9911796707
TMI Blog2019 (11) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case the appellant submits that the disallowance of depreciation of Rs. 11,31,212/- is not justified and the said disallowance may be deleted. 2. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of the amortization of the premium paid on leasehold land on which the commercial complex has been constructed by the appellant amounting to Rs. 22,32,084/-. On the facts & circumstances of the case the appellant submit that the disallowance of the claim of amortisation of land premium amounting to Rs. 22,32,084/- is not justified and the said disallowance may be deleted. 3. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance u/s 14A amounting to Rs. 24.37 crores attributing the interest relating to the exempt income earned by appellant. On the facts & circumstances of the case the appellant submit that the determination of interest attributable to earning interest income which is exempt u/s 10 is not justified and the said disallowance may be deleted. 4. On the facts & circumstances of the case the Learned Commr. of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that consequential order was passed by the Assessing Officer for the A.Y. 2004-05 vide order dated 31.12.2018 allowing depreciation. 5. On the other hand, Ld. DR strongly supported the orders of the authorities below. 6. We have perused the order of the Tribunal for the A.Y. 2004-05 in ITA No. 3203/Mum/2008 and ITA.No. 3156/Mum/2008 dated 28.06.2017 wherein the Tribunal decided this issue in favour of the assessee at page No. 4 Para No. 3.2 observing as under:- "3.2 We have heard the rival contentions and perused the cited case laws. We find that Hon'ble Delhi High Court in the cited case laws has observed that under the new scheme of depreciation prescribed in amended Section 32, the depreciation is to be allowed on WDV of each 'block of assets' at such percentage as may be prescribed and therefore, with the introduction of concept of 'block of assets', an individual asset loses its identity and there was no requirement to compute depreciation for each and individual asset separately. Making these observations, the assessee was allowed depreciation on assets held by assessee with respect to his closed units. Similar view has been taken in the cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the assessee claimed deduction u/s.24(a), then the same needs to be disallowed." 8. We have observed that the Tribunal while disposing off appeal for the A.Y. 2005-06 to A.Y. 2007-08 directed the Assessing Officer to allow the depreciation as claimed by the assessee on residential premises however it is also directed to verify the fact as to whether deduction U/s.24(a) was claimed by the assessee or not and if it is claimed the same is to be disallowed. As the facts being identical respectfully following the said decision, we direct the Assessing Officer to carry out similar exercise as directed by the Tribunal in the order for the A.Y. 2005-06 to A.Y. 200708 and decide accordingly. This ground is partly allowed. 9. Coming to Ground No. 2 of grounds of appeal the Ld. Counsel for the assessee fairly submitted that this ground relating to disallowance of amortization of premium paid on leasehold land has been decided in favour of the Revenue in ITA No. 3203/Mum/2008 and ITA.No. 3156/Mum/2008 dated 28.06.2017 at Para No. 4.6 observing as under: - "4.6. The Ld. AR contended that the same was revenue in nature and no TDS was deducted there-from since the land was acquired lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ens the argument advanced by Ld. AR. However, the Ld. AR has contended that investment includes strategic investments, investment not capable of earning exempt incomes and investment held as stock in trade, which are not includible in the value of investments for the purpose of Section 14A disallowance. The Ld. AR has provided before us detailed working of adjusted investments in the light of his contentions. Also, we note that in the preceding paragraph, we have already restored the matter back to the file of AO to find out the closing stock valuation of the securities held as stock in trade and the income of which has been offered under the head business income. Therefore, in the light of these facts / observations, we remit the matter back to the file of AO to re-compute the said disallowance qua interest and administrative expenses after properly appreciating the capital structure of the assessee. The assessee is also directed to substantiate its claim forthwith in the light of our observations before the lower authorities, falling which the authorities shall be at liberty to decide the same on the basis of available material on record. The assessee's grounds of appeals stand a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal for the A.Y. 2004-05 to 2007-08 and recompute the disallowance in accordance with the directions therein. We also direct the Assessing Officer to recompute the disallowance keeping in view the decision of the special bench of Delhi in the case of ACIT v. Vireet Investments Private Limited [165 ITD 27]. This ground is allowed for statistical purpose. 16. Ground No.4 of grounds of appeal is relating to disallowance of lease equalization charges. Ld. Counsel for the assessee submits that this issue has been decided in favour of the assessee for the A.Y.2004-05 to 2007-08 by the Tribunal. It is further submitted that the Assessing Officer allowed the deduction for lease equalization for the A.Y.2004-05 by passing consequential order dated 31.12.2018. It is also submitted that the Hon'ble Bombay High Court in I.T. Appeal No. 411 of 2014 dated 14.02.2019 has dismissed the revenue's appeal for the A.Y.1994-95 to A.Y.1998-99. 17. On the other hand, Ld. DR strongly supported the orders of the authorities below. 18. We have heard the rival submissions and perused the orders of the authorities below and the Tribunal decision in assessee's own case. For the A.Y. 2004-05 the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue afresh after giving adequate opportunity to the assessee to substantiate his claim in this regard. It is clarified that to maintain consistency, the depreciation which is to be considered for the purpose of calculating lease equalization charges would be the Income Tax Depreciation and not the book depreciation as held by the Tribunal in earlier years. The grounds stands allowed for statistical purpose." 19. The Tribunal for the A.Y. 2005-06 to A.Y. 2007-08 in ITA.Nos. 3339/Mum/2011, ITA.No. 3340/Mum/2011 and 3341/Mum/2011 dated 30.04.2019 at Para No. 24 and 25 considered this issue observing as under: "24. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. An identical issue has been considered by the Co ordinate Bench of the Tribunal in asessee's own case for AY 2004-05. The Tribunal, after considering relevant facts held that lease equalisation reserve is an allowable deduction, however, for the purpose of computation of quantum of allowances, lease equalisation reserve should be computed on the basis of tax depreciation instead of book depreciation. The relevant observations of the Tribunal are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantiate his claim in this regard. It is clarified that to maintain consistency, the depreciation which is to be considered for the purpose of calculating lease equalization charges would be the Income Tax Depreciation and not the book depreciation as held by the Tribunal in earlier years. The grounds stands allowed for statistical purposes." 25. We further noted that the Hon'ble Supreme Court has considered an identical issue in light of accounting standard prescribed by ICAI and held that lease equalisation reserve computed as per accounting standards prescribed by ICAI is an allowable deduction because there is no express bar in the IT Act, 1961 regarding application of such accounting standards. The Hon'ble Court further held that only real income i.e. finance income should be taxed for the purpose of Income Tax which can be arrive only after applying such method which is prescribed in the guidance note. Therefore, we are of the considered view that prima-facie, the issue is settled by the decision of the Hon'ble Supreme Court, however, consistent with view taken by the Co-ordinate Bench for earlier years, we restore this issue to the file of the AO and direct him to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered this issue observing as under: "31. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. The issue of depreciation on toll road as well as estimation of income from such road is subject matter of consideration by the Tribunal for AY 2004-05. The Tribunal after considering rival submissions of the assessee and also relied upon certain judicial precedence held that the depreciation on toll road is not allowed as plant and machinery because the assessee is neither owner of the asset nor said asset is in the nature of plant and machinery. However, the Tribunal allowed depreciation as intangible asset being right to collect the toll. Similarly, in respect of estimation of income from toll road, direct the AO to ascertain correct facts with regard to attainment of arbitration proceedings before estimation of income. The relevant findings of the Tribunal are as under:- "11.10 We have heard the rival contentions. So far as the estimation of income from the toll road is concerned, we find that the issue in hand is related with estimation of income only and not with notional income since the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for earlier period, we restore this issue to the file of the AO and direct him to decide in accordance with direction given by the Tribunal for AY 2004-05. 23. Following the said decision, we restore this matter to the file of the Assessing Officer with a direction to decide the issue following the directions of the Tribunal for the A.Y. 2005-06 to 2007-08. This ground is allowed for statistical purpose. 24. Ground No.6 of grounds of appeal of the assessee is relating to the addition made towards notional interest in respect of toll road from Madhya Pradesh State Industrial Development Corporation. 25. It is submitted that by the Ld. Counsel for the assessee that this issue was also decided by the Tribunal in Para No. 11.10 for the A.Y.2004-05 and Para Nos. 32 for the A.Y. 2005-06 to 2007-08 and the Assessing Officer passed consequential order dated 31.12.2018 for the A.Y. 2004-05 restricting addition only to the amount awarded by arbitrator of Arbitration Tribunal and granted relief for the balance amount. 26. On a perusal of the order of the Tribunal we find that this issue was also considered by the Tribunal in Para No. 11.11 for the A.Y. 2004-05 and for the A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. Therefore, we restore this issue back to the file of the AO and direct him to first re-compute disallowance contemplated u/s 14A and then decide this issue in accordance with findings of the Special Bench of ITAT, Delhi in the case of ACIT vs Vireet Infest Pvt. Ltd. (supra) and also the Hon'ble Bombay High Court in the case of CIT vs Ms/ Bengal Finance Investment Pvt. Ltd. in Income Tax Appeal No.337 of 2013." 28. Respectfully following the said decision, we direct the Assessing Officer to recompute the disallowance U/s. 14A following the observations of the Tribunal for the A.Y. 2005-06 to A.Y. 2007-08. This ground is allowed for statistical purpose. 29. Ground Nos. 8 and 9 of the grounds of appeal relates to levy of interest U/s. 234B and 234D of the Act which are only consequential and thus, we restore these grounds to the file of the Assessing Officer to decide in accordance with law. 30. Now we take up the appeal of the assessee in ITA.No. 3786/Mum/2013 for the A.Y. 2009-10. 31. The assessee has raised the following grounds in its appeal: - "1. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case the Learned Commr. of Income Tax (A) has erred in confirming the additions of Rs. 2,41,00,000/- based on the information of AIR transactions The appellant states that they have not entered into transactions for Rs. 2,41,00,000/- as recorded in the AIR Information. The appellant prays that the addition confirmed by the CIT (Appeals) may be deleted. 9. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of Rs. 85,81,73,026/- being the expenditure relating to exempt income while computing book profit u/s. 115JB. On the facts and circumstances of the case the appellant submits that the disallowance of Rs. 85,81,73,0267- is not justified and be deleted. 32. Ground Nos. 1 of Grounds of appeal for the A.Y. 2009-10 is relating to disallowance of depreciation on residential properties. This ground which is similar to Ground No.1 in the appeal for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this year also i.e. A.Y. 2009-10. We order accordingly. 33. Ground No. 2 of Grounds of appeal for the A.Y. 2009-10 is relating to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions by the assessee. The Assessing Officer shall provide complete details in respect of the transactions for the purpose of the reconciliation by the assessee. Thus, this issue is restored to file of the Assessing Officer for denovo adjudication after providing adequate opportunity of being heard. 41. Ground No .8 of the grounds of appeal is relating to disallowance of interest on loan given to IL & FS Employees Welfare Trust. Briefly stated the facts are that, while completing the assessment Assessing Officer noticed that during the year under consideration assessee has given interest free loans to IL & FS Employees Welfare Trust. The Assessing Officer is of the view that the loan given is for non-business purposes and taking note of the fact that the assessee is having mixed funds i.e., borrowed as well as own funds, proportionate interest of Rs..30.01 Crores @ 5.63% was disallowed while computing the income of the assessee. 42. Before the Ld. CIT(A) the assessee has contended that the loan was given for IL & FS Employees Welfare Trust and it is for the welfare of the employees and for the business purpose only. Alternatively, it was submitted that there is erro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 115JB of the Act. This ground which is similar to Ground No.7 in the appeal for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this year also i.e. A.Y. 2009-10. We order accordingly. 48. Now we take up the appeal filed by the revenue in ITA.No. 3700/Mum/2013 for the A.Y. 2008-09. 49. Revenue has raised the following grounds in its appeal: - "On the facts and in the circumstances of the case and in law the Ld. CIT appeal erred in:- 1(i). restricting the disallowance u/s.14A to Rs. 25.03 crs. as against Rs. 47.47 crs computed by the AO; thereby erred in not accepting the working required as per Rule 8D of the Income Tax Rules as applied by the AO during assessment. l(ii). restricting the Interest attributable to the earning of exempt income to Rs. 24.37 crs. as against the disallowance of Rs. 46.56 crs. computed by the AO U/S.14A of the Act. Further erred in not appreciating that the assessee company has inter-mix of huge amount of borrowed funds since long time with that of reserve funds and ignoring the fact that the assessee has not substantiated if it earned the exempt income only out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exempted income while compiling the Book Profit u/s.115JB(2) of the Act." 50. Ground No. 1 of Grounds of appeal of the Revenue is relating to disallowance u/s. 14A r.w. Rule 8D of the Act. This ground which is similar to Ground Nos. 8 & 9 in the appeal of the assessee for the A.Y. 2008-09 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this appeal also. Since we have decided this issue by restoring the ground to the file of the Assessing Officer this ground is also restored to the file of the Assessing Officer. We order accordingly. 51. Ground No.2 of grounds of appeal relates to disallowance of software development expenditure. Ld. Counsel for the assessee submits that this issue has been decided in favour of the assessee by the Tribunal at Para No. 20.2 for the A.Y. 2004-05. Similarly, Tribunal for the A.Y. 2005-06 to A.Y. 2007-08 in ITA.Nos. 3165/Mum/2017, ITA.No. 3339/Mum/2011, ITA.No. 3340/Mum/2011 and ITA.No. 3341/Mum/2011 dated 30.04.2019 at Para Nos. 60 and 61 decided the issue in favour of the assessee. 52. On the other hand, Ld. DR strongly supported the orders of the authorities below. 53. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, Ld. CIT(A) examined the same and provided relief to the assessee after appreciating the material and therefore, we find no reason to interfere with the same. The revenue's ground of appeal stands dismissed." 61. In view of the matter and consistent with view taken by the Coordinate Bench, we do not find any infirmity in the findings of the Ld. CIT(A) and hence, we are inclined to upheld the findings of the ld. CIT(A) and reject the ground taken by the Revenue.' 54. No distinguishable facts have been brought to our notice. Thus respectfully following the said decision, we uphold the order of the Ld. CIT(A) and reject the ground raised by the revenue. 55. Ground No. 3 of Grounds of appeal of the revenue is relating to addition of notional interest income in respect of toll road from Madhya Pradesh State Industrial Development Corporation. This ground which is identical to Ground No. 6 in the appeal of the assessee for the A.Y. 200809 has been decided while disposing off the appeal and the decision taken therein shall apply mutatis mutandis for this appeal also. Since we have decided this issue by restoring the ground to the file of the Assessing Officer this ground is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deduction in respect of the expenditure of Rs..1,33,690/- and applying the provisions of section 40(a)(ia) of the Act Assessing Officer disallowed the said expenditure. On appeal the Ld. CIT(A) deleted the disallowance. 62. Ld. Counsel for the assessee strongly placing reliance on the decision of the Calcutta Bench in the case S.K. Tekriwal's [46 taxmann.com 444] submitted that there shall not be any disallowance when there is a short deduction of tax. 63. Ld. DR vehemently supported the orders of the Assessing Officer. 64. We have heard the rival submissions and perused the orders of the authorities below. The Calcutta Bench of the Tribunal in the case of S.K. Tekriwal's [48 SOT 515] held as under: - "5. From the order of CIT(A), we find that CIT(A) has gone into the controversy of assessee falling under the head 'sub contractor' or falling under the head 'rent', the expenses made under the head 'machinery hire charges'. It is also a fact that the assessee has deducted TDS u/s. 194C(2) of the Act and covered itself under the head 'sub contractor'. We find that CIT(A) after verifying records and explanation submitted by assessee reached to a conclusion that payments are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40(a)(ia) of the Act will not apply as the said provision can be invoked only in the event of non-deduction of tax but not for lesser deduction of tax. In that case the assessee has deducted tax u/s. 192 of the Act as against section 194J of the Act as against the claim of revenue. 6. In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to sub-contractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a just order. The reasoning appearing at paragraph 6 of the judgment and/or order under challenge reads as follows : 6. In the present case before us the assessee has deducted tax u/s. 194C(2) of the Act being payments made to subcontractors and it is not a case of non-deduction of tax or no deduction of tax as is the import of section 40a(ia) of the Act. But the revenue's contention is that the payments are in the nature of machinery hire charges falling under the head 'rent' and the previous provisions of section 194I of the Act are applicable. According to revenue, the assessee has deducted tax @ 1% u/s. 194C(2) of the Act as against the actual deduction to be made at 10% u/s. 194I of the Act, thereby lesser deduction of tax. The revenue has made out a case of lesser deduction of tax and that also under different head and accordingly disallowed the payments proportionately by invoking the provisions of section 40(a)(ia) of the Act. The Ld. CIT, DR also argued that there is no word like failure used in section 40(a)(ia) of the Act and it referred to only nondeduction of tax and disallowance of such payments. According to him, it does not refer to genuineness of the payment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of grounds of appeal relates to disallowance of claim for deduction U/s. 36(1)(viii) of the Act. 68. Briefly stated the facts are that, Assessing Officer while completing the assessment denied deduction claimed U/s. 36(1)(viii) observing as under: "17.1 During the assessment proceedings, it was noticed that me assessing was claiming deduction u/s.36(1)(viii) of the Act of Rs. 63000000/-. It was further noticed from the annual report, that there was the major reorganization of the business w.e.f. 01.04.2007 in which the assessee has transferred i) its financial services business to M/s. ILFS Ltd., ii) depository back office and capital market related services to M/s. ILFS Securities Services Ltd. and iii) portfolio management and related services to M/s. ILFS Portfolio Managers Services Ltd. The assessee company, after this became a non-banking, non-financial company that primarily manages its investments in group entities and effects loans and advances to its subsidiaries and affiliate. It also owns and manages reality assets. As per sec.36(l)(viii) of the Act, the deduction is available only on the profits derived from eligible business and eligible business is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reorganization, the company is engaged in the business of granting of loans to all its infrastructure and other group companies and it continues to be a Finance Company as stipulated by the RBI and continues to be under the direct supervision of the RBI even after the reorganization. The company has earned an interest income of Rs. 128.74 crores in FY 2008, breakup of which is as follows: Interest income on loans Rs. 110.02 crores Interest income on securities Rs. 18.72 crores The copy of the audited "Notes to Accounts" evidencing the same has already been enclosed. Further, as of March, 2008 the company has granted loans amounting to Rs. 1401.24 crores to its various group companies towards infrastructure projects. The company has claimed deduction u/s.36(l)(viii) on only those net interest income which has been earned on long term financing. As such the income from the long term loans given to the group companies are eligible for deduction u/s.36(l)(viii). It is submitted that the disallowance ofRs. 6.3 crores made by the A.O. may be deleted." ....... (A) Industrial or agricultural development; (c) ''banking company" means a company to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the orders of the authorities below. 76. We have heard the rival submissions and perused the orders of the authorities below. We find that this issue has been decided by the Tribunal for the A.Y. 2005-06 to A.Y. 2007-08 in its order at Para No. 73 wherein the Tribunal held as under: - "73. We have heard both sides and perused the material available on record. This issue has been considered by the Tribunal for AY 2004-05, where, in respect of normal provisions of lease equalisation reserve, the issue has been restored back to the file of the AO to recompute lease equalisation reserve, considering tax depreciation instead of book depreciation. However, in respect of determination of book profit and the relevancy of computation of lease equalisation reserve by taking note of depreciation as per Income Tax may not be appropriate. But fact remains that since the Tribunal has already considered this issue, we do not want to deviate from the findings recorded by the Tribunal for AY 2004-05. Hence, we restore this issue also to the file of the AO and direct him to re compute book profit by taking note of findings of the Tribunal in assessee's own case for AY 2004-05 and also con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of payment made to clubs amounting to Rs. 18,59,191/-. 5(i). allowing the claim of deduction of Rs. 6,20,00,000/- u/s.36(l)(viii) of the Income Tax Act which otherwise the assessee was not eligible for. 5(ii). allowing the claim of deduction of Rs. 6,20,00,000/- u/s.36(l)(viii) of the Income Tax Act ignoring the fact that there was a major business re-organization w.e.f. 1.4.2007 through which the assessee company had transferred its (i) financial services business to M/s.ILFS Ltd, (ii) depository back office and capital market related services to M/s.ILFS Securities Services Ltd, (iii) portfolio management and related services to M/s.ILFS Portfolio Managers Services Ltd. 5(iii) ignoring the stipulated condition laid down in sec.36(l)(viii) wherefrom it is noted by AO that the assessees business was not eligible business for the deduction. 5(iv). ignoring further that, after re-orgnization of business w.e.f. 1.4.2007, the / assessee company is only engaged in managing its investments within group / entities. 6. restricting the disallowance of the interest to the extent of Rs. 11,00,00,000/- as against the disallowance of Rs. 30,01,92,990/- computed by the ..... 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