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TMI Blog2024 (8) TMI 802X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ld. AO to disallow only a sum of Rs 2,00,000/-, being the actual expenditure suo moto disallowed by the assessee under normal provisions of the Act, to be considered for the purpose of computing book profits u/s 115JB. Nature of expenses - allowability of expenditure incurred on Paintings - Revenue or capital expenditure - HELD THAT:- We find that the assessee rents out office / commercial space and provides facility management services to its tenants. During the year under consideration, the assessee had earned service income. Owing to the nature of business, the assessee keeps on refurbishing the common areas frequently to attract the foreign visitors, employees of the multinational companies, which, in turn, attracts more clients and also gets higher return from the maintenance income as compared to the other buildings located in the same area. We are completely convinced with the aforesaid submissions of the assessee and hold that the cost of paintings are meant for aesthetic purpose and for having better environment and accordingly to be construed as expenditure wholly and exclusively incurred for the purpose of business of the assessee herein. Our view is further fortif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER For the Appellant : Shri Rohit Jain, Adv, Shri Deepesh Jain, CA and Shri Shaurya Jain, CA For the Respondent : Shri Anuj Garg, Sr. DR ORDER PER M. BALAGANESH, A. M.: 1. The appeal in ITA Nos. 1629/Del/2012, 1226, 1227 and 6512/Del/2013 for AY 2008-09, 2009-10 and 2010-11 arises out of the order of the Commissioner of Income Tax (Appeals)-XIX, New Delhi dated 20.1.2012, CIT(A)-9, New Delhi dated 05.12.2014 CIT-19, New Delhi dated 30.08.2013 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act‟) dated 31.12.2010 by the Assessing Officer, DCIT, Central Circle-16(1), New Delhi (hereinafter referred to as ld. AO‟). 2. Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. ITA No. 1629/Del/2012 Asst Year 2008-09 3. The assessee has raised the following grounds of appeal before us:- 1. That the CIT(A) erred on facts and in law in confirming the disallowance of Rs. 1,54,06,773/- made by the assessing officer under section 14A of the Income tax Act, 1961 ('the Act') read w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal. 6. The Ground Nos. 1 , 1.1.and Additional Ground No. 1.2. raised by the assessee are challenging the disallowance made u/s 14A of the Act while computing income under normal provisions of the Act. 6.1. We have heard the rival submissions and perused the materials available on record. The assessee is a public limited company engaged in the business of real estate, provision of various facilities / services to tenants etc. The revised return of income was filed by the assessee declaring total income of Rs Nil after adjustment of brought forward losses under normal provisions of the Act and book profits of Rs 18,19,41,260/- u/s 115JB of the Act. During the year under consideration, the assessee received exempt income in the form of dividend amounting to Rs 13,15,40,042/-. The assessee stated that 97.2% of the dividend income was received from old strategic long term investments as under:- Particulars Dividend Investment Remarks HT Media Limited 4.82,95.581 195,04,13,000 These investments were acquired way back in financial year 2003-04 and 2004-05- No fresh investment Chambal Fertilizers Chemicals 7,95,80,956 73,90,46,000 Major investment of Rs.72.59 cr. in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in an objective manner having regard to the accounts of the assessee as to why the suo moto disallowance made by the assessee u/s 14A of the Act is incorrect, before resorting to computation mechanism provided in Rule 8D(2) of the Rules. Reliance in this regard has been rightly placed on the decision of Hon ble Jurisdictional High Court in the case of H T Media Ltd vs PCIT reported in 399 ITR 576 (Del) wherein it was held as under:- 30. Rule 8D(1) states more or less what Section 14A(2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee s claim of expenditure or (b) the claim made by the assessee that no expenditure has been incurred. Unless this stage is crossed i.e. the stage of the AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee s accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory pre-requisite for applying Rule 8D (2) is fairly well-settled. . 34. The Assessee had explained that Rs. 3 lakhs was being disallowed voluntarily as an exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der are of a broad general nature not with particular reference to the facts of the case on hand. 6.4. Further the argument of the ld. AR that 97.2% of dividend income had been received by the assessee from strategic investments and the same need to be eliminated is misconceived in view of the decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd vs CIT reported in 402 ITR 640 (SC). To this extent, the argument advanced by the ld.AR is dismissed. 6.5. We further find lot of force in the alternative argument advanced by the ld. AR that only those investments which had yielded exempt income is to be considered while working out the computation mechanism provided in Rule 8D(2) of the Rules. This view of ours is further fortified by the decision of Hon ble Jurisdictional High Court in the case of ACB India Ltd vs ACIT reported in 374 ITR 108 (Del) and PCIT vs Caraf Builders Constructions P Ltd reported in 414 ITR 122 (Del). 6.6. In view of the aforesaid observations, we hold that the ld. AO had not recorded any objective satisfaction having regard to the accounts of the assessee as to why the suo moto disallowance made by the assessee is incorrect. Respectfully followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) held that though the paintings are used in the business premises of the assessee, depreciation thereon is not allowable as the same constitutes personal effects and the value of paintings increases with the passage of time rather than diminishing. The assessee had challenged the disallowance of depreciation before us and had also raised an additional ground alternatively that the said cost of paintings which is being used in the business premises of the assessee would be eligible for deduction as revenue expenditure. 8.2. We find that the assessee rents out office / commercial space and provides facility management services to its tenants. During the year under consideration, the assessee had earned service income of Rs 6.81 crores. It was submitted that the paintings / works of art constitute part of interior decoration to improve aesthetics of the reception and common area of the buildings, which are regularly visited by its clients and from the assessee is deriving income. The assessee buys customized paintings which are regularly replaced after few years with other contemporary paintings, shuffles the location of the paintings, puts them in new locations in the common are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in damage to the scrap and currency kept in the said premises. While the entire amount was burnt in fire, the scrap dealer i.e M/s IS Trading Company) claimed the aforesaid amount given as advance to the assessee and even filed suit in the court for recovery of the amount. Due to loss of the amount on account of fire and the corresponding claim by the scrap dealer, the amount was written off as business loss by the assessee in the books of accounts and claimed as deduction in the return. The ld. AO disallowed the claim on the ground that the assessee had not filed supporting evidences in relation to the aforesaid claim. The ld. AO also held that no income was offered by the assessee in terms of section 36(2) of the Act with regard to the said currency burnt in fire and hence the same when written off would not be eligible for deduction u/s 36(1)(vii) of the Act. Before the ld. CIT(A), the assessee submitted the report of the Delhi Fire Service and Board resolution authorizing the write off of the said loss of cash burnt in fire. This action of the ld. AO was upheld by the ld. CIT(A). 9.2. At the outset , the contentions of the revenue that no income was offered in terms of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO continues to disallow the loss on account of currency burnt in fire in the year under consideration, then correspondingly the amount written back to income in Asst Year 2019-20 should not be brought to tax and ld. AO would have to give effect in Asst Year 2019-20 accordingly, in order to avoid double taxation. With these directions, the Ground No. 4 raised by the assessee is allowed for statistical purposes. 10. In the result, the appeal of the assessee in ITA No. 1629/Del/2012 for Asst Year 2008-09 is partly allowed for statistical purposes. ITA No. 6512/Del/2013 Asst Year 2009-10 11. The assessee had raised the following additional grounds of appeal before us:- 1.5. That on the facts and circumstances of the case and in law, while computing disallowance under section 14A of the Act read with Rule 8D(2)(iii) of the Rules, the investment which did not yield exempt income during the relevant year and strategic investment ought to be excluded while computing the average value of investment in terms of the aforesaid clause. 1.6. That the assessing officer erred on facts and in law in wrongly computing disallowance as per Rule 8D of the Rules by considering average value of total a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by one Director (Shri Priyavrat Bhartia) to whom no remuneration is paid by the assessee company. The assessee submitted that from Asst Years 2002-03 onwards, the ld. AO had accepted the disallowance of expenses at Rs 1,00,000/- or Rs 2,00,000/- as the case may be. The ld. AO without recording any satisfaction as to how the suo moto disallowance made by the assessee is incorrect having regard to the books of accounts of the assessee, directly proceeded to disallow the expenses u/s 14A of the Act read with Rule 8D(2)(ii) and (iii) of the Income Tax Rules a sum of Rs 2,34,54,006/- after reducing the suo moto disallowance of Rs 2 lakhs made by the assessee. This action of the ld. AO was upheld by the ld. CIT(A). 13.3. At the outset, we find that the ld. AO had rejected the basis of disallowance u/s 14A of the Act submitted by the assessee without recording any satisfaction thereon as to why the said basis is incorrect. The assessee had explained that it had taken DGM Accounts salary at 10% as attributable to investment activity and the Director who is incharge of taking investment decisions was not paid any remuneration. Further the assessee had the history in its favour wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order, the AO records that, in answer to the query posed by the AO requiring it to produce calculation for disallowances, the Assessee submitted that they have not incurred any expenditure for earning the dividend income. Thereafter, in para 3.3, the AO records I have considered the submissions of the Assessee and found not to be acceptable. Thereafter, the AO proceeded to deal with the said provisions of Section 14A and Rule 8D and observed, in para 3.3.1, that making of investment, maintaining or continuing investment and time of exit from investment are well informed and well coordinated management decisions that, in relation to earning of income, are embedded in indirect expenses. It is then stated in para 3.4 that, in view of the above, the provisions of sub-section (2) of Section 14A and Rule 8D of the Rules are in operation and therefore, will strictly be adhered to by the Assessee. In para 3.6 of the assessment order, after discussing Section 14A(1) read with Rule 8D and referring to the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. (supra), the AO simply stated that in view of the facts and circumstances and legal position on the issue as di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee as to why the suo moto disallowance made by the assessee is incorrect. Respectfully following the decision of Hon ble Jurisdictional High Court in the case of H T Media Ltd referred supra, we hold that the disallowance u/s 14A of the Act should be restricted only to Rs 2,00,000/- for the year under consideration. Accordingly, the Original Ground Nos. 1 to 1.4. and Additional Ground No. 1.5. 1.6. are disposed of in the abovementioned terms. Since relief is granted to the assessee on merits for disallowance of interest under Rule 8D(2)(ii) of the Rules, the ground raised for incorrect computation of average assets for the purpose of Rule 8D(2)(ii) of the Rules need not be gone into. 14. The Ground Nos. 3 3.1. raised by the assessee for the Asst Year 2009- 10 are identical to Ground Nos. 2 to 2.2. raised for the Asst Year 2008-09 and the decision rendered thereon for Asst Year 2008-09 shall apply mutatis mutandis for Asst Year 2009-10 also. Hence we hold that only a sum of Rs 2,00,000/- is to be disallowed for the purpose of section 115JB of the Act. Accordingly, the Ground Nos. 3 3.1. raised by the assessee are partly allowed. 15. In the result, the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court in the case of ACB India Ltd vs ACIT reported in 374 ITR 108 (Del) and PCIT vs Caraf Builders Constructions P Ltd reported in 414 ITR 122 (Del). 16.4. Further the argument of the ld. AR that major dividend income had been received by the assessee from strategic investments and the same need to be eliminated is misconceived in view of the decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd vs CIT reported in 402 ITR 640 (SC). To this extent, the argument advanced by the ld.AR is dismissed. 16.5. We find that the ld. AO had rejected the basis of disallowance u/s 14A of the Act submitted by the assessee without recording any satisfaction thereon as to why the said basis is incorrect. The assessee had explained that it had taken DGM Accounts salary at 10% as attributable to investment activity and the Director who is incharge of taking investment decisions was not paid any remuneration. Further the assessee had the history in its favour wherein in earlier years, the disallowance at Rs 2,00,000/- alone was made by the ld. AO u/s 14A of the Act. Hence the assessee had a proper basis for its suo moto disallowance. The ld. AO did not even bother to discus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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