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2014 (7) TMI 422 - AT - Income TaxClaim of depreciation on leased assets Held that - The decision in M/s ICDS. LTD. Versus COMMISSIONER OF INCOME TAX MYSORE & ANR 2013 (1) TMI 344 - SUPREME COURT followed - the assessee is entitled to claim the depreciation on sale and leased back assets - CIT(A) in allowing the claim of depreciation is upheld Decided against Revenue. Interest on borrowed funds Expenses u/s 14A of the Act - Held that - The proviso to section 14A of the Act prohibits all situations where the officer is otherwise entitled or required to revise an assessment which includes order of enhancement issued by the CIT(A) in exercise of his powers the bar in the proviso to section 14A is applicable in relation to the exercise of appellate power by the CIT(A) also - CIT(A) is not within his powers to direct the AO to allocate the expenditure u/s 14A, on account of interest on borrowed funds against the tax free dividend income earned by the assessee - CIT(A) has completely ignored the contentions of the assessee against the disallowance of interest expenditure made by the AO as the CIT(A) has altogether proceeded to decide the issue in the light of section 14A, which already held as not legally tenable in view of the proviso to section 14A thus, the matter is to be remitted back to the CIT(A) for re-adjudication Decided in favour of Assessee. Deduction of expenses as interest paid on late payment of dividend tax u/s 115(O) of the Act Held that - The interest paid u/s 115(P) of the Act is to re-compensate the Government on account of loss of interest due to delayed payment of the tax, is not penal in nature and hence the same has to be allowed as an expenditure - the disallowance/addition made/confirmed by the AO/CIT(A) on the count is set aside Decided in favour of Assessee. Stamping expenses Held that - The AO has disputed only the correctness of the details as regards the expenses claimed by the assessee on account of stamp charges in view of the fact that the assessee has not reconciled the expenses claimed - CIT(A) without giving any opportunity to the AO in the appellate proceedings, has simply accepted the contention of the assessee - No doubt the stamp duty charges are to be treated be incurred for the purpose of the business of the assessee - the details of the expenditure claimed has not been verified by the CIT(A) for the purpose of quantifying the claim of expenses thus, the matter is remitted back to the AO for verification of details of the claim made by the assessee and accordingly quantify the eligible amount as allowable deduction Decided in favour of Assessee. Disallowance u/s 14A of the Act Held that - Rule 8D of the Income-tax Act Rules is not applicable, the CIT(A) directed the AO to make the reasonable expenditure there was no infirmity in the direction of the CIT(A) that since Rule 8D of the Income Tax Rules is not applicable for the assessment year under consideration Decided against Revenue.
Issues Involved:
1. Disallowance of depreciation on leased assets. 2. Disallowance of interest on borrowed funds. 3. Disallowance of interest paid on late payment of dividend tax. 4. Disallowance of stamping expenses. 5. Disallowance under section 14A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Leased Assets: Revenue's Appeal-ITA No. 1954/Mum/2003 for the A.Y. 1998-99 The Revenue contested the deletion of a disallowance of Rs. 65,19,510/- made by the AO for depreciation on leased energy meters. The AO argued that the transaction was a financial arrangement rather than a genuine lease, thus disallowing the depreciation claim. The CIT(A) had previously allowed this claim based on a similar issue in the assessment year 1996-97. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in ICDS Ltd. vs. CIT, which allowed depreciation in sale and leaseback transactions. Thus, the Revenue's appeal was dismissed. 2. Disallowance of Interest on Borrowed Funds: Assessee's Appeal (ITA No. 2228/Mum/2003) for the A.Y. 1998-99 The assessee challenged the partial allowance of Rs. 2,33,32,920/- interest on borrowed funds. The AO treated the interest as a cost of acquisition of shares, denying the deduction. The CIT(A) directed allocation of interest expenditure under section 14A against tax-free dividend income. The Tribunal found the CIT(A)'s direction legally untenable based on the Kerala High Court's decision in CIT vs. Delicious Cashew Co., which prohibits such directions under the proviso to section 14A. The issue was remanded back to the CIT(A) for re-adjudication. 3. Disallowance of Interest Paid on Late Payment of Dividend Tax: Assessee's Appeal (ITA No. 2228/Mum/2003) for the A.Y. 1998-99 The assessee contested the disallowance of Rs. 23,400/- interest paid on late payment of dividend tax. The AO disallowed this amount, and the CIT(A) upheld the decision. The Tribunal, however, allowed the expenditure, stating that the interest paid under section 115(P) is compensatory and not penal. 4. Disallowance of Stamping Expenses: Revenue's Appeal-ITA No. 8386/Mum/2010 & Assessee's Appeal (ITA No. 1434/Mum/2013) for the A.Y. 2006-07 The Revenue challenged the deletion of a disallowance of Rs. 27,59,976/- for stamping expenses. The AO disallowed the expenses due to lack of reconciliation. The CIT(A) allowed the deduction, considering them legitimate business expenses. The Tribunal remanded the issue back to the AO for verification of the claimed expenses. 5. Disallowance under Section 14A of the Income Tax Act: Revenue's Appeal-ITA No. 8386/Mum/2010 & Assessee's Appeal (ITA No. 1434/Mum/2013) for the A.Y. 2006-07 The AO initially made a disallowance under Rule 8D, which was not applicable for the A.Y. 2006-07. The CIT(A) directed a reasonable disallowance, which the AO restricted to 5% of the dividend income. The Tribunal upheld the CIT(A)'s direction but modified the disallowance to 2% of the exempt income. Assessee's Appeal (ITA No. 254/Mum/2012) for the A.Y. 2008-09 The AO applied Rule 8D, resulting in a disallowance of Rs. 38,42,156/-. The CIT(A) upheld this disallowance. The Tribunal directed the AO to verify if the disallowance exceeded the actual expenditure claimed by the assessee and to restrict it accordingly. Interest under Sections 234C and 234D: The assessee's grounds regarding interest under sections 234C and 234D were remanded back to the CIT(A) for adjudication, as they were consequential and had not been addressed. Conclusion: The Tribunal's judgment addressed multiple appeals involving disallowances of depreciation, interest on borrowed funds, interest on late payment of dividend tax, stamping expenses, and disallowances under section 14A. The Tribunal upheld some decisions, remanded others for re-adjudication, and provided clear directives on the applicability and calculation of disallowances, ensuring adherence to relevant legal precedents and statutory provisions.
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