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TMI Blog2015 (8) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(2)(iii), the Assessing Officer made disallowance equal to half per cent. of the average of the value of investments. This resulted into an addition of ₹ 41,32,830. The learned Commissioner of Income-tax (Appeals) came to hold that rule 8D was not applicable to the assessment year under consideration. Considering the Tribunal order passed for the immediately preceding year, the learned Commissioner of Income-tax (Appeals) upheld the disallowance to the tune of ₹ 8,11,948 by considering the total expenditure of ₹ 2.88 crores incurred in the current year, being the cost of the Finance Department and remuneration of Chief Finance Officer and directors and, thereafter, allocating it in the ratio of exempt income to taxable income. The remaining amount of disallowance was deleted in the first appeal. 4. We have heard the rival submissions and perused the relevant material on record. It is observed that the 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 the hon'ble jurisdictional High Court in the case of Maxopp Investment Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. 7. As regards the third ground, it is apparent that while taking the 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. Whereas ground No. 2 is not allowed, ground No. 3 is partly allowed. 8. Ground No. 4 is against the addition of disallowance of ₹ 8,11,948 in the compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g exempt income and earned dividend of ₹ 2,37,38,831, which was claimed as exempt. No disallowance was offered under section 14A. The reasons advanced during the course of the assessment proceedings for not offering any disallowance under this section were rejected by the Assessing Officer vide para 3.3 of the assessment order. Thereafter, the Assessing Officer invoked rule 8D for making disallowance under section 14A. The first disallowance was made at ₹ 1,04,89,137 towards interest and the second disallowance of ₹ 1,09,34,433, being half per cent. of the average value of investment as per rule 8D. The total disallowance was made under section 14A at ₹ 2,14,23,570. The learned Commissioner of Income-tax (Appeals), following the view taken by him in apportioning the total expenses in the ratio of exempt income to taxable income, sustained disallowance towards administrative and other expenses at ₹ 8,39,534. The other part disallowed by the Assessing Officer towards interest was deleted by noting in the last para on page 5 of the impugned order that no borrowed funds were utilised by the company in investments made by it and such investments were made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f apportioning total expenditure in the ratio of exempt income : taxable income, which has been upheld by us for the earlier year. We, therefore, approve the apportionment of expenses in the ratio of exempt income to taxable income. However, as regards the non-consideration of depreciation on furniture, fixture, vehicle, etc., we increase the amount of disallowance by ₹ 1 lakh to ₹ 9,39,534. This disposes of grounds Nos.1 to 3 taken by the Revenue. 20. As regards, the fifth ground, the learned authorised representative did not agitate the addition of ₹ 9,39,534 in the computation of book profit under section 115JB relatable to exempt dividend income. This ground is disposed of accordingly. 21. The fourth ground of the Revenue's appeal is against the direction of the learned Commissioner of Income-tax (Appeals) to exclude the fringe benefit tax of ₹ 3.65 crores from the net profit while computing book profit under section 115JB of the Act. 22. Briefly stated, the facts of this ground are that the assessee deducted the amount of fringe benefit tax amounting to ₹ 3.65 crores in the computation of book profit for the purposes of section 115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the judgment of the jurisdictional High Court which is binding on all the authorities under its jurisdiction. The hon'ble Delhi High Court in the case of BSES Yamuna Powers Ltd. (supra), 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. 29. In the result, the appeals of the assessee and the Revenue are partly allowed. Assessment year 2008-09 30. Ground No. 1 of the Revenue's appeal and ground No. 1 of the assessee's appeal is against disallowance under section 14A. 31. Briefly stated, the facts of these grounds are that the assessee earned income from mutual fund investments amounting to ₹ 2,94,38,025 which was claimed as exempt income. The assessee offered disallowance at ₹ 3 lakhs in the return of income on account of expenses disallowable under section 14A. The Assessing Officer, during the course of assessment proceedings, required the assessee to show cause as to why disallowance be not computed as per rule 8D. In response to that, the assessee submitted that no expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment are well informed and well co- ordinated management decisions involving not only inputs from various source but also acumen of senior management functionaries. Therefore, cost is in-built into even so called 'passive' investment. There are incidental expenditures of collection, telephone, follow up, research, etc. Therefore expenses in relation to earning of income are embedded in indirect expenses. The investment made, being a conscious decision and having deployment of funds clearly brings into picture expenditure by way of cost of funds 'invested'. Composite fund having cost needs to be spread so as to apportion appropriate cost of funds invested in the activity lending to carrying of exempt income. 34. It can be further noticed that the Assessing Officer also continued with his recording of satisfaction in para 3.6, reading as under : 3.6 In view of the facts and circumstances and legal position on the issue as discussed above, I am satisfied that the assessee has incurred expenses to manage its investments which may yield exempt income, and the assessee grossly failed to calculate such expenses in a reasonable manner to ascertain the true and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g India Ltd. [2015] 370 ITR 338 (Delhi) has laid down vide its judgment dated November 25, 2014 that if rule 8D applies then the assessee's claim that interest is not disallowable on the ground of own funds , is not acceptable. It has been laid down by their Lordships that : the decisions relied upon by the Tribunal in the case of CIT v. Tin Box Co. [2003] 260 ITR 637 (Delhi), CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), CIT v. Suzlon Energy Ltd. [2013] 354 ITR 630 (Guj) and East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC) could not be now applicable, if we apply and compute the disallowance under rule 8D of the Rules. The said rule in sub-rule (2) specifically prescribes the mode and method for computing the disallowance under section 14A of the Act. Thus, the interpretation of clause (ii) to sub-rule (2) to rule 8D of the Rules by the Commissioner of Income-tax (Appeals) and the Tribunal is not sustainable. The said clause expressly states that where the assessee has incurred expenditure by way of interest in the previous year and the interest paid is not directly attributable to any particular income or receipt then the formula pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to this extent. We, therefore, order for the deletion of addition to this extent and direct that this amount should be reduced from the ultimate amount determined as disallowable under section 14A. 40. Before parting with this issue, we want to make it clear that the assessee earned total exempt income at ₹ 2.94 crores and the disallowance made by the Assessing Officer stands at ₹ 8.97 crores. The hon'ble jurisdictional High Court in CIT v. Holcim India P. Ltd. vide its judgment dated October 17, 2014, reported in [2014] 90 CCH 681 (Delhi) and in a couple of other judgments has held that the disallowance under section 14A cannot exceed the amount of exempt income. The Assessing Officer is, therefore, directed to take into consideration the ratio of these judgments while computing finally disallowable amount under section 14A. The ground taken by the assessee is dismissed and that by the Revenue is allowed for statistical purposes. 41. Ground No. 3 of the Revenue's appeal is against the deletion of addition of ₹ 2,26,02,315 made by the Assessing Officer on account of capitalisation of training expenses. 42. Both sides are in agreement that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax (Appeals) in allowing depreciation at 60 per cent. on computer peripherals. 47. As regards the assessee's claim for allowing depreciation at 60 per cent. on computer to plate, it is noticed that section 32(1)(iia) of the Act provides for allowing additional depreciation in the case of any new machinery or plant acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing, etc. The Assessing Officer has recorded a categorical finding in not accepting the assessee's claim for additional depreciation to the effect that : computer and computer software is out of the ambit of plant and machinery . 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 compute ..... X X X X Extracts X X X X X X X X Extracts X X X X
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