2012 (8) TMI 62 - AT - Income Tax

Disallowance u/s 14A - CIT(A)restored the issue back to the file of the AO for recalculation - Held that - Neither the assessee submitted any computation for disallowance in terms of section 14A nor the AO pinpointed any specific item of expenditure incurred for earning the dividend income. The CIT(A) merely followed the aforesaid decision in Godrej Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT ) and restored the matter to the file of the AO. However, the extent provisions of section 251 do not bestow any power on the CIT(A) for setting aside the issue in an assessment - the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice that every judicial/quasi- judicial body/authority must pass reasoned order - Section 14A remained an empty shell until the introduction of Rule 8D on 24.03.2008 - the impugned order suffers from lack of reasoning and is not a speaking order on the issue restore the mater to CIT(A) file for deciding the issue, afresh - in favour of revenue. Claim of depreciation on UPS @60% by assessee - @15% as allowed by the AO - Held that - As decided in ITO vs.v.Omni Globe Information Technologies India (P.) Ltd. 2010 (4) TMI 769 - ITAT, DELHI that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system and cannot be used without the computer, entitled for deduction of depreciation at the rate of 60 per cent - against revenue. Disallowance of legal and professional charges - AO treated the amount capital in nature while the ld. CIT(A) reduced the disallowance by 50% - Held that - CIT(A) without analyzing the basis of allocation of each of the job undertaken by M/s Wadia Gandy & Co. vis- -vis assessee and other entities, attributed 50% of the amount in relation to merger of the company as capital in nature. The CIT(A) nowhere adduced the basis of such allocation nor the DR could throw any light on this aspect - CIT(A) did not make elaborate discussion on the scope of study undertaken by the consultants nor the ld. DR submitted a copy of the agreement with consultants, if any - complete facts in relation to scope of study are not available restore the matter to his file for deciding the issue. Dis allowance of prior period expenditure - CIT(A)accepted the submissions of the assessee placed before through certain additional documents - Held that - Once the assessee invokes Rule 46A and prays for admission of additional evidence before the CIT (A), then the procedure prescribed in the said rule has to be scrupulously followed - as in the instant case, there is nothing in the impugned order of the CIT (A) to suggest as to whether or not any opportunity was allowed to the AO before concluding on the issue nor the CIT(A) refers to any additional evidence in terms of rule 46A of the IT Rules,1962 it is necessary to vacate the findings of the CIT(A) and restore the issue back with the directions to follow the mandate in terms of Rule 46A - in favour of revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A.
2. Depreciation on UPS.
3. Disallowance of legal and professional expenses.
4. Allowability of prior period expenses.

Issue-Wise Detailed Analysis:

1. Disallowance under Section 14A:
The Revenue contended that the CIT(A) erred by restoring the issue of disallowance under Section 14A to the Assessing Officer (AO) for recalculation, arguing that the CIT(A) lacked the power to set aside issues decided in scrutiny assessment post-1.6.2001 and failed to call for a remand report from the AO. The Tribunal noted that neither the assessment order nor the impugned order provided details on whether the assessee submitted any computation for disallowance under Section 14A, nor did the AO specify any expenditure incurred for earning dividend income. The CIT(A) followed the decision in Godrej Boyce Mfg. Co. Ltd. vs. DCIT and Another, but the Tribunal observed that the CIT(A) lacked the power to set aside the issue and did not pass a reasoned order. The Tribunal set aside the CIT(A)'s order and restored the matter for fresh adjudication in light of judicial pronouncements, emphasizing the need for a speaking order per Section 250(6) of the Act.

2. Depreciation on UPS:
The AO disallowed excess depreciation claimed at 60% on UPS, allowing only 15%. The CIT(A) allowed the higher depreciation rate, treating UPS as part of the computer system. The Tribunal upheld the CIT(A)'s decision, citing the Delhi High Court's ruling in CIT v. BSES Rajdhani Powers Ltd., which held that computer accessories and peripherals, including UPS, form an integral part of the computer system and are eligible for 60% depreciation.

3. Disallowance of Legal and Professional Expenses:
The AO treated Rs.25,48,492/- spent on due diligence and drafting agreements as capital expenditure. The CIT(A) reduced the disallowance by 50%, referencing the Delhi High Court's decision in CIT Vs. OCL India Ltd., which apportioned expenses between capital and revenue. The Tribunal found that the CIT(A) did not provide a basis for the 50% allocation and lacked detailed analysis of the consultant's services. The Tribunal vacated the CIT(A)'s findings and remanded the issue for fresh adjudication, requiring a clear delineation of the nature of each job and its classification as capital or revenue expenditure.

4. Allowability of Prior Period Expenses:
The AO disallowed Rs.6,29,435/- as prior period expenses without detailed analysis. The CIT(A) allowed the claim, stating the liability crystallized during the year under consideration. The Tribunal noted that the CIT(A) accepted additional evidence without following Rule 46A of the IT Rules, 1962, and without providing the AO an opportunity to examine the evidence. The Tribunal vacated the CIT(A)'s findings and remanded the issue for fresh adjudication, directing compliance with Rule 46A and a detailed analysis of whether the liability for each expense item crystallized during the relevant year.

General Grounds and Conclusion:
The Tribunal dismissed the general grounds in the cross-objection as they did not require separate adjudication. The appeal of the Revenue was partly allowed, and the cross-objection was allowed for statistical purposes, with directions for fresh adjudication on the remanded issues.