2016 (4) TMI 1320 - AT - Income Tax

Amount of sales tax subsidy - capital receipt - grant of depreciation on the reduced value of fixed assets - Held that - In the present case, undisputedly and admittedly the AO accepted the treatment given by the assessee to the sales tax subsidy as capital receipt in A.Ys 2005-06 and 2006-07 and for A.Ys 2007-08 and 2008-09. AO has not brought out any allegation or facts to allege that that the income does not reflect true factual income of the assessee. In this situation, we are inclined to hold that the authorities below flaunted the Rule of consistency without any justified cause or basis and in view of the proposition laid down by the Hon ble Supreme Court in the case of CIT Vs. Woodward 2009 (4) TMI 4 - SUPREME COURT a system of accounting following by the assessee and accepted by the Revenue during the earlier years, consistency cannot be disturbed without any reasonable cause or justified reasoning. Addition u/s 14A - Held that - Disallowance can be made in the situation when no exempt income was earned by the assessee in the relevant A.Y and since in the present case the AO as well as the ld. CIT(A) has not brought out any allegation or fact to allege or disturb or doubt the genuinety of the expenditure incurred by the assessee, therefore, no disallowance can be made u/s 14A of the Act in A.Y 2007-08 u/s 14A r.w.r 8D of the Rules for A.Y 2008-09. Respectfully following the decision of the Hon ble High Court of Delhi in the case of Chem Invest Ltd 2009 (8) TMI 126 - ITAT DELHI-B Depreciation on computer peripherals at an estimated basis - Held that - Depreciation of computers peripherals is available @ 60%, Relying on the lead case being CIT Vs. BSES Yamuna Power 2010 (8) TMI 58 - DELHI HIGH COURT Adhoc disallowance @ 10% out of foreign travelling expenses - Held that - When the assessee went in first appeal, the ld. CIT(A) relying upon the judgment of the Hon ble Jurisdictional High Court in the case of CIT Vs. Kulwant Rai 2007 (2) TMI 185 - DELHI HIGH COURT deleted the addition by holding that there was no basis to make the addition. Accordingly, finding no merits in the ground of appeal raised by the Revenue,

Summary

Issues Involved:
1. Treatment of Sales Tax Subsidy as Capital or Revenue Receipt.
2. Disallowance under Section 14A of the Income Tax Act.
3. Depreciation on Computer Peripherals.
4. Adhoc Disallowance of Foreign Traveling Expenses.

Issue-wise Detailed Analysis:

1. Treatment of Sales Tax Subsidy as Capital or Revenue Receipt:
The primary issue was whether the sales tax subsidy received by the assessee should be treated as a capital receipt or a revenue receipt. The assessee argued that the subsidy should be treated as a capital receipt and had reduced the subsidy amount from the cost of fixed assets, claiming depreciation on the reduced value. The CIT(A) and AO, however, treated the subsidy as a revenue receipt.

The Tribunal observed that the subsidy was linked to the fixed capital investment and intended to promote industry in backward areas. Citing the Supreme Court's "purpose test" from Ponni Sugars and Chemicals Ltd., the Tribunal concluded that the subsidy was indeed a capital receipt. Consequently, the AO and CIT(A) were directed to treat the sales tax subsidy as a capital receipt and allow depreciation on the reduced value of fixed assets.

2. Disallowance under Section 14A of the Income Tax Act:
The assessee contested the disallowance under Section 14A, arguing that no dividend income was earned during the relevant assessment years. The Tribunal referred to the Delhi High Court's ruling in Chem Invest Pvt. Ltd., which held that no disallowance should be made under Section 14A if no exempt income is earned. Accordingly, the Tribunal directed the AO to delete the disallowance made under Section 14A for both assessment years 2007-08 and 2008-09.

3. Depreciation on Computer Peripherals:
The Revenue's appeal included a ground on the depreciation rate for computer peripherals. The Tribunal noted that this issue was settled by various judgments, including CIT Vs. BSES Yamuna Power Ltd., which upheld a depreciation rate of 60% for computer peripherals. Consequently, the Tribunal dismissed this ground of the Revenue's appeal.

4. Adhoc Disallowance of Foreign Traveling Expenses:
The AO had made an adhoc disallowance of 10% of foreign traveling expenses, assuming them to be capital in nature without any supporting evidence. The CIT(A) deleted this addition, and the Tribunal upheld this decision, noting that the AO had not provided any material evidence to justify the disallowance. The Tribunal found no merit in the Revenue's appeal on this ground and dismissed it.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals. The sales tax subsidy was to be treated as a capital receipt, disallowances under Section 14A were to be deleted, depreciation on computer peripherals was to be allowed at 60%, and the adhoc disallowance of foreign traveling expenses was dismissed. The decision was pronounced in the open court on 13.04.2015.