. 32,93,106/- by holding that no disallowance could have been made under the provisions of Rule 8D(2) (ii) in respect of interest expenses as the assessee company had accumulated surplus amounting to Rs. 302 Crores and general reserve of 276 Crores. The Ld. CIT (A) also observed that the opening balance of investments was Rs. 85.67 Crores, and, thus, investments subjected to Rule-8D were not brought forward from earlier years. It was also observed by the Ld. CIT (A) that the Assessing Officer could not demonstrate that loans were borrowed for making investments in dividend yielding assets only. We find no reason to interfere with this factual finding of the Ld. CIT (A). 7.1.1 However, it has further been brought to our notice that in the alternate, the assessee had submitted a computation before the Assessing Officer wherein it was submitted that the disallowance, if any, could not exceed Rs. 8,34,934/- being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale new unit which was entitled to the benefit of Goa State Investment Subsidy granted to it under the provisions of Goa State Investment Subsidy Scheme, 1990 for industrial units in selected backward districts/areas notified by Director of Industries, Trade & Commerce, Government of Goa ('DOI). Accordingly, an application was made in September, 1997 before the DOI for sanction of 25% State investment subsidy. During the relevant financial year corresponding to assessment year 2009- 10, the DOI, vide letter dated 21.10.2008 sanctioned the subsidy of Rs. 25,00,000/- in response to assessee's application received by it on 29.09.1997. The said amount of subsidy was claimed as capital receipt not liable to tax by the assessee as the aforesaid scheme was introduced with a view to achieve faster dispersal of industries and to attract industries to the underdeveloped and developing areas of the State and for employment generation. The Scheme postulated the following important conditions, among others, for eligibility under the Scheme: - Effective possession of land, building, plant and machinery by an eligible Unit; - Tying up of the means of finance for the project to the satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge entrepreneurs to move to backward areas and establish industries, the specified percentage of fixed capital costs, which is the basis for determining the subsidy, is only a measure adopted in the scheme to quantify the amount of subsidy and it is not a payment directly or in directly to meet any portion of the actual costs of assets. In the present case, as per the scheme of the subsidy, the same has not been received for meeting the costs of fixed asset directly or indirectly and it is only for the purposes of investment in backward areas and for generation of employment in such area. This is evident from the condition that the industry receiving the subsidy should employ 80% of the local population. Therefore, it is our considered opinion that the Ld. CIT (A) was not correct in directing the Assessing Officer to reduce the amount of subsidy from the actual cost of fixed assets and, thereafter, allow depreciation on such actual costs so arrived that. We set aside the order of the Ld. CIT (A) on this issue and we direct the Assessing Officer to allow deprecation on the actual cost of assets without reducing the amount of subsidy there from. Thus Ground No.3 of the assessee's ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of Rs. 1,39,152/- made by the Assessing Officer by restricting the claim of depreciation in respect of UPS from 60% to 15%. The Ld. CIT-DR as fairly accepted that this issue is covered in favour of the assessee by the judgment of the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Power Limited in ITA No.1266/2010 vide order dated 31.08.2010 and CIT vs. BSES Yamuna Power Ltd. vide order dated 31.08.2010. It is seen that the Hon'ble Delhi High Court has held that UPS is to be considered as an integral part of the computers and depreciation is to be allowed @ 60%. Accordingly, in view of the settled legal position, we find no reason to interfere with the findings of the Ld. CIT (A) on this issue also and dismiss ground No.3 of the Department's appeal. 7.6 Ground No.4 of the Department's appeal challenges the action of the Ld. CIT (A) in deleting the disallowance of Rs. 33,90,330/- made by the Assessing Officer by denying the claim of the depreciation in respect of energy saving and pollution control equipment on the ground that it was not put to use. It is seen that the Assessing Officer disallowed the claim of depreciation by alleging that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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