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TMI Blog2017 (2) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the use of asset would be relevant in previous financial years with respect to the discarded assets forming part of the block. Furthermore, the nature of assets in the present case comprises of general items such as furniture & fixtures & office equipments which were “ready for use”. Such passive user is also entitled for depreciation in view of various decisions of jurisdictional High Court relied by the ld. AR, noted supra. Following the above decisions, and having found no contrary material, we do not find any justification to interfere with the conclusion reached by the ld. CIT(A) on this issue. - Decided against revenue Advances and security deposits written off - Held that:- We find that it is not in dispute that substantial material was placed before the AO that the said advances/securities were outstanding for last 5-10 years. The nature of these payments, i.e., towards advances and securities for getting VPN and utility connections, as noted above, is also not doubted by the Assessing Officer. In such state of affairs, if the assessee decided to write off the said advances/securities given in ordinary course of business, in its books of accounts, the claim of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses were claimed to have been incurred for earning this exempt income, the assessee was required to explain as to why the disallowance u/s. 14A of the Act be not determined as per Rule 8D of the IT Rules. In response, the assessee explained that out of the aggregate expenses of ₹ 5.57 crores claimed in the profit and loss account, expenses aggregating to ₹ 4.96 crores were already disallowed and added back in the computation of income and therefore, no further disallowance out of balance expenses of ₹ 60,77,000/- claimed against the business income, is warranted u/s. 14A of the Act. The AO was not convinced with the explanation of the assessee and observed that bulk of investment of assessee was in shares and mutual funds only amounting to ₹ 2,90,96,41,000/-. He, therefore, relying on the decision of Special Bench of ITAT, New Delhi in the case of Cheminvest Ltd. v. ITO, 317 ITR 86 and another order of ITAT in Daga Capital Pvt. Ltd. in ITA No. 8057/Mum/2003, invoked the provisions of Rule 8D and worked out the disallowance thereunder of an amount of ₹ 1,38,31,112/-. However, noticing that the assessee had claimed expenses only to the tune of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 10,70,000/- were in respect of a thin strength of employees, who were working for providing IT enabled BPO services and were not involved in the activity of making investment in shares/mutual funds. I also find that while making the disallowance u/s 14A in respect of such balance expenses, the Ld. AO disregarded the fact that he had also disallowed individual expenses embedded in the claim of ₹ 60.77 lakhs separately, as under: Particulars (in Rs.) Amount 1. Disallowance out of Depreciation allowance 56,86,641 2. Disallowance of rental expenses 8,23,166 3. Disallowance of bad debts 2,66,243 4. Disallowance of advances and security deposits written of 13,99,056 6.3.4 On careful consideration, I hold that the action of the Ld. AO in attributing balance expenses over and above the 89% of the expenses already added back by the appellant, towards the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred for running the corporate identity of the company have been claimed. This fact has been undisputed by the AO. In response to a query raised by the AO on disallowance of further expenses u/s 14A it was submitted vide submission dated 29/10/12 before the AO (reproduced at internal page 2 of AO order) that out of the total expenses incurred the assessee has already suo moto offered to tax a huge amount comprising of 89% of total expenses debited as per the profit loss account therefore any further disallowance of expenses u/s 14A would be highly unwarranted on the facts and circumstances of the case. 1.2 AO s decision: In spite of the above position the AO proceeded to disallow the remaining expenses of 11% amounting to ₹ 6,077,000 u/s 14A on a presumptive basis i.e. in proportion of exempt income to total income resulting in a further disallowance of ₹ 5,644,511 out of the total remaining expenses claimed of ₹ 6,077,000. As a result of this action on part of AO almost all expenses debited as per the profit and loss account stood disallowed after considering the suo moto disallowance by the assessee, supra. The AO in making disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) also notes that vide para 6.3.3 of its order that the AO has already disallowed the individual expenses embedded in claim of ₹ 60.77 lacs resulting a double addition in the hands of assessee. The CIT(A) thereafter concludes while observing, interalia, at para 6.3.4 of its order that the AO had made a disallowance u/s 14A without giving any cogent reasons and without considering the fact that the assessee had already offered to tax 89% of expenses on a suo moto basis without specifically identifying any expenses out of the remaining 11% expenses which could be identified towards earning of dividend income. The CIT(A) relies upon the mandate of Jurisdictional High Court in the case of Maxopp Investment Ltd. Vs CIT 347 ITR 272 (Del.) requiring the AO to record appropriate satisfaction having regard to the accounts of the assessee before proceeding to make any disallowance u/s 14A. Assessee s submissions: It is respectfully submitted that there is a serious fallacy in the decision approach of the AO in proceeding to make a further disallowance of ₹ 5,644,511 u/s 14A over and above the suo moto addition by the asssessee of 89% of its expenses debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 ITR 338 (Del.): Held after extensively considering the earlier decision in case of Maxopp Investment Ltd. Vs CIT 347 ITR 272 (Del.) that the AO cannot proceed to make any disallowance u/s 14A without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. It would be pertinent to note the following observations of the High Court vide para 20: 20. However, in the present case, we need not refer to sub-rule (2) of rule 8D of the Rules as conditions mentioned in sub-section (2) of section 14A of the Act read with sub-rule (1) of rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub-rule (2), without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub-rule (2) of rule 8D of the Rules and made the recomputation. Therefore, the respondent-assessee would succeed and the appeals should be dismissed. ii. Decision of Delhi High Court in the case of CIT Vs I.P. Support Services India (P) Ltd. (2015) 378 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable on record. Before we deal with the issue, it is felt necessary to reproduce the relevant provisions of section 14A of the Act, which read as under : 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed19, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Similar view has been taken by the coordinate bench of Delhi Tribunal in the case of Crown Corporation Pvt. Ltd. vs. ACIT vide order dated 27.06.2016, whereby the similar issue has been decided in favour of the assessee after following the decision of Hon ble Delhi High Court in the case of Maxopp Investment Ltd. (supra). Therefore, for want of statutory satisfaction recorded by the AO, the AO was not justified in resorting to the provisions of section 14A or Rule 8D of the Act. This view also gets support from the following decisions relied on by the assessee : (i). CIT vs. Taikisha Engineering India Ltd., 370 ITR 338 (Del.) (ii). CIT vs. I.P. Support Services India (P) Ltd., 378 ITR 240 (Del.) (iii). CIT vs. Zuari Investment in ITA No. 347/216 dated 27.05.16 (copy placed on record). 10. The Assessing Officer has relied on the decision of Special Bench of ITAT in Chemnivest Ltd. vs. ITO (supra) which stands reversed by Hon ble jurisdictional High Court in the said case as reported in 378 ITR 33 (Del.) 11. We further find considerable force in the contention of Sh. Piyush Kaushik, the ld. Counsel for assessee that once the assessee had offered 89% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of business to minimize the taxable income from house property. He accordingly disallowed depreciation of ₹ 56,86,641/- out of total claim of depreciation of ₹ 58,08,280/-. The assessee carried the matter to the ld. CIT(A), who after relying on the decision of Hon ble Delhi High Court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. 328 ITR 297, deleted the disallowance. 14. The ld. DR relied on the order of the AO whereas the ld. AR of the assessee supported the order of ld. CIT(A) stating that the issue is covered by the decision of jurisdictional High Court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. (supra) wherein the decision of Bombay High Court relied on by the Revenue in the grounds of appeal stands considered and dissented and the decision of jurisdictional High Court shall prevail over the decision of other High Courts. It was also submitted by the ld. AR that once an asset becomes a part of a block of asset then it loses its individual identity and the tax depreciation continues to be claimed unless the entire block ceases to exist or the sale value exceeds the tax WDV of the respective block. Further the AO also failed to appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, this expression has to be read harmoniously with the expression discarded as found in sub-clause (iii) of sub-section (1). Obviously, when a thing is discarded it is not used. Thus use and discarding are not in the same field and cannot stand together. However, if we adopt a harmonious reading of the expressions used for the purposes of the business and discarded then it would show that used for the purposes of the business only means that the assessee has used the machinery for the purposes of the business in earlier years. It is not disputed in the facts of the present case, and as discussed above, that the machinery in question was in fact used in the previous year and depreciation was allowed on the block of assets in the previous years. Taking therefore a realistic approach and adopting a harmonious construction, we feel that the expression used for the purpose of the business as found in section 32 when used with respect to discarded machinery would mean that the user in the business is not in the relevant financial year/previous year but in the earlier financial years. Any other interpretation would lead to an incongruous situation because on the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts. The AO disallowed the claim of assessee on the ground that no evidence was laid on record to substantiate any effort of recovery. The ld. CIT(A) deleted the addition observing that in view of the nature of business of assessee i.e., IT enabled services, such advances were given in the course of ordinary course of business and hence, the claim of written off amounts was allowable u/s. 28 of the Act. 18. The ld. DR relied on the order of Assessing Officer whereas the ld. Counsel for the assessee reiterated the submissions made before the ld. CIT(A) as also enumerated in its written synopsis placed before us. It was also submitted that the ld. AO has tried to step into the shoes of businessman and impose a condition that the assessee should have made rigorous follow up before writing off the advances/security paid, which is not legally required at all once the assessee had written off the same in its books of account. 19. Having considered the rival submissions, we find that it is not in dispute that substantial material was placed before the AO that the said advances/securities were outstanding for last 5-10 years. The nature of these payments, i.e., towards advances an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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