2017 (12) TMI 45 - AT - Income Tax

Depreciation on leased out assets - Held that - As decided in assesee s own case the assessee is entitled for the claim of depreciation under all the three circumstance i.e. Sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground of the assessee s appeal Broken period interest - whether not a part of the cost of securities and should not have been allowed as deduction - Held that - As in assessee s own case, we find that the issue stands covered in favour of the assessee following the decision of the jurisdictional High Court rendered in the case of American Express International Banking Corporation 2002 (9) TMI 96 - BOMBAY High Court wherein held that the assessee s method of accounting does not result in loss of tax/revenue for the Department Addition u/s 14A - Held that - AO has not recorded the satisfaction as to how the claim of the assessee is wrong with reference to the books of account of the assessee. We are therefore convinced with the submissions of the assessee on this score and are in agreement with the arguments of the ld.AR that for the invocation of provisions of section 14A r.w. rule 8D is not mandatory unless and until the AO has recorded his satisfaction. The case of the assessee finds support from the decision of the Honb le High Court rendered in Godrej and Boyce (2010 (8) TMI 77 - BOMBAY HIGH COURT ), wherein it has been held that for invocation of provisions of section 14A, the AO has to record satisfaction. We, therefore, direct the AO to delete the addition. Resultantly, the appeal of the assessee stands allowed.

Summary

Issues:
1. Depreciation on leased out assets.
2. Holding of broken period interest as not part of the cost of securities.

Detailed Analysis:

1. Depreciation on leased out assets:
The first issue in this case pertains to the allowance of depreciation on leased out assets when the related transactions were considered purely financial transactions. The Tribunal referred to a previous decision in the assessee's own case and held that the issue stands covered in favor of the assessee. The Tribunal noted that the earlier decision allowed depreciation under various circumstances, including sale-leaseback transactions, genuineness of transactions, and assets being put to use. The Tribunal maintained consistency with the earlier year's decision and dismissed the revenue's appeal on this ground.

2. Holding of broken period interest:
The second issue raised by the revenue was regarding the treatment of broken period interest as not part of the cost of securities and whether it should be allowed as a deduction. The Tribunal again referred to a decision in the assessee's own case and held that the issue was covered in favor of the assessee. The Tribunal cited a judgment of the jurisdictional High Court and directed the AO to delete the addition based on the precedent set by the High Court. Consequently, the Tribunal allowed the ground raised by the assessee and dismissed the appeal of the revenue.

3. Disallowance under section 14A r.w.r 8D:
The final issue involved the disallowance of expenses under section 14A read with rule 8D of the Act and Rules. The AO had disallowed a specific amount as expenses related to earning exempt income, which was upheld by the CIT(A). However, the Tribunal found that the AO had not recorded satisfaction as to why the claim of the assessee was incorrect, as required by law. Relying on a decision of the High Court, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition. Consequently, the appeal of the assessee was allowed, while the appeal of the revenue was dismissed.

In conclusion, the Tribunal's judgment addressed various issues related to depreciation on leased out assets, treatment of broken period interest, and disallowance under section 14A r.w.r 8D, providing detailed analysis and legal reasoning for each issue, ultimately deciding in favor of the assessee on all counts.