9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (8) TMI 708 - AT - Income TaxDisallowance under section 14A - whether proportionate disallowance out of interest is not to be made by ignoring the fact that though investments were made in the immediately preceding assessment year out of interest bearing funds? - Held that - Assessment year under consideration is 2006-07 and, hence, rule 8D cannot be applied for making disallowance under section 14A of the Act. Our view is fortified by the judgment of Maxopp Investment Ltd. v. CIT 2011 (11) TMI 267 - Delhi High Court wherein held that the provisions of rule 8D can apply only from the assessment year 2008-09 and in a period anterior to that, the disallowance is to be made on a reasonable and acceptable method of apportionment. In the instant case, we find that the AO principally made disallowance under clause (iii) of rule 8D(2) towards administrative and other expenses incurred in earning the exempt income, by picking up rate of disallowance at 0.5 per cent. of the average of the value of investments. There is no specific disallowance made by the Assessing Officer on account of interest expenditure. It is manifest that the CIT(A) has sustained disallowance by apportionment of total of such expenditure in the ratio of exempt income to taxable income. In view of the fact, that neither the Assessing Officer made any disallowance on account of interest under section 14A nor did CIT(A) go into this aspect by making any enhancement, etc., ground No. 1 raised by the Revenue for sustenance of disallowance towards interest is held to be not arising from the impugned order. - Decided against revenue Apportionment of common expenses between exempt income and taxable income - Held that - It is manifest from the impugned order that the allocation of total expenses has been made in the ratio of exempt income to taxable income. The Revenue argued before the Tribunal in the preceding year that the disallowance under section 14A ought to have been made on the basis of exempt income and taxable income and not the exempt income and gross sales. The viewpoint of the Revenue canvassed for the immediately preceding year seems to have been accepted by the Commissioner of Income-tax (Appeals) who chose to apportion total expenses in the ratio of exempt income to taxable income instead of gross sales. The learned Departmental representative could not point out any other more suitable basis for apportioning expenses towards exempt income. We, therefore, approve the view taken by the learned Commissioner of Income-tax (Appeals) in making apportionment of total expenses in the ratio of exempt income to taxable income.- Decided against revenue Proportionate amount of depreciation attributable to furniture, fixture, vehicles, printers and fax machine as a part of the base amount determined at ₹ 2.88 crores - Held that - Expenditure of ₹ 2.88 crores liable to be bifurcated between exempt income and taxable income, the learned Commissioner of Income-tax (Appeals) did not consider the proportionate amount of depreciation, which is otherwise required to be considered. The learned Departmental representative argued that such proportionate amount of depreciation to be included in the amount of disallowance worked out by the learned Commissioner of Income-tax (Appeals) at ₹ 8,11,948, should not be less than ₹ 50,000. The learned authorised representative did not raise any objection to this. As such, accepting the view point of the learned Departmental representative, we increase the disallowance under section 14A to ₹ 8,61,948.- Decided partly in favour of revenue Amount of disallowance under section 14A at ₹ 8,61,948 should be added while computing book profit under section 115JB Disallowance of club expenses - Held that - This issue is no more res integra in view of the judgment of CIT v. United Glass Manufacturing Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT in which it has been held that the club membership fee for employees incurred by the assessee is business expenditure allowable under section 37 of the Act. - Decided against revenue Reduction in the amount of disallowance under section 14A - Held that - Question of disallowance of interest under section 14A in this case because the amount of shareholders fund is much higher than the amount of investments yielding exempt income. As such, we uphold the view taken by the learned Commissioner of Income-tax (Appeals) in deleting disallowance under section 14A on account of interest. See CIT v. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT - Decided against revenue Exclude the fringe benefit tax from the net profit while computing book profit under section 115JB - Held that - The decision taken by the learned CIT (Appeals) to exclude the fringe benefit tax of ₹ 3.65 crores from the net profit while computing book profit under section 115JB accords with the mandate of circular issued by the Central Board of Direct Taxes Circular No. 8 of 2005 dated August 29, 2005 . - Decided against revenue Disallowance of training expenses - CIT(A) allowed claim - Held that - Training expenses are to be allowed as revenue expenses - Decided against revenue Depreciation on computer peripherals at 60 per cent - claim restricted by the Assessing Officer to 15 per cent - Held that - The hon ble Delhi High Court in the case of BSES Yamuna Powers Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT ), has held that depreciation on computer peripherals should be allowed at 60 per cent. instead of 15 per cent. We, therefore, uphold the view taken by the learned Commissioner of Income-tax (Appeals) on this issue.- Decided against revenue Depreciation on computer to plate (CTP) - @20% - Held that - When we look at Appendix to Income-tax Rules, it turns out that Item at Sr. No. III in new Appendix I is Machinery and plant . Item at Sl. No. (5) covered under Item III of the Appendix is Computers including computer software . Thus, it is ostensible that the viewpoint of the Assessing Officer that the computers are not to be considered as part of the machinery for the purpose of additional depreciation, is not sustainable. The Legislature has not specifically excluded computers used in factory from the ambit of new plant and machinery eligible for additional depreciation at 20 per cent. We, therefore, approve the view taken by the learned Commissioner of Income-tax (Appeals) in directing to allow additional depreciation on computer to plate at 20 per cent. - Decided against revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Apportionment of common expenses. 3. Depreciation on motor vehicle. 4. Disallowance of club expenses. 5. Exclusion of fringe benefit tax from book profit computation under Section 115JB. 6. Capitalization of training expenses. 7. Depreciation on computer peripherals and "computer to plate" (CTP). Detailed Analysis: Assessment Year 2006-07: Issue 1: Disallowance under Section 14A The Revenue contested the disallowance under Section 14A. The assessee declared dividend income of Rs. 1,68,07,438 as exempt without any disallowance under Section 14A. The Assessing Officer (AO) applied Rule 8D(2)(iii) and made a disallowance of Rs. 41,32,830, which was reduced by the Commissioner of Income-tax (Appeals) [CIT(A)] to Rs. 8,11,948. The Tribunal held that Rule 8D was not applicable for the assessment year 2006-07 and upheld the CIT(A)'s method of apportioning expenses in the ratio of exempt income to taxable income. Issue 2: Apportionment of Common Expenses The Revenue objected to the apportionment of common expenses amounting to Rs. 2.88 crores, arguing that the CIT(A) did not consider depreciation on certain assets. The Tribunal approved the CIT(A)'s method but increased the disallowance to Rs. 8,61,948 by including proportionate depreciation. Issue 3: Depreciation on Motor Vehicle The assessee's ground regarding the disallowance of depreciation on a motor vehicle amounting to Rs. 68,000 was dismissed as it was not pressed. Assessment Year 2007-08: Issue 4: Disallowance of Club Expenses The AO disallowed club expenses of Rs. 5,37,384, which was upheld by the CIT(A). The Tribunal allowed the deduction based on the Supreme Court judgment in CIT v. United Glass Manufacturing Co. Ltd., treating it as business expenditure under Section 37. Issue 1: Disallowance under Section 14A The AO made a disallowance of Rs. 2,14,23,570 under Section 14A, which was reduced by the CIT(A) to Rs. 8,39,534. The Tribunal upheld the CIT(A)'s deletion of interest disallowance, citing that investments were made from the assessee's own funds. It increased the administrative expense disallowance to Rs. 9,39,534. Issue 5: Exclusion of Fringe Benefit Tax from Book Profit Computation The CIT(A) directed the exclusion of fringe benefit tax of Rs. 3.65 crores from book profit computation under Section 115JB, which was upheld by the Tribunal in line with CBDT Circular No. 8 of 2005. Issue 6: Capitalization of Training Expenses The AO treated training expenses of Rs. 2.08 crores as capital expenditure, but the CIT(A) considered it as revenue expenditure. The Tribunal upheld the CIT(A)'s view based on the jurisdictional High Court's judgment in CIT v. Solus Pharmaceuticals Ltd. Issue 7: Depreciation on Computer Peripherals The AO restricted depreciation on computer peripherals to 15%, while the CIT(A) allowed 60% depreciation. The Tribunal upheld the CIT(A)'s decision based on the jurisdictional High Court's judgment in CIT v. BSES Yamuna Powers Ltd. Assessment Year 2008-09: Issue 1: Disallowance under Section 14A The AO applied Rule 8D and made a disallowance of Rs. 8,97,49,579, which was reduced by the CIT(A) to Rs. 2,08,21,695. The Tribunal upheld the CIT(A)'s disallowance under Rule 8D(2)(iii) but remanded the interest disallowance issue to the AO for reconsideration based on the Delhi High Court's judgment in CIT v. Taikisha Engineering India Ltd. Issue 6: Capitalization of Training Expenses The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 2,26,02,315 on account of training expenses, following the view taken for the assessment year 2007-08. Issue 4: Disallowance of Club Expenses The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 15,14,019 on account of club expenses, following the precedent set in the assessment year 2007-08. Issue 7: Depreciation on Computer Peripherals and CTP The AO restricted depreciation on computer peripherals to 15% and denied additional depreciation on CTP. The CIT(A) allowed 60% depreciation on computer peripherals and 20% additional depreciation on CTP. The Tribunal upheld the CIT(A)'s decision, allowing 60% depreciation on CTP and additional depreciation at 20%. Conclusion: The Tribunal's consolidated order addressed multiple issues across three assessment years, providing detailed rulings on disallowances under Section 14A, apportionment of expenses, club expenses, fringe benefit tax, training expenses, and depreciation on computer peripherals and CTP. The appeals were partly allowed and partly dismissed based on the merits of each issue.
|
