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TMI Blog2014 (7) TMI 422X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has altogether proceeded to decide the issue in the light of section 14A, which already held as not legally tenable in view of the proviso to section 14A – thus, the matter is to be remitted back to the CIT(A) for re-adjudication – Decided in favour of Assessee. Deduction of expenses as interest paid on late payment of dividend tax u/s 115(O) of the Act – Held that:- The interest paid u/s 115(P) of the Act is to re-compensate the Government on account of loss of interest due to delayed payment of the tax, is not penal in nature and hence the same has to be allowed as an expenditure - the disallowance/addition made/confirmed by the AO/CIT(A) on the count is set aside – Decided in favour of Assessee. Stamping expenses – Held that:- The AO has disputed only the correctness of the details as regards the expenses claimed by the assessee on account of stamp charges in view of the fact that the assessee has not reconciled the expenses claimed - CIT(A) without giving any opportunity to the AO in the appellate proceedings, has simply accepted the contention of the assessee - No doubt the stamp duty charges are to be treated be incurred for the purpose of the business of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard both the sides and perused the material on record, it is pertinent to mention that it is the contention of the revenue that according to the decision of the Special Bench in the case of IndusInd Bank Ltd. Vs. ACIT (2012) 135 ITD 165 (Mum) (SB), the transaction is merely a financial transaction and hence the assessee is not the owner of the asset and therefore depreciation cannot be availed by the assessee. On the other hand, it is the contention of the Ld.Senior Counsel for the assessee that at the time of rendering the decision in the case of IndusInd Bank Ltd (supra), the decision of the Delhi High Court in the case of CIT Vs. Cosmo Films Ltd. (2011) 338 ITR 266 (Del) has not been pointed out before the Special Bench of the Tribunal and therefore according to the said decision of the Delhi High Court, the assessee is entitled for the claim of depreciation. The Ld.Senior Counsel has further relied on the decision of the Hon ble Apex Court in the case of M/s. ICDS Ltd. Vs. CIT, Mysore (2013), 350 ITR 527(SC), the decisions of the Co-ordinate Benches of the Tribunal in the cases of Development Credit Bank Vs. DCIT (ITA No. 3006/Mum/2011), M/s. Larsen and Turbo Ltd. Vs. JCIT (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while noting that the assessee had earned tax free dividend income of ₹ 1,41,79,460/-, had observed that on the one hand the assessee claimed that the dividend income was exempt hence no interest expenditure should be allocated against it and on the other hand it also claim the expenditure on account of interest on borrowed funds u/s 36(1)(iii) of the Act. Aggrieved by the impugned decision, the assessee is in appeal before us. 3.2 Before us, the Ld.Senior Counsel for the assessee has argued that the interest expenditure is allowable u/s 36(1)(iii) and no disallowance u/s 14A can be made for purchase of shares for controlling the interest. The Ld.Senior Counsel for the assessee further argued that the money was borrowed to control the companies and as regards the amount of 1.41 crores earned as dividend income, there is no bifurcation of the investment and hence it has to be treated as the assessee has engaged in the business of making investment. Further, the Ld.CIT(A) is not empowered to direct the AO to allocate the expenditure u/s 14A, on account of interest on borrowed funds against the tax free dividend income earned by the assessee according to the decision of the K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectness of disallowing the interest on borrowed funds, the perusal of the findings of the Ld.CIT(A) contained in para 4.5 of the impugned order indicates that the Ld.CIT(A) has completely ignored the contentions of the assessee against the disallowance of interest expenditure made by the AO as the Ld.CIT(A) has altogether proceeded to decide the issue in the light of section 14A, which we have already held as not legally tenable in view of the proviso to section 14A. Therefore, we are of the considered view that it is just and proper to set aside this issue back to the file of the Ld.CIT(A) for re adjudication of the issue after providing reasonable opportunity of being heard to the assessee. We direct and order accordingly. Resultantly, Ground No. 1 allowed for statistical purpose. 4. Ground No. 2 is not pressed by the assessee and hence adjudication of the said ground is not required. 5. In Ground No. 3, the assessee has agitated the action of the Ld.CIT(A) in upholding the decision of the AO disallowing the interest paid on late payment of dividend tax in terms of section 115(O) of the Income-tax Act. 5.1 The relevant facts are that the assessee company paid dividend fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the claim of the assessee. On appeal, the Ld.CIT(A) observed that the impugned expenses on account of stamp duty charges were legitimate business expenses in respect of vehicle finance contract. Further, since the income from which had been assessed to tax and the books of the accounts of the assessee company were audited, the Ld. CIT(A) held that stamp duty charges were incurred for the purpose of business and thereby allowed the deduction claimed by the assessee. Aggrieved by the impugned decision, the revenue is in appeal before us. 9.1 Having heard both the sides and perused the material on record it is noted that the AO has disputed only the correctness of the details as regards the expenses claimed by the assessee on account of stamp charges in view of the fact that the assessee has not reconciled the expenses claimed. However, it is noted that the Ld.CIT(A), without giving any opportunity to the AO in the appellate proceedings, has simply accepted the contention of the assessee. No doubt the stamp duty charges are to be treated be incurred for the purpose of the business of the assessee. However, the details of the expenditure claimed has not been verified by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment was around ₹ 67.42 crores. It has been settled now that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the A.Y.2008- 09. Depending on the facts in each case, such disallowance ranges between 2 to 5 percentage of the dividend income. After considering the entirety of facts and contention of both sides, we are of the considered view that it would be just and reasonable that 2% of the exempt income would constitute a reasonable disallowance on account of indirect expenses for earning the exempt income u/s 14A of the Act. We direct and order accordingly. 11. In the result, the appeal filed by the Revenue is dismissed and that of the assessee is partly allowed. Assessee s Appeal (ITA No. 254/Mum/2012) for the A.Y. 2008-09 [ 13. In Ground No. 1, the assessee has agitated the decision of the Ld. CIT(A) confirming the disallowance made by the AO u/s 14A of the Act read with Rule 8D of the Act. 13.1 The relevant facts are that during the year under consideration, the assessee was in receipt of dividend income of ₹ 4,98,42,498/- and capital gains income of ₹ 9,28,03,125/- from sale of s ..... 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