2015 (10) TMI 917 - AT - Income Tax

Disallowance u/s.14A - Held that - The proportionate disallowance under section 14A should be limited to only interest liability and not overheads or administrative expenditure; which should be considered for disallowance under rule 8D from 2007-08 onwards. In this case, the assessment year involved is 2006-07, therefore the disallowance of administrative expenses is not justified. Hence, the AO is directed to delete the addition of ₹ 50,000/- as sustained by the ld.CIT(A). In respect of the disallowance on interest portion since the assessee was having sufficient interest-free funds, therefore the disallowance of interest part is not justified in the light oN the judgement of Hon ble Apex Court rendered in the case of Munjal Sales Corporation vs. CIT reported at (2008 (2) TMI 19 - Supreme Court), decision of Torrent Financiers vs. ACIT 2001 (6) TMI 165 - ITAT AHMEDABAD-A and CIT vs. Reliance Utilities & Power Ltd. reported at (2009 (1) TMI 4 - HIGH COURT BOMBAY) . Therefore, we direct the AO to delete the addition made on the interest expenses. - Decided in favour of assessee. Disallowance of depreciation on the membership of the Stock Exchange - Held that - Under the provisions of section 32(1)(ii) depreciation is allowable on certain intangible assets such as know how, patents, copy rights and license etc. Earlier the Hon ble High Court of Mumbai in case of Techno Shares and Stock Ltd. (2009 (9) TMI 18 - BOMBAY HIGH COURT) had held that stock exchange card was not covered under section 32(1)(ii) and therefore depreciation was not allowable. However the said judgment of the Bombay High Court has recently been considered by the Hon ble Supreme Court 2010 (9) TMI 6 - SUPREME COURT OF INDIA in the same case and it was held that stock exchange card is akin to a license and therefore it is covered under section 32(1)(ii) and depreciation is allowable. We therefore respectfully following the said judgment of Hon ble Supreme Court, set aside the order of CIT(A) and allowed the claim of the assessee - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961
2. Disallowance of depreciation on the membership of the Stock Exchange card

Issue 1 - Disallowance under section 14A of the Income Tax Act, 1961:
The appeal was against the order of the Ld. Commissioner of Income Tax(Appeals) for Assessment Year 2006-07. The Assessing Officer made disallowances under section 14A and depreciation on the Stock Exchange membership card. The CIT(A) partly allowed the appeal, restricting the disallowance under section 14A to Rs. 2,10,000 and sustaining the depreciation disallowance. The Assessee contended that there were sufficient interest-free funds and challenged the application of Rule 8D. The Hon'ble Kerala High Court's judgment was cited to argue against proportionate disallowance of administrative costs until Rule 8D came into force. The Tribunal directed the AO to delete the addition of Rs. 50,000 for administrative expenses and Rs. 1,50,000 for interest expenses, as the disallowance was not justified for the assessment year 2006-07.

Issue 2 - Disallowance of depreciation on the membership of the Stock Exchange card:
The contention was whether depreciation was allowable on the Stock Exchange membership card. The CIT(A) upheld the disallowance based on the cost of acquisition and the provisions of section 55(2)(ab) of the Act. However, a judgment by a Coordinate Bench in a similar case held that the Stock Exchange card was akin to a license and depreciation was allowable under section 32(1)(ii). Following this judgment, the Tribunal allowed the claim of the Assessee, setting aside the CIT(A)'s order. The facts being identical, the Tribunal allowed the appeal on this ground as well.

In conclusion, the Tribunal allowed the Assessee's appeal, directing the deletion of disallowances on administrative expenses and interest expenses under section 14A and allowing depreciation on the Stock Exchange membership card based on legal precedents and interpretations of relevant provisions.