2016 (12) TMI 1749 - AT - Income Tax

Disallowance u/s 14A - Held that - From the Schedule of investments we noticed that entire amount of investments made in equity shares (subsidiary companies and other companies) have been brought forward from earlier year meaning thereby no movement in these investment found was during the year under consideration. Other investments made by the assessee consisted of investments made in various schemes of different mutual funds only. According to Ld A.R one of the staffs was assigned for this job and hence a portion of his salary has been considered for making disallowance u/s 14A - We notice that the assessee has not made disallowance out of other administrative expenses even though there was fresh investments in Mutual funds and further there has been activities of purchase and sale of mutual fund units. Considering the activity involved in the investment portfolio of the assessee we are of the view that a portion of other administrative expenses should also be allocated towards the investment activities. We are of the view that the disallowance u/s 14A may be reasonably estimated at 50, 000/- and the same would take care of other administrative expenses and would meet the requirements of sec. 14A. We set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to restrict the addition to 50, 000/- (including the amount disallowed by the assessee). Higher rate of depreciation on moulds - @ 30% OR 15% - Held that - AO to allow depreciation on moulds at 30% as claimed b it. Since there is no change in the facts of the case on this issue it is held that the appellant is entitled to claim depreciation on moulds @30%. AO is therefore directed to allow depreciation on moulds @30% as claimed by the appellant. Ground No 2 of the present appeal is accordingly allowed.

Summary

Issues:
1. Disallowance under section 14A of the Act - Rule 8D computation.
2. Rate of depreciation on moulds - 30% or 15%.

Analysis:

Issue 1: Disallowance under section 14A of the Act - Rule 8D computation:
The case involved the disallowance made by the Assessing Officer under section 14A of the Act, related to dividend income claimed as exempt under section 10(34) of the Act. The Assessing Officer computed the disallowance under Rule 8D(2)(iii) of the I.T. Rules, which was confirmed by the CIT(A). The assessee contended that investments were made in subsidiary companies for business expediency, and a portion of the staff's salary was disallowed under section 14A. The Tribunal noted that no movement in equity shares investments occurred during the year, and other investments were in mutual funds. It was observed that a portion of other administrative expenses should be allocated towards investment activities. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to restrict the disallowance to ?50,000, considering the investment portfolio's nature and activities.

Issue 2: Rate of depreciation on moulds - 30% or 15%:
The second issue revolved around the rate of depreciation on moulds held by the assessee, with the CIT(A) allowing a higher rate of 30% based on a decision by the Coordinate Bench in the assessee's own case for A.Y. 2006-07. The Tribunal upheld the CIT(A)'s decision, citing consistency with previous orders and the absence of new facts justifying a different stand. The Tribunal found no reason to interfere with the CIT(A)'s order on this issue, thereby allowing the assessee's claim for depreciation at 30% on moulds.

In conclusion, the appeal filed by the assessee was partly allowed regarding the disallowance under section 14A, while the appeal filed by the Revenue was dismissed concerning the rate of depreciation on moulds. The Tribunal pronounced the order on 5.12.2016, maintaining the decisions on both issues.