TMI Blog2020 (10) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... tion claimed by the lessees, before allowing depreciation to the assessee on such leased asset. Accordingly, this ground of the appeal of the assessee is allowed. Disallowance made u/s 14A read with rule 8D of Income-tax Rules, 1962 - HELD THAT:- No expenses have been incurred for earning the dividend income, whereas the assessee has made suo motu disallowance of ₹ 10 lakh. AO has not pointed out how the said claim of ₹ 10 lakh, is not correct. The AO has jumped to the conclusion without examining the claim of the assessee. In our opinion, the facts and circumstances of the year under consideration being identical to the facts and circumstances of assessment year 2008-09, respectfully following the finding of the Tribunal [ 2020 (10) TMI 529 - ITAT DELHI] we hold that no disallowance u/s 14A can be made without recording proper satisfaction as required under the law. Accordingly, the disallowance in dispute is deleted. The ground of appeal is allowed. Disallowance u/s 14A while computing book profit under section 115JB - HELD THAT:- As decided in own case [ 2017 (6) TMI 1124 - ITAT DELHI] Computation under clause (f) of Explanation 1 to section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Briefly stated facts of the case are that the assessee is a public limited company engaged in the business of providing financial assistance to enterprises in the form of short, medium or long-term loans or working capital facilities or equity participation schemes etc. and also through business of leasing and hire purchase finance by acquiring to provide on lease or to provide on hire purchase all types of industrial office plant and other assets, required by various businesses. 2.1 For the year under consideration, the assessee filed return of income on 30/09/2010, declaring total income of ₹ 15,52,17,798/- and book profit of ₹ 319,06,63,765/- under section 115JB of the Income Tax Act, 1961 (in short the Act ). The assessee also revised the return of income claiming additional tax deduction at source (TDS). The return of income filed by the assessee was selected for scrutiny assessment. The scrutiny assessment under section 143(3) of the Act was completed on 12/03/2013, wherein certain additions/disallowances were made to the returned income. Against the said assessment order, the assessee filed appeal before the Learned CIT(A), who partly allowed the appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depreciation on the same assets, still the assessee cannot be held responsible for any wrong claim of depreciation, if any, by the lessees and, therefore, such direction need to be struck down. He relied on the order of the Tribunal in ITA No.1200/Del/2011 for assessment year 1999- 2000 and submitted that while allowing claim of depreciation, no such directions have been issued by the Tribunal in that assessment year. 5.2 On the contrary, the Learned DR submitted that in cases relied upon by the assessee before the Ld. CIT(A), the lessees had not claimed depreciation on leased assets. He submitted that the Tribunal in assessment year 1999-2000 has also mentioned that the assessee had produced certificate from the lessees that no depreciation was claimed by them, and therefore the Learned CIT(A) allowed the depreciation in the case of the assessee subject to such verification. According to him, there is no error in the order of the Learned CIT(A) in issuing the direction for verification of the depreciation claimed by the lessee(s). 5.3 We find that the Tribunal in assessment year 1999-2000 in first round restored the matter back to the AO for verification, whether the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep the equipment however to show with Mark that assessee is the soul and the exclusive owner of those assets. 15. Further, the learned authorised representative has also tabulated the relevant conditions of the lease agreement as under:- Features Words in the agreement Article/clause no. Intention of parties Lease ...have the commercial connotations and only means the hiring or licensing of Plant... Let on lease the equipment... Article I Definitions 14 Article I - 1.7 Schedule Return of equipment/lease property Upon termination of this agreement by efflux of time or otherwise Lessee shall at its own cost and expense forthwith deliver or cause to be delivered to the lessor... Article II -2.4 Payment for equipment Lessee has requested the Lessor to make advance payments towards the cost of the equipment Article II - 2.5(a) Lessee warrantee indicating that the Lessor is owner Lessee woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lessor hereby appoints the Lessee as its agent to deliver, inspect, receive deliver/obtain clearance from port/customs authorities and installation of the equipment from/by the manufacturer and /or its agents Article V - 5.1 Equipment is not stock in trade of the Lessor The Lessor is not the manufacturer or dealer or supplier of the equipment anc has only purchased the equipment selected by the Lessee from the manufacturer or dealer or supplier designated by the Lessee The Lessor has not at any time, made nor does it hereby make any representation or warranty, whatsoever with respect to the merchantability, quality....or performance of the equipment. Article VI - 6.2, 6.3 Ownership recognized by successors in title As between the Lessor and the Lessee and their respective successors in title, the equipment shall remain moveable property of and shall continue to be in the ownership of the Lessor Article VI - 6.7F Right of Lessor to create other interest, assign property The Lessor shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore it is entitled to depreciation available to it u/s 32 of the act. 18. Further in Cosmo films private limited versus CIT [2011] 12 taxmann.com 217 (Delhi)/[2011] 200 Taxman 384 (Delhi)/[2011] 338 ITR 266 (Delhi)/[2011] 245 CTR 23 (Delhi), the honourable Delhi High Court has dealtyvith a question that: Whether the Tribunal was justified in law in allowing depreciation on the assets for which the Assessing Officer had treated the transaction as that of finance and not of leasing? 19. The honourable High Court held that once it is established that the ownership of the said equipment is that of the assessee, then it is clear that the respondent/assessee would be entitled to claim depreciation. 20. Further, in the present case lease rental is received regularly and has been shown in the Profit Loss A/c. The other parties who are paying lease rentals to the assessee have shown lease rental paid to the assessee. The department has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee. Moreover, the assessee has pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any justification or cause for issuing direction by the Learned CIT(A) to the Assessing Officer for verification of the depreciation claimed by the lessees, before allowing depreciation to the assessee on such leased assest. Accordingly, this ground of the appeal of the assessee is allowed. 6. The third ground of the appeal relates to disallowance made under section 14A of the Act read with rule 8D of Income-tax Rules, 1962. 6.1 The assessee earned dividend income of ₹ 63,82,22,092/- as exempt income and made suo motu disallowance of ₹ 10 lakh against such exempted income. It was claimed that all the investment/subscription in shares had been made out of the interest-free funds and no borrowings were made for the purpose of the investment/subscription into shares. However, the Assessing Officer invoked rule 8D of Income-tax Rules and determined the disallowance at ₹ 5,14,64,963/- and after reducing the suo motu disallowance of ₹ 10 lakh, addition for the balance amount of ₹ 5,04,64,963/-was made by the Assessing Officer. The assessee could not succeed before the Learned CIT(A). The Ld. CIT(A) upheld the disallowance observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds of ₹ 14,033,171. In the return of income assessee, itself has disallowed a sum of ₹ 2 lakhs u/s 14 A of the income tax act which is also mentioned at paragraph number 6 of the assessment order. On reading of the assessment order at paragraph number 4 we find that the learned Assessing Officer noted that assessee has earned dividend income and tax-free income from boards. Looking at these, he asked the assessee to justify the non-disallowance of expenditure u/s 14 A of the act. He rejected the contention of the assessee with some general statements and thereafter reproduces the provisions of Section 14 A of the income tax act and computed disallowance as per rule 8D. Therefore, it is apparent that, the learned Assessing Officer has not recorded his own satisfaction / finding that how the disallowance shown by the assessee on its own of ₹ 2 lakhs is incorrect. The satisfaction of the Assessing Officer is mandatory in terms of the provisions of Section 14 A (2) of the income tax act. The satisfaction of the Commissioner of income tax appeals cannot be replaced for substituted for the satisfaction of the learned Assessing Officer. The honourable Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med exempt and is not part of the total income under this Act, hence section 14A is clearly attracted in this case and any expenditure relatable to earning of dividend income shall have to be disallowed. (ii) No evidence has been furnished by the assessee company to establish that no expense has been incurred in earning of the dividend income. This is especially required in light of the fact that certain expenses like cost of borrowings, salary, employee welfare expenses, postage/ telegram expenses, traveling and conveyance expenses, rent etc. are common expenses with regard to earning of dividend income/ interest income and normal/ regular business activity of the assessee company. (iii) The assessee company is also entitled to claim long term capital loss on sale/purchase of bonds on which dividend income has accrued to the assessee company. Thus, it is seen that on one hand the assessee company is claiming dividend income totally exempt u/s 10(34) and at the same time it is also getting benefited by the fact that due to earning of dividend income, the redemption price of the said bonds has also gone down. The assessee is not entitled to avail this double benefit. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in nature of passive activity having no input. In fact in present situation making of Investment, maintaining or continuing investment and time of exit from investment are well informed and well coordinated management decisions involving not only inputs from various source but also acumen of senior management functionaries. Therefore cost is inbuilt into even so called passive Investment. There are incidental expenditures of collection, telephone, follow up etc. Therefore, expenses in relation to earning of income are embedded in indirect expenses. The investment made, being a conscious decision and having deployment of funds clearly brings into picture expenditure by way of cost of funds, Invested* Composite fund having cost needs to be spread so as to apportion appropriate cost of funds invested in the activity lending to carrying of exempt income. In view of above, the provisions of sub sections (2) of section 14 A and Rule 8D of IT Rules are in operation and therefore will strictly be adhered to by the assessee. 6.5 We find that the Assessing Officer is under the impression that no expenses have been incurred for earning the dividend income, wherea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of item (f) to explanation 1, the decisions relied upon by the appellant do not apply. Therefore, this limb of ground of appeal is hereby dismissed. 7.1 Before us, the Learned Counsel of the assessee submitted that issue in dispute is covered by the direction of the Tribunal in assessment year 2008-09 and 2009-10. The learned DR also could not controvert the position and relied on the order of the lower authorities. 7.2 We have heard rival submission of the parties and perused the relevant material on record. In assessment year 2008-09, the Tribunal has adjudicated the issue as under: 69. With respect to ground number 3 of the appeal of the Assessing Officer which is against the order of the learned CIT A deleting the disallowance are while computing the book profit of the assessee with respect to the disallowance made in the original computation of the income u/s 14 A of the act. The find that the issue is squarely covered in favour of the assessee by the decision of the special bench of the ITAT in the Asst Commissioner of Income Tax Versus Vireet investments private limited [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)/[2017] 58 ITR(T) 313 (Delhi - Trib.) (SB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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