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2015 (5) TMI 600 - AT - Income TaxDisallowance u/s 35D - assessee is not an industrial undertaking as it is dealing in the business of finance and leasing - Held that - This is a recurring issue in the case of the assessee coming from the earlier years. In the A.Y. 1991-92, the Tribunal has set aside this issue to the file of the AO observing that the issue as to whether or not the activities of the assessee amounted to the assessee being an industrial undertaking has not been examined at all either by the Assessing Officer or the learned CIT(A). The Assessing Officer simply assumed that the assessee has not an industrial undertaking or that there was no extension of an industrial undertaking. The same course has been followed by the learned CIT(A). The assessee has also not relied upon any specific material produced before the authorities below in this context. Thus consistent with the view taken in the earlier years we also set aside this issue to the file to the AO with the similar directions. - Decided in favour of assessee for statistical purposes. Disallowance u/s 14A - Assessee claimed deduction u/s 10(23)G on gross basis, whereas the AO held that in view of insertion of section 14A w.r.e.f. 01.04.1962 only the net income has to be included for the purpose of deduction against the gross interest and is to be reduced from the total income - Held that - From the perusal of the accounts, it is prima facie seen that assessee s net worth including reserve and surplus is more than the average investments. In such a situation, the applicability of decision of the Hon ble Bombay High Court in the case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT) and Reliance Utilities and Power Ltd. ( 2009 (1) TMI 4 - HIGH COURT BOMBAY) needs to be considered. Since this aspect has not been looked into either by the AO or by the Ld. CIT(A), therefore, we are of the opinion that this matter should be restored back to the file of the AO to examine this contention of the assessee - Decided in favour of assessee for statistical purposes. Disallowance u/s 14A while computing the book profit u/s 115JA - Held that - This issue had also come up for consideration before the Tribunal in assessee s own case wherein after taking note of the decision of Hon ble Delhi High Court in the case of CIT Vs. GOETZ India Ltd. 2013 (12) TMI 607 - DELHI HIGH COURT held that the amount disallowance u/s 14A under the normal provisions of the act is required to be added while computing the book profit u/s 115JA, has restored the matter to the file of the AO. Accordingly, we also restore this matter to the file of the AO, as the issue of disallowance u/s 14A has already been set aside to the AO. - Decided in favour of assessee for statistical purposes. Disallowance of club expenses - CIT(A) deleted the disallowance - Held that - This issue too has been decided in favour of the assessee by the Tribunal after relying upon the decision of OTIS Elevator, reported in 1991 (4) TMI 53 - BOMBAY High Court . In the A.Y. 2002-03, the Tribunal following the decision of Hon ble Supreme Court in the United Glass Mgf. 2012 (9) TMI 914 - SUPREME COURT has held that, club membership fee for employees incurred by the assessee is allowable u/s 37(1). Accordingly, we hold that such expenses are allowable as business expenditure, which has rightly been deleted by the Ld. CIT(A). However, the order by the Revenue authorities do not indicate if any part of the impugned expenditure includes expenditure by way of entrance fees, which, where so, would assume the character of a capital expenditure, inadmissible u/s 37(1). - Decided in favour of assessee. Deduction of interest u/s 36(1)(iii) - CIT(A) allowed the claim - Held that - As consistent with the precedence in assessee s own case and also the fact that similar interest claim on the same borrowed funds have been held to be allowable u/s 36(1)(iii), we uphold the order of the Ld. CIT(A). - Decided in favour of assessee. Disallowance of depreciation on leased assets - CIT(A) allowed the claim - Held that - it is an undisputed finding of fact that, the assets has been leased under operating lease and such lease transaction have been found to be genuine transaction. In such a case, the claim of depreciation on these assets is to be allowed in view of the decision of Hon ble Supreme Court in the case of ICDS Ltd. 2013 (1) TMI 344 - SUPREME COURT This view has been reiterated by the Tribunal in all the earlier years and also in the subsequent years. If depreciation has been allowed on the lease assets in the earlier years, then in this year same depreciation cannot be disallowed on the WDV of the leased assets. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under Section 35D. 2. Alternative claim for deduction under Section 37(1). 3. Disallowance under Section 14A while determining deduction under Section 10(23)G. 4. Disallowance under Section 14A while computing book profit under Section 115JA. 5. Deletion of disallowance of club expenses. 6. Deduction of interest under Section 36(1)(iii). 7. Deletion of disallowance of depreciation on leased assets. Detailed Analysis: 1. Disallowance of Deduction under Section 35D: The assessee's appeal challenges the disallowance of deduction under Section 35D amounting to Rs. 601,353. The Assessing Officer (AO) disallowed this deduction on the premise that the assessee is not an industrial undertaking but is engaged in finance and leasing. This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] based on a similar ruling for the assessment year (A.Y.) 1997-98. The Tribunal found that this issue has been recurring and has been consistently set aside to the AO for re-examination. The Tribunal reiterated the need for the AO to examine whether the assessee's activities qualify it as an industrial undertaking and directed the AO to decide afresh after allowing the assessee a reasonable opportunity to present its case. 2. Alternative Claim for Deduction under Section 37(1): The assessee's alternative ground contends that if the deduction under Section 35D is not allowed, it should be considered under Section 37(1). Since the primary issue of deduction under Section 35D was set aside for re-examination, the Tribunal directed the AO to also consider the alternative claim under Section 37(1) if the initial deduction is disallowed. 3. Disallowance under Section 14A while Determining Deduction under Section 10(23)G: The assessee challenged the disallowance under Section 14A, which impacted the deduction under Section 10(23)G. The AO computed the deduction at Rs. 85,66,404 against the assessee's claim of Rs. 2,88,26,805, and similarly adjusted the deduction under Section 10(33) for dividend income. The CIT(A) upheld the AO's decision based on previous years' rulings. The Tribunal noted that the assessee had substantial surplus funds and investments were made in subsidiaries and associates as business compulsions. The Tribunal restored the matter to the AO to re-examine the source of investments and apply the relevant High Court decisions, providing the assessee an opportunity to present its case. 4. Disallowance under Section 14A while Computing Book Profit under Section 115JA: The assessee also challenged the disallowance under Section 14A while computing book profit under Section 115JA. The Tribunal referenced the Delhi High Court decision in CIT Vs. GOETZ India Ltd., which mandates adding the disallowed amount under Section 14A to book profit. Since the primary issue under Section 14A was set aside, the Tribunal directed the AO to reconsider this issue in light of the final decision on the Section 14A disallowance. 5. Deletion of Disallowance of Club Expenses: The revenue appealed against the deletion of disallowance of Rs. 15,30,456 in club expenses. The Tribunal noted that this issue had been resolved in favor of the assessee in previous years and referenced the Supreme Court decision in CIT Vs. United Glass Mfg. Co. Ltd. The Tribunal upheld the CIT(A)'s decision allowing the expenses as business expenditure under Section 37(1), subject to verification of any capital expenditure like entrance fees. 6. Deduction of Interest under Section 36(1)(iii): The revenue contested the deduction of Rs. 19,76,12,033 in interest under Section 36(1)(iii). The AO disallowed this interest, arguing it should be capitalized. The CIT(A) allowed the deduction, and the Tribunal upheld this decision, consistent with previous rulings that interest on borrowed capital for business expansion is deductible. The Tribunal referenced the insertion of a proviso to Section 36(1)(iii) effective from 1.4.2004, which was not applicable to the assessment year in question. 7. Deletion of Disallowance of Depreciation on Leased Assets: The revenue challenged the deletion of disallowance of depreciation on leased assets. The AO had disallowed this depreciation, but the CIT(A) allowed it, confirming the genuineness of the lease transactions. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court ruling in ICDS Ltd Vs. CIT, which allows depreciation on leased assets if the transactions are genuine. The Tribunal dismissed the revenue's ground, maintaining consistency with previous years' decisions. Conclusion: The assessee's appeal was allowed for statistical purposes, with several issues remanded to the AO for re-examination. The revenue's appeal was dismissed, upholding the CIT(A)'s decisions on club expenses, interest deduction, and depreciation on leased assets. The Tribunal emphasized the need for thorough examination and adherence to legal precedents in re-evaluating the disallowed claims.
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