2016 (5) TMI 327 - AT - Income Tax

Disallowance u/s 14A - Held that - It is noted that the assessee claimed that nil expenditure was incurred by the assessee in relation to earning of dividend income and ₹ 9,95,435/- was incurred by way of interest, which is not directly attributable to any source of income (Rs.97,21,446/-) Considering the totality of facts, argument of the assessee we are of the view, that at best, the disallowance may be restricted which cannot exceed the exempt income. We hold so. Depreciation on V-SAT Line/Infrastructure - at the rate of 15% OR 60% - Held that - ACIT vs National Stock Exchange of India Ltd. (2011 (5) TMI 687 - ITAT MUMBAI) held that V-SAT network for the purposes of enabling screen based trading by the members is entitled to full depreciation. Higher rate of depreciation of 60% is allowable to the assessee.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income Tax Act for assessment years 2009-10 and 2010-11.
2. Depreciation claim on V-SAT Line/Infrastructure at a rate of 15% instead of 60%.

Issue 1: Disallowance of expenses under section 14A of the Income Tax Act:
The appellant challenged the disallowance of ?23,03,775 under section 14A of the Act for the assessment year 2010-11, arguing that the shares were held as stock in trade, and no direct or indirect expenses were incurred for earning the dividend income. The appellant relied on the decision in the case of M/s Daga Global Chemicals to support their claim that disallowance cannot exceed the exempt income. The Tribunal noted that no borrowed funds were used for earning the exempt income and that the disallowance could be restricted to ?1,485, which were claimed as demat charges. The Tribunal allowed the appeal, emphasizing that disallowance under section 14A cannot exceed the exempt income. The same reasoning was applied to the assessment year 2009-10, leading to the disposal of both appeals.

Issue 2: Depreciation claim on V-SAT Line/Infrastructure at a rate of 15% instead of 60%:
The appellant claimed depreciation on V-SAT Line/Infrastructure at a rate of 15% instead of 60%. The appellant argued that V-SAT is part of the computer system and should be entitled to full depreciation. The Tribunal referred to precedents such as ACIT vs National Stock Exchange of India Ltd. and ITO vs Omni Global Information Technologies India Pvt. Ltd. to support the appellant's claim. The Tribunal held that higher depreciation rates were applicable to peripherals like printers, scanners, servers, and UPS as they are integral parts of the computer system. The Tribunal allowed the depreciation claim at the higher rate of 60%, affirming the stand taken by the Commissioner of Income Tax (Appeals) in similar cases. The same conclusion was applied to the assessment year 2009-10.

In conclusion, both appeals were disposed of based on the above analysis, and the decisions were pronounced on 23/03/2016.