Appeal partially allowed, disallowance under Section 14A removed, leasehold land depreciation issue remitted for re-examination

The Tribunal partly allowed the appeal, deleting the disallowance under Section 14A read with Rule 8D and remitting the issue of depreciation on leasehold land back to the AO for re-examination. The other grounds regarding the validity of the assessment order, levy of interest, and initiation of penalty proceedings were dismissed as not pressed or consequential.

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Issues Involved:
1. Validity of the assessment order.
2. Disallowance under Section 14A read with Rule 8D.
3. Disallowance of depreciation on leasehold land.
4. Levy of interest under Sections 234C and 234D and withdrawal of interest under Section 244A.
5. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Validity of the Assessment Order:
The assessee did not press this ground; hence, it was dismissed.

2. Disallowance under Section 14A read with Rule 8D:
The AO observed that the assessee had shown exempt income and questioned the disallowance of expenses related to earning this income. The assessee argued that no expenditure was incurred for earning the exempt income, as investments were made out of interest-free funds. The AO, however, disallowed 1% of interest expenditure, which was enhanced by the CIT(A) using Rule 8D. The Tribunal found that Rule 8D was not applicable for the assessment year 2006-07 and that the AO had not provided specific findings on the use of interest-bearing funds. Referring to the case of Godrej Boyce Mfg. Co. Ltd. vs. CIT, the Tribunal held that no disallowance could be made under Rule 8D for the year in question and deleted the addition.

3. Disallowance of Depreciation on Leasehold Land:
The AO disallowed the depreciation claimed on leasehold land, considering it as a capital expenditure. The CIT(A) upheld this view, referencing a prior ITAT decision in the assessee's own case. The assessee argued that the premium paid for leasehold land should be treated as an intangible asset eligible for depreciation. The Tribunal noted that in a similar case for an earlier year, the matter had been remitted back to the AO for verification in light of the decision in DCIT vs. Sun Pharmaceuticals Industries Ltd. The Tribunal decided to remit the issue back to the AO to examine and decide the matter accordingly.

4. Levy of Interest under Sections 234C and 234D and Withdrawal of Interest under Section 244A:
The assessee did not press this ground, and it was dismissed as consequential in nature.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee did not press this ground, and it was dismissed.

Conclusion:
The Tribunal partly allowed the appeal, deleting the disallowance under Section 14A read with Rule 8D and remitting the issue of depreciation on leasehold land back to the AO for re-examination. The other grounds were dismissed as not pressed or consequential.

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