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TMI Blog2025 (3) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, 1961. 2. That on the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming disallowance of Rs 5,66,812/- on account write-off of advances for purpose of leasehold improvements. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing." ITA No.-3408/De/2011 1. The order of the learned CIT(APPEALS) is erroneous & contrary to facts & law 2. On the facts and in the circumstances of the case and in law, the Ld. CTT (Appeals) has erred in restricting the Addition under section 14A to Rs. 2,55,46,255/- as against Rs. 4,43,57,450/- made by the AO. 2.1. The Ld. CIT (A) has ignored the finding recorded by the AO and the fact that the addition was correctly made by the AO in accordance with the provisions of Rule ID of LT. Rules. 1962. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition of Rs. 17,263/- made by disallowing the excess depreciation of computer peripherals. 3.1. The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the depreciation computer peripherals is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of Rs. 4,00,432/- made on account of bad debts and sundry creditors. 3.1. The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not file the necessary evidence to substantiate its claim during the assessment proceedings. 4. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has been in deleting the addition of Rs. 54,72,357/- made on account of duty credit received. 4.1. The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not offer the sum in question for taxation and was not credited in the P & L account. 5. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing. ITA No.-1414/Del/2013 "4. That on the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming disallowance of Rs 14,92,34,526/- under section 14A of the IT, Act. 5. Without prejudice to ground No. 1 Learned CIT(A) erred on facts and circumstances of the case in confirming disallowance of interest even on average value of investments in unlisted and listed securities for apportioning interest in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of the Director of the assessee company was not incurred wholly and exclusive for the purpose of business and there was no any nexus between foreign education incurred on behalf of the children of the Director of the assessee company and the business of the company and disallowed u/s 37 of the Act. 5.2 The Ld. CIT(A) observed while deciding this issue, of which relevant para 5.2 to 5.3 is hereby reproduced as under: "5.2 On facts, the expenditure on foreign education of Mr. Arjun Bhartia and Ms. Ashti Bharita who are son and daughter of Shri H.S. Bhartia, the director of the appellant company is held to be not laid out and expended wholly and exclusively for the purposes of business or profession of the assessee. The decisive test in a situation like this is to ask a question whether an assessee will incur expenditure of the type being claimed in case of appellant as business expenditure in case of any employee. If this test is applied, it would be clear that huge expenditure on foreign education is incurred because they are son and daughter of Shri H.S.Bhartia, the Director of the appellant company and such expenditure has no business connection. It is further notable that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the larger context of business issues and the role of business in society, history, culture and ideology. It leads to more creative, innovative and entrepreneurial thinking as a result of the cross-fertilization of ideas and the constantly fresh perspective that this produces." 5.4 The Ld. AR further submitted that education expenses were sponsored by the assessee / appellant company pursuant to Board Resolution dated 23.06.2024 by which resolved to the approved sponsoring education expenses, including boarding, lodging and tuition fees of Mr. Arjun Bhartia to study liberal, arts, in order to be well equipped to get education from reputed universities helpful in future growth and development of the assessee / appellant company, at Brown University, province US and S.S. Bhatia and H.S. Bhartia was authorized severally to settle terms and conditions on which assessee company will employ him after came back on completion of education abroad. Extract of abovesaid resolution dated 23.06.2004 is furnished as under: "The Chairman informed that Mr. Arjun Bhartia, son of Co- Chairman & Director, Mr H.S. Bhartia, had been admitted for 4 years' Graduation in Liberal Arts from Brow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immensely to its growth and profitably and did not receive any remuneration from the assessee / appellant company for two years till 31.03.2012 and with effect from 01.04.2012 remuneration was paid to Mr. Arjun Bhartia and the said remuneration expenses in the books of the assessee company was accepted and allowed by the AO during assessment proceedings. 5.6 The Ld. AR also contended that it is established principle of law that although the fact that employee whose education was sponsored was son of the Director of the assessee company could not be ignored, however, while judging the allowability of such expenditure, would be wholly irrelevant for the court to consider as to whether the assessee could have similarly assisted another employee unrelated to its management. He referred judgment passed by Hon'ble Delhi High Court in 365 ITR 436 (Del) Kostub Investment Ltd. vs. CIT, of which relevant paras 8 to 10, reproduced as below: "8. This Court has considered the materials on record. There can be no doubt that the burden of showing that expenditure would be wholly and exclusively for the purpose of business under Section 37(1) is upon the assessee and that personal expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class - unrelated to the management -would qualify for deduction under Section 37(1). We do not see any such intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent." 10. In view of the above discussion, having regard to the circumstances of the case, this Court is of the opinion that the expenditure claimed by the assessee to fund the higher education of its employee to the tune of Rs. 23,16,942/- had an intimate and direct connection with its business, i.e. dealing in security and investments. It was, therefore, appropriately deductible under Section 37(1)." 5.7 The Ld. AR also relied upon judgment passed by the Hon'ble Karnataka High Court in the case of CIT vs. Ras Information Technologies (P) Ltd. 238 CTR 76 (Kar.), in which held that once the expenses incurred is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established principle of law, this ground deserves to be allowed in the favour of assessee and addition in question is hereby deleted. Ground no. 2 6. The Ld. AR submitted that the Ld. CIT(A) erroneously confirmed disallowance of Rs. 5,66,812/- on account of write-off of advances for the purpose of lease hold improvements. 6.1 The Ld. AO observed in this regards that only a trading debt will be debt allowable as it should be revenue in nature but the assessee company claiming an amount of Rs. 5,66,812/- as bad debts on payments / advances made towards lease hold improvements and since these payment / advances are in the nature of capital expenditure, can't be claimed as a revenue expenditure. 6.2 The Ld. CIT(A) confirmed the observation of the Ld. AO and sustained disallowance as mentioned hereinbefore and stated in para no. 6.1 of the impugned order as under: "6.1.... However, in respect of the impugned amount of Rs. 5,66,812/- the twin conditions of allowability of bad debts written off are not fulfilled. It is further observed that the above amounts has been paid towards capital outlay i.e. renovation of leased premises, the nonrecovery of which would, in the facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi in the case of CIT u. R.G. Scientific Enterprises (P) Ltd (2008) 311 ITR 401 (Delhi). Accordingly, disallowance of Rs. 1,45,205/- is hereby confirmed. In view of the aforesaid, out of total disallowance of Rs. 2,09,523/-, is directed to be deleted. As a result, the Grounds of Appeal No. 11 & 12 raised by the appellant are accordingly partly allowed." 39. Ld. Counsel has also placed his reliance upon circular No. 12/2016 issued by CBDT dated 13.05.2016 which supports view taken by Hon'ble Supreme Court in case of TRF Ltd (supra). Respectfully following same, we are inclined to confirm decision of Ld. CIT(A) and delete this ground of appeal raised by Revenue." 6.4 In conclusion by following the previous order passed by Coordinate Bench in assessee's own case. This ground deserves to be allowed and in the result addition in question is deleted. Ground no. 2 and 2.1 (ITA No. 3615/Del/2011) Revenue's appeal Ground no. 1 & 2 (ITA No. 1414/Del/2011) Assessee's appeal Ground no. 3 (ITA No.- 3197/Del/2011) Assessee's appeal Ground no. 2 and 2.1 (ITA No. 3408/Del/2011) Revenue's appeal Ground no. 1, 2 and 3 (ITA No. 3198/Del/2011) Assessee's appeal 7. As ground no. 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of disallowance u/s 14A of the Act. ITA No. 3198/Del/2011 11. Ld. AR for the assessee submitted that during the relevant previous year, the Appellant company earned dividend income of Rs. 3,25,32,763 The Appellant company also incurred administrative expenses of Rs. 30,69,65,765 personnel expenses of off Rs. 16,52,20,735 and finance charges of Rs. 21,63,98,894/-.Further, in the return of income filed for the relevant year, the Appellant made suo motu disallowance of Rs. 1,98,89,751 under section 14A of the Income-tax Act, 1961 ("the Act) read with provisions of Rule 8D of the Income-tax Rules, 1962 ("the Rules"). Further, while computing "the average value of investments" for the purposes of Rule 8D(2)(ii) and (iii) of the Rules, the Appellant company only considered those investments on which exempt income was received during the relevant previous year The investment-wise details of exempt dividend income received by the Appellant company during the relevant previous year, along with the respective opening and closing balances of investments. Further, he has submitted that In the assessment order, out of the total administrative, finance and personnel expenses, aggregatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1962 to Rs. 17,78,84,314/- which was thereafter restricted to Rs. 14,92,34,526/- looking to the suo moto disallowance of Rs. 2,86,49,788/- by the assessee / appellant company and CIT(A) vide impugned order dated 28.12.2012 upheld the disallowance by stating that facts of case are similar to that for AY 2008-09 wherein similar disallowance was considered and upheld. 14. It is also submitted that disallowance u/s 14A u/s rule 8D should have been computed by taking into account only such investments on which dividend was received in the 'Average Value of Investment" while invoking Rule 8D (ii) and (iii) and referred the judgement passed by jurisdictional Delhi High Court in PCIT vs. Caraf Builders & Constructions Pvt. Ltd. 414 ITR 122 (Del), in which relevant para 26 as under: "26. There is another error made by the Assessing Officer in computing the disallowance under clauses (ii) of Rule 8D (2) with reference to the formula prescribed. Numerical B in clause (ii) refers to average value of the investment, income from which does not form part or shall not form part of the total income. The Assessing Officer for numerical B in clause (ii) had taken the total value of the investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting average value of investments which yielded exempt income during relevant year. 14.4 In the case of Joint investment (P) Ltd. vs. CIT (2015) 59 taxmann.com 295 (Delhi), the Hon'ble Delhi High Court held that where assessee declared tax exempt income and voluntarily disallowance certain expenditure u/s 14A, in absence of reason why assessee's claim for disallowance u/s 14A had to be rejected, the Ld. AO was not justified in recomputing disallowance and this case, matter was remitted back to the AO for fresh consideration. Relevant para 9 and 10 are as under: "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2.97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by disallowing the excess depreciation of computer peripherals by ignoring that the depreciation computer peripherals allowed to @ 15% and not @ 60%. Per contra, the Ld. Ar contended that the assessee claimed depreciation computer peripherals @ 60% available in respect of computers, on the ground that UPS constitutes integral part of computer but the Ld. AO erroneously held that the UPS is not integral part of the computer. The Ld. AR relied upon the judgment passed by the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Power Ltd. (Delhi High Court), in ITA No. 1266/2010, dated 31.08.2010 of which relevant para 4 is reproduced as under: "4. We are in agreement with the view of the Tribunal that computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%." 16. It is pertinent to mention here that thereafter Hon'ble High Court while deciding appeal preferred by Revenue in the case of CIT vs. Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences under the duty entitlement pass book do not represent the real income of the assessee. Consequently, or there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue." 20. It has been brought in our notice that the said issue also been decided by Co-ordinate Bench vide order dated 24.03.2017, ITA No. 4032/Del/2011, A.Y. 2006-07. Fact situation emerged from above discussion leads us to conclude that ground raised by Revenue is liable to dismissed as no anything contrary brought on record by Revenue to deviate from the observation and findings expressed by the Ld. CIT(A) and hence we inclined to dismiss this ground. 21. In the result, the appeals of the Assessee and Revenue are in ITA No.3197/Del/2011 (Assessee) is allowed, ITA No.-3198/Del/2011(Assessee) is allowed, ITA No.-1414/Del/2013 (Assessee), allowed for statistical purpose, ITA No.- 3408/Del/2011 (Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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