TMI Blog2022 (5) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... ive expenses as per rule 8D - The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise, a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly, in a meeting the expenses on refreshment, travelling, patrol and stationary are generally incurred. The services of the accountants are also used to record the necessary transactions in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized indirectly for making the investments in equity shares. Thus, we hold that the argument of the learned AR is not acceptable that there was no expense incurred with respect to the impugned investments. Accordingly, we hold that the disallowance made by the AO on account of administrative expenses in pursuance of the provisions of rule 8D is correct and as per the provisions of law. Investments which have yielded the dividend income in the year under consideration should only be considered for the purpose of making the disallowance under section 14A read with rule 8D of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals)-13, Ahmedabad, of even dated 29/01/2021 (in short Ld. CIT(A) ) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as the Act ) relevant to the Assessment Years 2014-2015 2015-16. ITA No.272/Ahd/2020 for A.Y. 2014-15 2. The Revenue has raised following grounds of appeal: 1. Whether the Id.CIT(A) has erred in law and on facts in deleting the disallowance u/s.!4A applying Rule 8D amounting to Rs. 1,51,46,813/- . 2. Whether the Id.CIT(A) has erred in law and on facts in allowing depreciation of Rs.30,90,866/- on WDV of certain Administrative Expenses capitalized in earlier years. 3. Whether the Id.CIT(A) has erred in law and on facts in allowing ESOP Compensation Expenses Rs. 90,28,831/- 4. It is, therefore prayed that the order of the Ld.Commissioner of Income-tax(Appeals) may be set aside and that of the Assessing Officer be restored. 5. The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary, 3. The first issue raised by the Revenue is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s submission which is already reproduced before is found to have factual and legal backing and there appears to be no case for disallowance made U/S.14A. It is the case of the appellant that the investments made are for strategic purposes ad proximate cause of incurring expenses in relation to such investments are not to earn any exempt income. Furthermore, it has been brought to the attention that such additions made by the AO in earlier years have been deleted by the Jurisdictional ITAT which have been confirmed by the Jurisdictional High Court. Accordingly the AO is directed to delete the addition of Rs. 11,34,42,968/-. The related grounds of appeal succeed. 9. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. 10. The learned DR before us contended that the facts of the case on hand are distinguishable from the facts of the case referred by the learned CIT-A insofar that there was no suo-moto disallowance made by the assessee in the year under consideration. Accordingly, the issue in the case on hand with regard to the disallowance of the expenses against the exempted income under the provisions of section 14A read with rule 8D cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided under section 14A of the Act. Accordingly, the courts have taken a view that there cannot be disallowance as per rule 8D read with section 14A without having recorded the dissatisfaction before resorting to the provisions of rule 8D read with section 14A of the Act. However, the facts of the present case are distinguishable from the facts of own case of the assessee in the earlier years. As such in the year under consideration, there was no suo-moto disallowance made by the assessee towards the exempted income under the provisions of section 14A of the Act. In the absence of suo-moto disallowance, the AO had no option except to resort to the provisions of section 14A read with rule 8D of Income Tax Rule. The Hon ble Gujarat High Court in the case of Devarsons Industries (P.) Ltd. reported in 84 taxmann.com 244 has held as under: To give effect to the provision of section 14A and in particular sub-section (2) thereof, Rule 8D of the rules provides the method for determining the amount of expenditure in relation to the income not includable in the total income. Sub-rule (1) echoes the provision of subsections (2) and (3) of section 14A where it provides that if the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment as on 1st April to 13 and 31 March 2014 stand at Rs. 52,602.09 Lacs and 65,610.45/- lacs respectively. There is no ambiguity, that the own fund of the assessee exceeds the investments. In this regard we refer the judgment of The Hon ble Gujarat High Court in the case of CIT vs. Torrent Power Ltd reported in 363 ITR 474 where it was held as under: It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 13.3 In view of the above we hold that there cannot be any disallowance of interest expenses against the impugned exempted income. 13.4 Now coming to the next issue i.e. disallowance of administrative expenses as per rule 8D of Income Tax Rule. Admittedly the assessee has made huge investments and has earned exempted income to the tune of Rs. 2,46,37,085/-. The decision for making th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. Hence the ground of appeal of the Revenue is partly allowed. 14. The second issue raised by the Revenue is that the learned CIT-A erred in allowing the depreciation of Rs. 30,90,866/- on account of capitalization of certain administrative expenses capitalized in the earlier year. 15. The assessee right from the assessment year 2008-09 was showing capital work-in-progress in its books of accounts. However, the AO right from the assessment year 2008-09 was allocating 10% of the certain administrative expenses attributable to such capital work in progress. In earlier years, the matter travelled up to ITAT, particularly for the assessment year 2008-09 wherein it was held that 1% of the administrative expenses should be attributed to such capital work in progress and therefore the same should be capitalized. Based on the order of the ITAT for the assessment year under consideration, the AO calculated 1% of the administrative expenses amounting to Rs. 35,54,217/- and held that such expenses has to be capitalized. However, the AO further held that such expenses being capitalized are eligible for depreciation in the year under consideration at the rate of 15% under section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for AY 11-12 Depredation for AY 12-13 Depredation for AY 13-14 Depredation for AY 14-15 2008-09 12,34,815 1,85,222 1,57,439 1,33,823 1,13,750 96,687 82,184 2009-10 16,53,753 - 2,48,063 2,10,354 1,79,225 1,52,342 129,490 2010-11 16,06,491 - - 2,40,974 2,04,328 1,74,103 147,988 2011-12 21,93,612 - - - 3,29,042 2,79,686 237,733 2012-13 26,58,319 - - - 3,98,748 338,936 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ambiguity in the statement of facts relating to the dispute. The ITAT in the earlier year in ITA No. 2286/Ahd/2011 has directed the Revenue to capitalize 1% of the administrative expenses against the disallowance made by the Revenue at the rate of 5% of the administrative expenses. As such, in earlier year, there was no issue with respect to the depreciation on the capitalization of administrative expenses attributable to capital work-in-progress. However the AO, for the 1st time, while capitalizing the administrative expenses being 1% attributable to capital work-in-progress, has allowed depreciation at the rate of 15% which was acceptable to the assessee. In simple words, the assessee did not dispute the action of the AO before the higher authorities. However, the assessee 1st time before the learned CIT-A made an additional claim for the depreciation on the amount of administrative expenses which were capitalized in the earlier years. The claim of the assessee was also accepted by the learned CIT-A. At this juncture, it is also important to note that the claim of the assessee was at Rs. 13,90,866/- for the depreciation before the learned CIT-A who has accepted the same but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year it has debited ESOP compensation in profit loss account for Rs. 90,28,831/- as per SEBI guideline. But due to abundant caution it disallowed the same in return of income filed under the Act. However the same is allowable expenses as per the order of special bench in case of Biocon Ltd. reported 35 taxmann.com 335 and as per various other judicial pronouncement. The assessee further submitted that learned CIT-A in the own case of the assessee for the A.Y. 2012-13 and 2013-14 allowed its claim for ESOP Compensation. 24. The learned CIT-A after considering the submission of the assessee allowed the claim of the assessee by observing as under: 5.6 As to the issue of claim of deduction of ESOP compensation expenses, it seen that following the decision of Banglore ITAT Special Bench in the case of Biocon Ltd. v/s DCIT 35 taxmann.com 335, the Ld. CIT(Appeal) had allowed the deduction by way of additional claim for the AY 2012-13 and AY 2013-14. Following the decision of the Ld. CIT (Appeal), the AO is directed toallow deduction of Rs.90,28,931/- 25. Being aggrieved by the order of the learned CIT-A the Revenue is in appeal before us. 26. The learned DR before us v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the year under consideration is allowed for the statistical purposes. 28. In the result appeal filed by the Revenue is partly allowed for the statistical purposes. Coming to ITA No. 273/Ahd/2020 an appeal by the Revenue for the A.Y. 2015-16 29. The Revenue has raised following grounds of appeal: 1. Whether the ld.CIT(A) has erred in law and on facts in deleting the disallowance U/S.14A applying Rule 3D amounting to Rs. 15,78,90,024/- 2. Whether the Id.CIT(A) has erred in law and on facts in allowing depreciation of Rs. 16,35,399/- on WDV of certain Administrative Expenses capitalized in earlier years. 3. Whether the Id.CIT(A) has erred in law and on facts in allowing ESOP Compensation Expenses Rs. 10,42,306/- 4. It is, therefore prayed that the order of the Ld.Commissioner of Income-tax(Appeals) may be set aside and that of the Assessing Officer be restored. 5. The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary. 30. The first issue raised by the Revenue is that the learned CIT-A erred in deleting addition of Rs. 15,78,90,024/- under the provision of section 14A r.w.r. 8D of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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