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2016 (9) TMI 1527 - AT - Income TaxDisallowance u/s 14A - HELD THAT - There is no quarrel on the point that Rule 8D is applicable only from the Assessment Year 2008-09 onwards and therefore the same is not retrospective and not applicable for the year under consideration. Hence in view of the order of this Tribunal for the Assessment Year 2007-08, the issue of disallowance under Section 14A is set aside to the record of the Assessing Officer with the similar direction. Disallowance as per Rule 8D(2)(iii) - HELD THAT - So far as fresh investment is concerned the assessee s own fund is more than sufficient to cover them and therefore to that extent no disallowance is called for under Section 14A on account of interest expenditure. As records the old investment which was made prior to the Assessment Year 2007-08, the issue has a direct bearing of the finding and final outcome on this issue for the Assessment Year 2006-07 2014 (12) TMI 1010 - ITAT BANGALORE . Since the said issue is also set aside to the record of the Assessing Officer therefore the issue of disallowance of interest expenditure under Section 14A of the Act to the extent of old investment is set aside to the record of the Assessing Officer with same direction as given for the Assessment Year 2006-07. Since there is a dividend income for the Assessment Year 2009-10 therefore the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT was not applicable for the Assessment Year 2008-09 regarding disallowance of administrative expenditure being 0.5% of the average investment. Assessee has submitted that the investment for the purpose of disallowance of administrative expenditure should be considered only on which the assessee has earned dividend from mutual funds. AR has submitted that only ₹ 90 Crores and ₹ 2,58,000 can be considered as investment for the purpose of disallowance as per Rule 8D(2)(iii). Accordingly, we direct the Assessing Officer to recompute the disallowance as per Rule 8D(2)(iii) by considering the investment in mutual funds which has yielded dividend income. Disallowance of claim of depreciation on goodwill - assessee being amalgamated company - HELD THAT - It is not the case of the assessee that the subsidiary has claimed any depreciation of goodwill. Therefore by virtue of 5th proviso to Section 32(1), the depreciation on the hands of the assessee is allowable only to the extent if such succession has not taken place. Therefore the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation is allowable to the amalgamating company. There is no quarrel on the issue that goodwill is eligible for depreciation. However the said judgment would not over-ride the provisions of 5th proviso to Section 32(1) of the Act which restricts the claim in the cases specified thereunder. The consideration paid by the assessee for acquiring the shareholding of the subsidiary in the earlier years is not relevant for the issue of depreciation on the assets taken under amalgamation and for the purpose of 5th proviso to Section 32(1) of the Act. Accordingly, in view of the above facts and circumstances of the case as well as the above discussion, we hold that the claim of depreciation in the hands of the assessee is subjected to the 5th proviso to Section 32(1) of the Act.- Decided against the assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Disallowance of claim of depreciation on goodwill and valuation of goodwill. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: The first issue pertains to the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, for the Assessment Year (AY) 2007-08. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance on the grounds that the borrowed funds were utilized for business purposes and not for investment purposes. The CIT(A) relied on the order for AY 2006-07. The Departmental Representative (DR) argued that the CIT(A) did not examine the direct nexus between the assessee's own funds and the investment made. The Tribunal had previously set aside the CIT(A)'s order for AY 2006-07 and remitted the issue back to the AO for reconsideration without applying Rule 8D. The Authorised Representative (AR) for the assessee contended that the assessee's own funds were sufficient for the investments, and no disallowance could be made under Section 14A on account of interest. The AR also pointed out that no dividend income was received for AYs 2007-08 and 2008-09, and hence no disallowance should be made under Section 14A, citing the judgment of the Delhi High Court in the case of Cheminvest Ltd. vs. CIT. The Tribunal noted that there was no fresh investment during AY 2007-08 except ?50,000 and remitted the issue back to the AO for reconsideration in light of the Tribunal's directions for AY 2006-07. For AYs 2008-09 and 2009-10, Rule 8D was applicable, and the Tribunal directed the AO to verify the use of interest-bearing funds for investments and recompute the disallowance accordingly. 2. Disallowance of Claim of Depreciation on Goodwill and Valuation of Goodwill: The second issue involved the disallowance of the claim of depreciation on goodwill and the valuation of goodwill. The assessee, engaged in the business of production and sale of beer, had amalgamated its subsidiaries, resulting in the recording of goodwill. The AO disallowed the depreciation on goodwill, arguing that the fair value of the tangible assets should have been recorded, reducing the goodwill valuation. The AR for the assessee argued that the issue of depreciation on goodwill was covered by the Supreme Court's judgment in CIT vs. Smifs Securities Ltd. and that the valuation of goodwill was the differential between the consideration and the fair market value (FMV) of tangible assets. The AR also cited the valuation report by a valuer and other judicial precedents. The DR contended that the AO rightly disallowed the depreciation, as the valuation of goodwill was not justified, and the 5th proviso to Section 32(1) of the Act restricted the claim of depreciation in the hands of the assessee to the extent allowable to the amalgamating company. The Tribunal held that the AO had the jurisdiction to examine the valuation of assets under Explanation 3 to Section 43(1) of the Act. The Tribunal noted that the AO should have examined the valuation of all assets acquired under amalgamation and determined the actual cost to the assessee. The Tribunal also referred to the 5th proviso to Section 32(1), which restricts the claim of depreciation in cases of succession or amalgamation to the extent allowable to the predecessor or amalgamating company. The Tribunal concluded that the claim of depreciation on goodwill in the hands of the assessee was subject to the 5th proviso to Section 32(1) of the Act and decided the issue against the assessee. Conclusion: The appeals were partly allowed, with the Tribunal remitting the issue of disallowance under Section 14A back to the AO for reconsideration and upholding the disallowance of depreciation on goodwill. The order was pronounced in the open court on 30th September 2016.
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