TMI Blog2013 (12) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... matter back to the AO so that the claim of the assessee could have been genuinely verified was not adopted by the learned CIT(A) – The issue was restored for fresh decision. Disallowance u/s. 14A – Held that:- The assessee company is a zero debt company - The interest expenditure is not at all related to any borrowing or investment in shares and mutual funds – Following Godrej & Boyce Mfg. Co. Ltd 328 ITR 81 - Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable but can be applied only if assessee’s method is not satisfactory - The disallowance u/s. 14A has to be made on a reasonable basis - There can be no disallowance of interest under section 14A - The AO has made a disallowance of Rs.1,66,334/- as per rule 8D in respect of adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earch. The capital expenditure was shown to be incurred on purchase of building, furniture and computers. It was the case of the assessee that out of the four flats occupied by the assessee, it was carrying on research and development activity in three flats i.e. Flat Nos. 605, 607 608 situated at Laxmi Nagar, District Centre, Delhi. On the directions of Additional CIT Range 22, New Delhi, Inspector of Income Tax visited the aforesaid premises of the assessee to verify whether any research and development activity was being carried out. The said Inspector in his report observed that no such research and development activity was being carried out by the assessee. The premises of the assessee at Mumbai was also visited by the I T Inspector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitute and did not carry out any research and development activity. It was also observed that the assessee had not submitted any documents to support its claim that it had carried out any research activity. The AO thus, holding that the assessee did not fulfill the requirement of section 35(1)(iv) to claim deduction for amount of Rs.96,14,651 as capital expenditure on research and development activity, added the same into the income of the assessee. The AO however, allowed 10% depreciation on building and furniture and 60% on computers and thus, allowed total depreciation of Rs.7,03,208/- on his account. The AO also disallowed a sum of Rs.2,58,196 by calculating expenditure under rule 8D on the dividend income of the assessee at Rs.19,60, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search was to identify the following: * The training technique to be adopted to help make technical training faster and easier. * The seating arrangements so that interaction amongst the students can be maximized and they are able to better construct knowledge structures. * The language simplification that needs to be carried out so that the students are able to understand the concepts presented in the book. * The practical sets that need to be implemented so that the students are able to better create the schema of the information provided and are able to encode it faster into their long term memories. * Designing of the class room environment with a vibrant colour scheme with contemporary IT furniture. * The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee before him. A proper course for the learned CIT(A) was to refer the matter back to the AO so that the claim of the assessee could have been genuinely verified. Accordingly, we set aside the finding of the learned CIT(A) in respect of ground no. 1 and restore the issue back to the file of the AO for assessment afresh after duly verifying the claim of the assessee regarding research and development activity carried out by it after providing due opportunity to the assessee to present its case. 4. As regards ground no. 2, the findings of the learned CIT(A) in respect of the issue are as under: 3.1 The AO observed that during the financial year 2005-06, the appellant had earned dividend income of Rs.19,60,049/- from inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the current year in view of the decision of Hon ble Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd. (supra). However, in the said judgment it has also been held that section 14A of the Act is very much applicable and the disallowance u/s. 14A has to be made on a reasonable basis. The appellant has not disallowed any such reasonable expenditure incurred for earning dividend income on its own. It is seen that the appellant is a zero debt company and it is evident from the above table that none of the interest expenses incurred have any connection with the investments made in shares and mutual funds. Therefore, there can be no disallowance of interest under section 14A of the Act. The AO has made a disallowance of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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