2014 (3) TMI 212 - AT - Income Tax

Rate of Depreciation @ 60% OR 15% - Printers UPS Scanner Held that - The decision in CIT Vs. BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT followed - depreciation on computer accessories and peripherals allowed at the higher rate of 60% - Decided against Revenue. Disallowance u/s 14A of the Act r.w Rule 8D Held that - The assessee has given a complete breakup of the loans taken by it and interest paid and has demonstrated that the entire loan was utilized for acquiring business assets and working capital - Neither the AO nor the CIT(A) has disputed or controverted the facts which emanate from the record - In the absence of any dispute about the utilization of borrowed fund for acquisition of business asset and there being no finding of fact that any borrowed fund was used for acquisition of mutual fund the only germane logical conclusion is that mutual funds have no attribution of any interest income - thus the contention of the assessee s is upheld that interest bearing funds were not utilized for acquiring of mutual funds on which assessee has earned exempt dividend income. None of the lower authorities have objectively pointed out any fault in this working - They have addressed the issue only on the basis of interest which is not attributable or apportionable in view of above findings thus the suo motu working of assessee is reasonable in disallowance qua sec. 14A - CIT(A) should not have sustained the disallowance by recoursing to rule 8D(2)(iii) - When the interest component is not disputed towards acquisition of business assets the application of rule 8D(2)(iii) does not arise - CIT(A) was not justified in upholding the disallowance and sending it to AO for verifications Decided in favour of Assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Depreciation rate on computer accessories and peripherals.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:

The primary issue in both appeals pertains to the disallowance under Section 14A. The assessee is aggrieved by the sustenance of disallowance of Rs. 37,49,875/-, while the revenue is aggrieved by the disallowance of Rs. 37,91,230/- against the disallowance of Rs. 75,41,875/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D.

The assessee, a multi-cable operator, declared a loss and suo motu disallowed Rs. 14,676/- under Section 14A. The AO rejected this working and disallowed Rs. 75,41,105/-, applying Rule 8D(2). The assessee contended that no interest-bearing funds were used for investments in mutual funds and that the disallowance was not justified. The CIT(A) directed the assessee to furnish a cash flow statement to prove that no interest expenditure was attributable to exempt income and upheld the disallowance of Rs. 37,49,875/- under Rule 8D(2)(iii).

The Tribunal noted that the assessee provided a detailed breakup of interest expenses, demonstrating that all interest-bearing funds were used for business purposes and not for acquiring mutual funds. The Tribunal upheld the assessee's contention that interest-bearing funds were not used for earning exempt income. It was observed that the assessee had share capital of Rs. 215 crores, which was used for acquiring mutual funds.

The Tribunal found that the lower authorities did not objectively challenge the assessee's working of suo motu disallowance under Section 14A. It was held that the CIT(A) should not have sustained the disallowance by applying Rule 8D(2)(iii) when the interest component was not attributable to exempt income. Consequently, the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal.

2. Depreciation Rate on Computer Accessories and Peripherals:

The revenue's appeal also raised the issue of whether the CIT(A) was justified in allowing 60% depreciation on printers, UPS, scanners, etc., as against the normal rate of 15% allowed by the AO.

The Tribunal noted that this issue was covered against the revenue by the decision of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. BSES Yamuna Powers Ltd., which allowed depreciation on computer accessories and peripherals at the higher rate of 60%. Since the order of the CIT(A) conformed to this decision, the Tribunal upheld the CIT(A)'s order and dismissed the revenue's ground on this issue.

Conclusion:

In conclusion, the Tribunal allowed the assessee's appeal regarding the disallowance under Section 14A and dismissed the revenue's appeal on both issues. The Tribunal found that the interest-bearing funds were not used for acquiring mutual funds, and the CIT(A)'s direction for further verification was unnecessary. Additionally, the Tribunal upheld the higher depreciation rate of 60% on computer accessories and peripherals, as per the jurisdictional High Court's decision. The order was pronounced in open court on 28-2-2014.