2020 (10) TMI 606 - AT - Income Tax

Depreciation on asset which have been leased to other parties - HELD THAT - Assessee had produced such certificates from the lessees before the Tribunal, whereas in the present case the certificates have been produced by the assessee before the CIT(A). CIT(A) has not observed anything wrong in those certificates. If he was having any doubt regarding those certificates and if same were produced for the first time before him, he should have admitted the same as additional evidence under Rule 46A of the Income-tax Rules and either he himself should have verified or should have referred the same to the Assessing Officer for verification. The impugned order of the Learned CIT(A) was passed in the year 2015, however nothing has been brought on record before us that anything wrong has been observed by the Departmental Authorities in those certificates. DR has also not pointed out anything wrong with those certificates submitted before the Ld. CIT(A). No justification or cause for issuing direction by the CIT(A) to the AO for verification of the depreciation claimed by the lessees, before allowing depreciation to the assessee on such leased asset. Accordingly, this ground of the appeal of the assessee is allowed. Disallowance made u/s 14A read with rule 8D of Income-tax Rules, 1962 - HELD THAT - No expenses have been incurred for earning the dividend income, whereas the assessee has made suo motu disallowance of ₹ 10 lakh. AO has not pointed out how the said claim of ₹ 10 lakh, is not correct. The AO has jumped to the conclusion without examining the claim of the assessee. In our opinion, the facts and circumstances of the year under consideration being identical to the facts and circumstances of assessment year 2008-09, respectfully following the finding of the Tribunal 2020 (10) TMI 529 - ITAT DELHI we hold that no disallowance u/s 14A can be made without recording proper satisfaction as required under the law. Accordingly, the disallowance in dispute is deleted. The ground of appeal is allowed. Disallowance u/s 14A while computing book profit under section 115JB - HELD THAT - As decided in own case 2017 (6) TMI 1124 - ITAT DELHI Computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.. Accordingly we restore this ground of appeal back to the file of the learned Assessing Officer to decide the issue without resorting to the rule 8D of the income tax rules for disallowing expenditure in relation to the exempt income by working out the book profit

Summary

Issues Involved:
1. Validity of the direction to verify lessee's claim of depreciation on leased assets.
2. Disallowance under section 14A of the Income Tax Act, 1961.
3. Application of Rule 8D in computing book profits under section 115JB of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Direction to Verify Lessee's Claim of Depreciation on Leased Assets:
The assessee contested the CIT(A)'s direction to verify whether the lessee claimed depreciation on leased assets. The Assessing Officer (AO) had disallowed the depreciation claim, considering the leasing business as a hire purchase-cum-finance business. The CIT(A) allowed the depreciation claim subject to verification by the AO that lessees had not claimed depreciation, citing precedents including the Supreme Court decisions in CIT Vs Shann Finance Private Limited and ICDS Ltd Vs CIT. The Tribunal found that the assessee had already produced certificates from lessees confirming no depreciation claims, and no contrary evidence was presented by the Department. Therefore, the Tribunal held there was no justification for the CIT(A)'s direction for further verification and allowed the assessee's ground.

2. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee had earned exempt dividend income and made a suo motu disallowance of ?10 lakh. However, the AO invoked Rule 8D and determined a higher disallowance of ?5,14,64,963/-, which was upheld by the CIT(A). The Tribunal noted that the AO had not recorded proper satisfaction regarding the correctness of the assessee's disallowance, a mandatory requirement under Section 14A(2). Citing the Supreme Court's decision in Maxopp Investments Ltd vs CIT, the Tribunal emphasized that the AO must record dissatisfaction with the assessee's apportionment before applying Rule 8D. As the AO failed to do so, the Tribunal deleted the disallowance under Section 14A.

3. Application of Rule 8D in Computing Book Profits Under Section 115JB of the Income Tax Act, 1961:
The CIT(A) upheld the AO's adjustment of book profits under Section 115JB by adding back the disallowance made under Section 14A. The Tribunal referred to its decision in the assessee's case for earlier years, where it was held that disallowance under Section 14A should not be added back while computing book profits under Section 115JB, following the Special Bench decision in ACIT vs Vireet Investments Pvt Ltd. Consequently, the Tribunal restored the matter to the AO to decide without resorting to Rule 8D for computing book profits, thus allowing the ground for statistical purposes.

Conclusion:
The Tribunal allowed the appeal partly, deleting the disallowance under Section 14A and restoring the issue of book profit computation under Section 115JB to the AO for re-evaluation without applying Rule 8D. The direction for verification of lessee's depreciation claim was struck down. The order was pronounced on 8th October 2020.