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TMI Blog2024 (5) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... d including the orders of Tribunal in earlier years, our adjudication would be as under. First, we take up assessee's appeal ITA No. 10/Chny/2018 for AY 2012-13 which arises out of the order of learned Commissioner of Income Tax (Appeals)-17, Chennai dated 26.10.2017 in the matter of an assessment framed by Ld. AO u/s 143(3) of the Act on 23.03.2015. The grounds taken by the assessee read as under: - "1. The order of the Commissioner of the Income Tax (Appeals) is contrary to law, weight of evidence and probabilities of the case. 2. The Commissioner of the Income Tax (Appeals) erred in disallowing notional expenditure of Rs. 2,60,53,123/- u/s.14A read with Rule 8D disregarding the fact that no expenditure was actually incurred for earning the exempt income. 3.1 The Commissioner of the Income Tax (Appeals) has erred in invoking the Rule 8D where in it can be done only when there is an expenditure incurred for earning the exempt income whereas in our case there is no expenditure actually incurred for the said purpose. 3.2 Even assuming rule 8D is to be invoked the Commissioner of the Income Tax (Appeals) erred in arriving at the quantum of disallowance. The Appellant company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRR method, in which case Rs. 3,97,50,654/(offered by the Assessee under EMI method adopted for Income Tax Purposes) has been brought to tax in the earlier years and would not constitute income of the current year and hence required to be reduced from taxable income. 6. The Commissioner of the Income Tax (Appeals) ought to have appreciated the fact that UPS is used only as an integral part of computer and hence it has to be included under the block "Computer" and cannot be included under the block "Plant and Machinery" for the purpose of reckoning the depreciation rates. 7. The Commissioner of the Income Tax (Appeals) ought to have considered the fact that the software development expenses have been capitalized in the books in order to meet the requirement specified in Accounting standard 26 issued by the Institute of Chartered Accountants of India. 7.1 The Commissioner of Income Tax (Appeals) erred in treating the software development costs as capital expenditure and allowed depreciation @ 60% as against the claim of the appellant that it is business expenditure as these are revenue in nature and revenue expenses have to be allowed in the year in which they are incurred. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the assessee is in further appeal before us. 3.4 The submissions of Ld. AR are two-fold viz. own funds are more than the investments made by the assessee and therefore, no interest disallowance is called for. Secondly, the 0.5% as per Rule 8D(2)(iii) should be computed by considering only those investments which have actually yielded any exempt income during the year. This proposition is stated to have been accepted by Tribunal in earlier year. 3.5 We find that, on similar facts, Tribunal in assessee's own case for AYs 2008-09 to 2010-11 (ITA Nos. 74/Chny/2015 & ors. dated 09.03.2022) accepted both the propositions of Ld. AR. Following consistent stand of Tribunal, we direct Ld. AO to verify whether assessee's own funds are sufficient enough to cover the investment. If so, interest disallowance would not be justified. Further, the indirect disallowance of 0.5% should be computed only on those investments which have yielded exempt income during the year. The grounds, in all the three years, stand allowed for statistical purposes. 4. Ground No. 4 : Recovery of Bad-Debt written off in the books of amalgamating Companies 4.1 The assessee, in its computation of income, reduced ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itched over to Internal Rate of Return (IRR) method from Even-Spread Method (ESM) for apportionment of finance charges on hire purchase transactions. The switch over was stated to be as per the requirements of the Accounting Standard (AS-19) on leases issued by the Institute of Chartered Accountants of India (ICAI). However, for income tax purpose, the assessee continued to follow ESM method as done in earlier years. For the current AY, such change resulted in hire purchase finance charges on ESM basis being higher than the income recognized on IRR method in the books to the tune of Rs. 397.50 Lacs. Accordingly, the same was offered to tax by the assessee while computing the taxable income. The Ld. AO did not concur with the same. 5.2 The Ld. CIT(A), following the decision of Tribunal for AY 2001-02 in ITA Nos. 955 & 829/Mds/2005 dated 31.07.2007 confirmed the stand of Ld. AO against which the assessee is in further appeal before us. 5.3 We find that this issue is covered by the latest order of Tribunal in ITA Nos. 74/Chny/2015 & ors. order dated 09.03.2022. The bench, in paras 3.2 and 3.3, considered the decision of Hon'ble High Court of Madras in assessee's own case. The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod Interest; (ii) Disallowance of bad Debts; (iii) Indexation benefit while computing Capital Gains on government securities; (iv) Rate of Depreciation on Motor Vehicles. These are adjudicated as under: 9. Treatment of Broken Period Interest 9.1 It transpired that the assessee was in regular sale and purchase of Government securities. These securities were classified as investment. It was noted that in almost every sale or purchase of securities, capitalloss was booked after taking the benefit of indexation. It was noted by Ld. AO that broken period interest on purchase and sale of securities was accounted as revenue item in the books in accordance with AS-13 issued by ICAI. However, for tax purposes, these items were treated as part of cost / consideration, as the case may be, based on the decision of Hon'ble Supreme Court in the case of Vijaya Bank (187 ITR 547). Accordingly, the resultant gains / losses were offered to tax under the head capital gains. However, Ld. AO opined that the transactions would be assessable as 'business income'. Accordingly, the surplus was reduced from the income of the assessee. The Ld. CIT(A), following first appellate order for AY 2004-05, allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) to the assessee on government securities holding that Bonds and Debentures are distinguishable from government securities. The assessee claimed indexation benefit on government securities. However, Ld. AO denied the same on the ground that all capital assets which are in the nature of debt instruments, excluding capital indexed bonds issued by Government, was not eligible for indexation benefit with the insertion of third proviso to Sec. 48. The Ld. CIT(A), following first appellate order for AY 2003-04 allowed indexation benefit. Aggrieved, the revenue is in further appeal before us. 11.2 We find that this issue has been settled in assessee's favor by coordinate bench in its order dated 31.03.2017 in ITA No. 284/Chny/15 for AY 2003-04 (para 7 to 13). The bench observed that government securities are not excluded from the definition of capital assets. As per Sec. 2(42A), the expression 'securities' shall have the meaning as assigned in Clause-11 of Securities Contract Regulation Act, 1956 which includes government securities also. It was thus concluded by the bench that bonds and securities are distinguishable. The bonds are not freely tradable whereas the securities a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed depreciation @15%. In this regard, it is relevant to refer to the decision of the Hon'ble Supreme Court in the case of CIT vs Shaan Finance (P) Ltd (231 ITR 308)(SC) wherein in a similar case the apex Court declared as follows: When the business of the assessee is leasing of such machines, the machines so leased out are being used for the purpose of the assessee's business. The income by way of hire charges which the assessee receives is also taxed as business income of the assessee. In the case of the appellant it is seen that the business of the appellant involves leasing of motor cars and the lease rentals received are offered to tax as business income. In view of the above, and respectfully following the view endorsed by the Hon'ble ITAT I hold that the Assessing Officer erred in disallowing the depreciation claimed by the appellant. The Assessing Officer is directed to allow depreciation at the higher rate of 50% for the new motor vehicles acquired between 1.1.2009 and 30.09.2009 and used for the purposes of their business. The appellant succeeds in this ground. 12.3 We are of the considered the Ld. CIT(A) has clinched the issue in correct perspecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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