2014 (9) TMI 1206 - AT - Income Tax

Deduction by way of depreciation u/s 32(1) - in the earlier years and, therefore, the written down value on which depreciation was to be allowed for the year under consideration should have been higher to that extent - HELD THAT - In the year in question the assessee has claimed depreciation and there is no question of thrust of any depreciation but its grievance is that the final orders of the earlier years which have not been properly implemented. The assessee desires there should be a specific direction to the Assessing Officer on this behalf so as not to disturb the finality of the orders of the orders of the earlier years. Departmental Representative on the other hand, has no objection if a specific direction is given to the AO. We, therefore, direct the Assessing Officer that the written down value as at the beginning of the year shall be computed only on the basis of the orders which have already reached the finality. In other words, the depreciation actually claimed or directed to be allowed only shall be taken into consideration before arriving the written down value of the assets in question. Disallowance u/s. 14A r.w. Rule 8D(2)(iii) - HELD THAT - A perusal of the cash flow statement at Annual report shows that the assessee had sufficient cash accruals from its own funds therefore we agree with the contention of the Ld. Counsel that no part of interest can be disallowed nor this issue is before us. Disallowance of other direct or indirect expenditure, the assessee has computed the disallowance at ₹ 24,304/- by allocating the salary paid to junior accountant. We do not agree with this computation of disallowance by the assessee. It is an undisputed fact that investment is a policy decision taken by the Board of Directors at the highest level which requires lot of consultancy from various experts. Therefore, the disallowance u/s. 14A r.w. Rule 8D(2)(iii) becomes imperative, as the disallowance have been computed by the AO as per the applicable provisions of law. We do not find any reason to interfere with the disallowance.

Summary

Issues:
1. Disallowance of depreciation under section 32(1) of the Income-tax Act, 1961.
2. Disallowance of expenditure under section 14A of the Act for earning exempt income.

Issue 1: Disallowance of Depreciation under Section 32(1) of the Income-tax Act:
The appellant raised concerns regarding the disallowance of depreciation under section 32(1) of the Act for the assessment years 2008-09 and 2009-10. The appellant contended that the written down value for depreciation should have been higher due to disclaimed deductions in earlier years. The Tribunal referred to a previous decision in A.Y. 2003-04 and directed the Assessing Officer to compute the written down value based on finalized orders from earlier years, allowing only the depreciation claimed or directed to be allowed. Consequently, the Tribunal treated Ground No. 1 as allowed for statistical purposes.

Issue 2: Disallowance of Expenditure under Section 14A of the Act for Earning Exempt Income:
Regarding the disallowance under section 14A of the Act for earning exempt income, the AO added an amount to the income of the assessee based on Rule 8D computation. The appellant argued that investments were made from own funds, thus no interest allocation was necessary. The appellant also voluntarily disallowed a specific amount towards related overheads. However, the Tribunal found that while interest disallowance was not warranted, other direct or indirect expenditure disallowance was justified. The Tribunal upheld the AO's disallowance under Rule 8D(2)(iii) for consultancy and policy decision-making expenses related to investments. Ground No. 2 & 3 were dismissed, and the appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal's judgment addressed the issues of disallowance of depreciation under section 32(1) and disallowance of expenditure under section 14A of the Income-tax Act, 1961 for the appellant's assessment years 2008-09 and 2009-10. The Tribunal provided detailed reasoning for its decisions, considering previous rulings and relevant provisions of the Act. The judgment balanced the appellant's contentions with legal requirements, resulting in partial allowance of the appeal for statistical purposes while upholding certain disallowances under the Act.