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TMI Blog2012 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of the hearing." I.T.A. No.2239/Del./2012[Assessee-AY2008-09] 1."That the CIT(A) erred on facts and in law in sustaining the disallowance of expenditure amounting to ₹ 44,24,562/- u/s 14A of the Income-tax Act, 1961 ("the Act"). 1.1 That the CIT(A) erred on facts and in law in confirming the disallowance u/s 14A of the Act without appreciating that the investment was made out of own surplus funds and no expense was attributed for earning of tax free dividend income. 1.2 That the CIT(A) erred on facts and in law in not appreciating that in terms of section 14A(2) and 14A(3) of the Act read with rule 8D of the Income-tax Rules, 1962 for making disallowance under the said section, the Assessing Officer has to record satisfaction that claim of the appellant regarding amount disallowable under the said section, was incorrect. 1.3 Without prejudice that the CIT(A) erred on facts and in law in not appreciating that only an insignificant amount of expenditure out of the administrative expense could at best be attributed to earning of tax free dividend income. 1.4 Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been funded out of interest free loans received from its holding company and thus, no expenditure could be attributed to earning of dividend income. The assessee further objected to the invocation of provisions of section 14A of the Act and applicability of rule 8D of the Income-tax Rules, 1962. However, the AO did not accept the submissions of the assessee on the ground that earning of exempt income was not in the nature of passive activity having no input. Accordingly, while referring to provisions of sec. 14A of the Act read with Rule 8D of the I.T. Rules, 1962 and relying upon decisions in CIT vs. Sharwan Kumar Swarup,210 ITR 886(SC); H.H. Sir Rama Varma Vs. CIT, 205 ITR 433 (SC); CIT Vs. Podar Cement (P) Ltd,. 226 ITR 625 (SC); S. Subhash Vs. CIT,248 ITR 512(Madras); CIT Vs. Shelly Products Ltd., 261 ITR 367(SC); ITO Vs. M/s Daga Capital Management Pvt. Ltd. in I.T.A. No.8057/Mum/2003 and M/s Max Opp Investment Ltd. Vs. ACIT in I.T.A. no.1372/D/05, the AO disallowed an amount of ₹ 27,19,110/-. 3. On appeal, the ld. CIT(A),following the decision of Hon'ble Bombay High Court in Godrej Boyce Mfg. Co. Ltd. Vs. DCIT and Another, 234 CTR 1 (Bombay and decision of the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the parties and their contentions have carefully been considered. Though learned CIT(A) has discussed all the related figures in his order, but, apparently, he has not confronted all these figures to the Assessing Officer. The Assessing Officer had made estimated disallowance of 25% of the dividend income. Keeping in view the entirety of facts, we are of the opinion that it would meet the interest of justice if the matter is restored back to the file of Assessing Officer to reconsider the disallowance keeping in mind the aforementioned decision of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (supra). We direct accordingly. The Assessing Officer will give reasonable opportunity of hearing to the assessee and after giving such opportunity, the Assessing Officer will re-compute the disallowance by taking into consideration the aforementioned decision of Hon'ble High Court as per the provisions of law." 6. We may point out that, Hon'ble jurisdictional High Court in their decision dated 18.11.2011 in Maxopp Investment Ltd. vs. CIT,[2011] 15 taxmann.com 390 (Delhi) held as under: "41. Sub-section (2) of section 14A, as we have seen, stipulates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f aforesaid judicial pronouncements, after allowing sufficient opportunity to the assessee. The assessee is also directed to furnish all the relevant details of expenditure actually incurred in managing and supervising the aforesaid huge investments in mutual funds & securities. With these observations, ground nos. 1 in the appeal is disposed of. 8. Ground no.2 in the appeal of the Revenue for the AY 2007-08 relates to disallowance of ₹ 3,23,127/- on account of excess depreciation on UPS & printers. The AO restricted the depreciation on computers peripherals, UPS and Printers @15% as against claim made by the assessee @60%, resulting in disallowance of ₹ 3,23,127. 9. On appeal, the ld. CIT(A) allowed the claim in the following terms:- "16. With regard to this disallowance, the appellant has submitted that the Assessing Officer has failed to appreciate that UPS, Printers and scanners are part and parcel of the computers, which cannot work in isolation, and are computer peripherals which are entitled to the depreciation at the rate applicable to the computers, i.e. 60%. Further, while rejecting the claim of the appellant on this issue, the Assessing Officer did not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to depreciation at the higher rate of 60 per cent." 11.1 Following the said decision, ITAT in ITO vs. Omni Globe Information Technologies India (P.) Ltd., 131 ITD 280(Delhi) held that if peripherals such as printers, scanners and servers etc. form integral part of the computer system, UPS will also be an integral part of the computer system, entitled for deduction of depreciation at the rate of 60 per cent. In another decision dated 9.11.2010, Hon'ble Delhi High Court in CIT vs. Citycorp Maruti Finance Ltd. in ITA nos. 1712 & 1714/2010 followed their own decision in BSES Yamuna Powers Ltd.(supra) and upheld the view of the ITAT, allowing depreciation @60% on computer accessories and peripherals like printers etc. A similar view was taken in CIT Vs. M/s Bonanza Portfolio Ltd.: I.T.A. no.833 of 2011 by the Hon'ble jurisdictional High Court in their decision dated 10.8.2011. In the light of view taken in the aforesaid decisions, especially when the Revenue have not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we have no hesitation in upholding the findings of the ld. CIT(A),allowing depreciation @60% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as recently examined by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT reported in 64 DTR 122 wherein it was held that, if an expenditure has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise, qualifies under the other provisions of the said Act. It was further held that, it is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure claimed to have been incurred that Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method is the method stipulated in Rule 8D of the Rules which is applicable from assessment year 2008-09. Thus, the necessary precondition for invoking section 14A(2) read with Rule 8D is satisfaction of the Assessing Officer. 6.2 In the instant case, since Assessing Officer has invoked Rule 8D, it is thus implied that, he was not satisfied with the correctness of the claim of the appellant. In any case, since it is well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has purchased assets on the basis of "sales and lease bank agreement". In view of the above, I therefore, hold that, the Assessing Officer's action in taking the proportionate interest by applying Rule 8D for the purpose of disallowance u/s 14A is not correct. 6.3.2. However, with regard to the disallowance u/s 14A on account of administrative charges as per Rule 8D amounting to ₹ 44,24,562/-, I am not in agreement with the appellant's argument that they have not incurred any expenditure as the investment is guided by their holding company and the investment is in mutual funds, other dividend goes automatically though ECS. In the nature of any passive activity involving no input. In fact, in my view. a) making of investment, b) maintaining or continuing with any investment in a particular share/mutual funds etc. and c) even the time when to exit from one investment to another. All these activities are well coordinated and well informed management decisions, involving not only inputs from various sources but also it involves acumen of senior management decisions whether they sit in subsidiary company or holding company. These are incidental administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra),argued that the ld. CIT(A) rightly concluded that the interest relating to vehicle lease, TDS, sales tax and bank charges have no relation with the investments while short terms currency loan were in the nature of buyer's credit and were payments to the suppliers from whom the imports were made and thus, were not related to the "investment",yielding exempt income. Similarly, interest on loan taken from CISCO, from whom the assessee purchased assets on the basis of "sales and lease back agreement", had no relation with any of the investments, yielding exempt income and, therefore, proportionate disallowance on account of interest was not justified. 14.2. In his rejoinder, the ld. DR argued that decisions relied upon by the ld. AR in Bombay Samachar Ltd(supra) &Regal Theatre(supra) were rendered prior to insertion of section 14A of the Act and had no relevance in the instant case. In fact, the impugned order was non-speaking, the learned CIT(A) having not recorded any findings in relation to bank charges nor the assessee had filed relevant details before the AO. 15. As regards disallowance upheld by the ld. CIT(A), the ld. AR argued that their gross receipts were ₹ 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee purchased assets on the basis of "sales and lease back agreement" had no relation with any of the investments, yielding exempt income.. Accordingly, the ld. CIT(A) deleted the disallowance in relation to interest. Hon'ble Punjab & Haryana High Court in their decision in CIT vs. Hero Cycles Ltd.,323 ITR 518 observed that disallowance under section 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. Hon'ble jurisdictional High Court held in Maxopp Investment Ltd.(supra) that the 'actual' expenditure that is in contemplation under section 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under section 14A of the said Act. Since the Revenue have not placed before us any material, evidencing that borrowed funds had indeed been utilized in making aforesaid investments nor placed before us any material, controverting the aforesaid findings of the ld. CIT(A), deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the investment affects operation of section 14A of the Act inasmuch as any expenditure incurred for earning tax free income is not an allowable deduction by virtue of operation of the said section, as held in CIT vs. State Bank of Travancore,16 Taxmann.com 289(Ker). 17.1. Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. (supra) while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e.f 24.3.2008 applies only w.e.f AY 2008-09. Hon'ble Supreme Court in their decision dated 6.7.2010 in CIT v. Walfort Share & Stock Brokers (P.) Ltd.,326 ITR 1, inter alia, observed that for attracting section 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A, Hon'ble Apex Court concluded. In Cheminvest Ltd. v. Income-tax Officer,317ITR(AT)86,Special Bench held that when the expenditure is incurred in relation to income which does not form part of total income, it has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms to have undertook any exercise to ascertain the details of expenditure incurred in managing and supervising the aforesaid huge investments in various funds & securities, objectively. In these circumstances, it is but natural that management would have spent some time in taking investment or disinvestment decisions in various mutual funds. However, this issue has not been examined at length by any of the lower authorities. The assessee claimed before the ld. CIT(A) that sufficient opportunity was not given by the AO. The ld. CIT(A) concluded that his powers were co-terminus with that of the AO and accordingly, he afforded the opportunity, as mentioned in para 6.2 of the impugned order. Hon'ble Apex Court held in Tin Box Company vs. CIT,249 ITR 216 that opportunity by the AO is not the same as granted by the ld. CIT(A) and that the assessee could have placed evidence before the first appellate authority or before the Tribunal is really of no consequence for it is the assessment order that counts. In view of the foregoing, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to the file of the AO for deciding the issue, afresh in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere part of plant and machinery and thus, entitled for depreciation at the rates prescribed for plant and machinery and not building. On the other hand, the ld. DR supported the findings of the ld. CIT(A). 21. We have heard both the parties and gone through the facts of the case. Indisputably, similar disallowance was made in the preceding assessment year and upheld by the ld. CIT(A).As pointed out by the AO, the assessee in the FY 2005-06 capitalised the office building; but elevators were capitalized with plant and machinery and not the office building. To a query by the AO, the assessee replied that elevators were part of plant and machinery. There is nothing to suggest nor the ld. AR informed as to what was the status of their claim in the AY 2006-07.Even in the preceding assessment year i.e AY 2007-08, disallowance has been upheld by the ld. CIT(A) and there is nothing to suggest as to whether or not the assessee disputed the findings of the ld. CIT(A) in further appeal. Before us, the ld. AR relied upon decisions in Jyoyi Ltd.(supra), wherein while considering the issue of grant of development rebate under section 33(1)(a) of the Act, Hon'ble High Court held that the lift w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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