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TMI Blog2020 (10) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or cause for issuing direction by the CIT(A) to the AO for verification of the depreciation claimed by the lessees, before allowing depreciation to the assessee on such leased asset. Accordingly, this ground of the appeal of the assessee is allowed. Disallowance made u/s 14A read with rule 8D of Income-tax Rules, 1962 - HELD THAT:- No expenses have been incurred for earning the dividend income, whereas the assessee has made suo motu disallowance of 10 lakh. AO has not pointed out how the said claim of 10 lakh, is not correct. The AO has jumped to the conclusion without examining the claim of the assessee. In our opinion, the facts and circumstances of the year under consideration being identical to the facts and circumstances of assessment year 2008-09, respectfully following the finding of the Tribunal [ 2020 (10) TMI 529 - ITAT DELHI ] we hold that no disallowance u/s 14A can be made without recording proper satisfaction as required under the law. Accordingly, the disallowance in dispute is deleted. The ground of appeal is allowed. Disallowance u/s 14A while computing book profit under section 115JB - HELD THAT:- As decided in own case [ 2017 (6) TMI 1124 - ITAT DELHI ] Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is a public limited company engaged in the business of providing financial assistance to enterprises in the form of short, medium or long-term loans or working capital facilities or equity participation schemes etc. and also through business of leasing and hire purchase finance by acquiring to provide on lease or to provide on hire purchase all types of industrial office plant and other assets, required by various businesses. 2.1 For the year under consideration, the assessee filed return of income on 30/09/2010, declaring total income of ₹ 15,52,17,798/- and book profit of ₹ 319,06,63,765/- under section 115JB of the Income Tax Act, 1961 (in short 'the Act'). The assessee also revised the return of income claiming additional tax deduction at source (TDS). The return of income filed by the assessee was selected for scrutiny assessment. The scrutiny assessment under section 143(3) of the Act was completed on 12/03/2013, wherein certain additions/disallowances were made to the returned income. Against the said assessment order, the assessee filed appeal before the Learned CIT(A), who partly allowed the appeal. Aggrieved with the additions/disallowances sustai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for any wrong claim of depreciation, if any, by the lessees and, therefore, such direction need to be struck down. He relied on the order of the Tribunal in ITA No.1200/Del/2011 for assessment year 1999- 2000 and submitted that while allowing claim of depreciation, no such directions have been issued by the Tribunal in that assessment year. 5.2 On the contrary, the Learned DR submitted that in cases relied upon by the assessee before the Ld. CIT(A), the lessees had not claimed depreciation on leased assets. He submitted that the Tribunal in assessment year 1999-2000 has also mentioned that the assessee had produced certificate from the lessees that no depreciation was claimed by them, and therefore the Learned CIT(A) allowed the depreciation in the case of the assessee subject to such verification. According to him, there is no error in the order of the Learned CIT(A) in issuing the direction for verification of the depreciation claimed by the lessee(s). 5.3 We find that the Tribunal in assessment year 1999-2000 in first round restored the matter back to the AO for verification, whether the assessee was engaged in the business if leasing of assets. In second round, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive owner of those assets. 15. Further, the learned authorised representative has also tabulated the relevant conditions of the lease agreement as under:- Features Words in the agreement Article/clause no. Intention of parties "Lease ...have the commercial connotations and only means the hiring or licensing of Plant..." "Let on lease the equipment..." Article I Definitions 14 Article I - 1.7 Schedule Return of equipment/lease property "Upon termination of this agreement by efflux of time or otherwise Lessee shall at its own cost and expense forthwith deliver or cause to be delivered to the lessor..." Article II -2.4 Payment for equipment "Lessee has requested the Lessor to make advance payments towards the cost of the equipment" Article II - 2.5(a) Lessee "warrantee indicating that the Lessor is owner "Lessee would have been eligible and could have claimed depreciation....if it had bought the equipment and was operating the same as the owner thereof' Article III- 3.4 Right of possession with restriction or subletting or assignment "Keep the equipment at all times in its possession and control at the location shown herein... and shall not remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership recognized by successors in title "As between the Lessor and the Lessee and their respective successors in title, the equipment shall remain moveable property of and shall continue to be in the ownership of the Lessor" Article VI - 6.7F Right of Lessor to create other interest, assign property "The Lessor shall be entitled to, without giving any notice to the Lessee, assign to any person any of its rights title or interest under this agreement or creat any charge, lien, encumbrance or hypothecate the equipment or nay part thereof and the person(s) to or on who such are assigned or conferred shall be entitled to the full benefits of this Agreement" Article VIII - 8.1F f Right to repossess "On termination of this Lease, pursuan to clause 9.1 above: - The Lessor shall, without any notice be entitled to remov and repossess the equipment..." Article IX - 9.2 16. Honourable Supreme Court ICDS Ltd versus CIT (350 I*TR 527) has also held that definitions of "ownership" essentially make ownership a function of legal right or title against the rest of the world. However, it is "nomen generalissimum", and its meaning is to be gathered from .the connection in which it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee. Moreover, the assessee has produced the certificates from the lessee that they have not claimed any depreciation on these assets, which are owned by the assessee. No material contrary to the above facts was shown by the revenue. 21. In view of above facts, we direct the learned assessing officer to delete the disallowance of depreciation on plant and machinery of 259,839,987/- as claimed by the appellant on plant and machinery given and leased various parties. 22. In the result ITA number, 1200/del/2011 fried by 1;he assessee for assessment year 1999 - 2000 is allowed." 5.4 In the above appeal, the assessee had produced certificates from the lessee(s) before the Tribunal stating that no depreciation was claimed by them. In the instant case before us also the assessee has already produced such certificates before the Ld. CIT(A). The name of such parties have been mentioned by the Learned CIT(A) in para 8.4 of the order, as under: "(i) The West Coast Papert Ltd. (ii) Jocil Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , addition for the balance amount of ₹ 5,04,64,963/-was made by the Assessing Officer. The assessee could not succeed before the Learned CIT(A). The Ld. CIT(A) upheld the disallowance observing as under: "The appellant itself has admitted that it was incurring expenditure in respect of earning exempt dividend income along with ihe taxable income and expenditure was claimed by the appellant is not separable. In such situation, the applicability of Rule 8D is perfectly justified. So far as the appellant's argument that the nature of appellant's business is such that the shares are part of 'stock-intrade' is concerned, it is observed that the appellant failed to provide complete details in respect of such stock-in-trade and the quantum of dividend received from such stocks. Therefore, there remains no basis for giving allowance in respect of equities which are not held by the appellant as investments. From the arguments of the appellant, it appears that the entire investments are being categorized by the appellant as 'stock-in-trade' and therefore, it is being argued that disallowance u/s 14A read with Rule 8D should not be applicable in appellant's case. Such argument of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act. The satisfaction of the Commissioner of income tax appeals cannot be replaced for substituted for the satisfaction of the learned Assessing Officer. The honourable Supreme Court in Maxoop investments Ltd versus CIT [ 2018] 91 taxmann.com 154 (SC)/[2018] 254 Taxman 325 (SC)/[2018] 402 ITR 640 (SC)/[2018] 301 CTR 489 (SC) has held that having regard to the language of section 14A(2), read with rule 8D of the Rules, it is also made clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer. In the present case, we do not find any such satisfaction recorded by the Assessing Officer with respect to the disallowance made by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat due to earning of dividend income, the redemption price of the said bonds has also gone down. The assessee is not entitled to avail this double benefit. Hence, it is all the more necessary to apportion the expenses u/s 14A in respect of dividend income earned by the assessee company. (iv) The disallowance of administrative expenses and interest expenses on earning of dividend income claimed exempt, is also held/ permitted by the verdict of Hon'ble Supreme Court in the case of CIT vs. United General Trust Ltd. 200 ITR 488 (SC). v) Section 14A of the I.T. Act was inserted by the Finance Act, 2001 with retrospective effect from 01.04.1962 which provides as under:- "For the purpose of computing the to tal 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." Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee u/s 154 for any asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o by the assessee." 6.5 We find that the Assessing Officer is under the impression that no expenses have been incurred for earning the dividend income, whereas the assessee has made suo motu disallowance of ₹ 10 lakh. The Assessing Officer has not pointed out how the said claim of ₹ 10 lakh, is not correct. The Assessing Officer has jumped to the conclusion without examining the claim of the assessee. In our opinion, the facts and circumstances of the year under consideration being identical to the facts and circumstances of assessment year 2008-09, respectfully following the finding of the Tribunal (supra), we hold that no disallowance u/s 14A can be made without recording proper satisfaction as required under the law. Accordingly, the disallowance in dispute is deleted. The ground of appeal is allowed. 7. The ground No. 4 of the appeal relates to disallowance under section 14A of the Act while computing book profit under section 115JB of the Act. The Ld. CIT(A) upheld the disallowance observing as under: "9.4. The second part of ground of appeal is regarding the adjustment made by the AO in book profit u/s 115JB of the Act in respect of disallowance made by him u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Versus Vireet investments private limited [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB)/[2017] 58 ITR(T) 313 (Delhi - Trib.) (SB)/[2017] 165 ITD 27 (Delhi - Trib.) (SB)/[2017] 188 TTJ 1 (Delhi - Trib.) (SB) wherein it has been held that holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.. Accordingly we restore this ground of appeal back to the file of the learned Assessing Officer to decide the issue without resorting to the rule 8D of the income tax rules for disallowing expenditure in relation to the exempt income by working out the book profit. Thus, ground number 3 of the appeal is allowed with above direction." 7.3 The issue in dispute in the year under consideration being identical to the issue in dispute before the Tribunal in the assessment year 2008-09 and therefore respectfully following the same, we restore the ground of the appeal back to the file of the Assessing Officer to decide in view of the direction of the Tribunal in assessment year 2008-09. The ground of the appeal is accordingly allowed for statisti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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