2021 (8) TMI 1216 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - computation of expenses incurred for earning the tax free income - mandation of recording of satisfaction - HELD THAT - Disallowance made by the AO and confirmed by the CIT (A) on the basis of invalid satisfaction as to the correctness of the claim of the assessee is not sustainable, hence ordered to be deleted. Credit of the entire amount of TDS - HELD THAT - Following the decision rendered by the coordinate Bench of the Tribunal in assessee s own case AY 2011-12 2020 (1) TMI 403 - ITAT DELHI we are of the considered view that assessee is entitled for credit of tax deducted at source on proportionate basis for the income declared during the year under consideration as per Rule 37BA(3)(ii) of the Rules. Licence fee paid to the Department of Telecommunication (DOT) for grant of licence to operate and provide services - disallowance by the AO on the ground that the said licence fee paid by the assessee during the years is to be amortized in accordance with section 35ABB - HELD THAT - Following the decision rendered by coordinate Bench of the Tribunal in assessee s own case for AYs 2006-07 to 2011-12 and decision rendered by Hon ble Delhi High Court in assessee s own case for AYs 2009-10 2010-11, we are of the considered view that ld. CIT (A) has rightly deleted the addition, hence finding no infirmity or illegality in the impugned findings. Depreciation @ 15% on the principal portion of the lease rental - HELD THAT - In the registration certificate, assessee company is referred as the lessee and Orix Auto is referred as the lessor. Merely mentioning the name of the assessee company as the lessee does not construe ownership in favour of the assessee as has been held in case of ICDS Ltd. 2013 (1) TMI 344 - SUPREME COURT . It is a basic principle of law that only lessor is the owner of the leased property in case of finances and depreciation is allowable to the lessor only and not the lessee. Lease agreement entered into between the assessee company and lessor of the vehicles itself provides that ownership of the vehicles will not be transferred to the lessee during the subsistence of the lease as is evident from Lease Agreement.We are of the considered view that ld. CIT (A) has rightly decided the issue in favour of the assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Credit of Tax Deducted at Source (TDS) on deferred revenue.
3. Disallowance of license fee paid to the Department of Telecommunication (DoT).
4. Disallowance of principal portion of lease obligation.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act, 1961:
The assessee challenged the addition of ?38,48,495 made by the Assessing Officer (AO) under Section 14A read with Rule 8D(2)(iii), arguing that the AO did not record any satisfaction regarding the correctness of the assessee's computation of expenses incurred for earning tax-free income. The Tribunal noted that the AO mechanically applied Rule 8D without recording satisfaction, which is mandatory as per the Supreme Court's decision in Maxopp Investments Ltd. vs. CIT and the Delhi High Court in HT Media Ltd. vs. Pr.CIT. The Tribunal found that the AO's generic dissatisfaction without specific reasons was not valid. Consequently, the Tribunal ordered the deletion of the disallowance, allowing the assessee's appeal on this ground.

2. Credit of Tax Deducted at Source (TDS) on deferred revenue:
The AO disallowed the credit of TDS amounting to ?27,75,487 for AY 2013-14, ?2,00,000 for AY 2013-14, and ?2,14,814 for AY 2014-15 on the ground that the corresponding income was not offered for tax in those years. The Tribunal referred to its earlier decision in the assessee's case for AY 2011-12, which directed the AO to give proportionate credit of TDS for the income declared during the year under consideration as per Rule 37BA(3)(ii). Following this precedent, the Tribunal directed the AO to allow the credit of TDS proportionately, thus deciding in favor of the assessee on this issue.

3. Disallowance of license fee paid to the Department of Telecommunication (DoT):
The AO disallowed the license fee paid to the DoT, arguing that it should be amortized under Section 35ABB. However, the CIT(A) deleted the disallowance based on the Tribunal's decisions in the assessee's own case for previous years. The Tribunal upheld the CIT(A)'s decision, noting that the Delhi High Court had dismissed the Revenue's appeal on this issue for earlier years, affirming that the license fee paid periodically was revenue expenditure. Consequently, the Tribunal determined this ground against the Revenue.

4. Disallowance of principal portion of lease obligation:
The AO disallowed the principal portion of lease rental amounting to ?2,20,383, treating the assessee as the owner of the vehicles. However, the CIT(A) deleted the disallowance, relying on previous years' decisions which the Revenue had accepted. The Tribunal found that the vehicles were owned by the lessor, not the assessee, as evidenced by the registration certificates and lease agreements. The Tribunal upheld the CIT(A)'s decision, determining this ground against the Revenue.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, deleting the disallowances under Section 14A and granting proportionate TDS credit. The Tribunal dismissed the Revenue's appeals, upholding the deletion of disallowances related to the license fee and lease obligations.