2017 (8) TMI 77 - AT - Income Tax

Land Amortization Dispute Resolved: Section 14A Disallowance and Depreciation Upheld

The case involved issues concerning the disallowance of amortization charges of leasehold land, disallowance under Section 14A read with Rule 8D, and ... Disallowance of amortization charges of leasehold land - Held that:- There is no material on record to show that assessee has made these payments as advance rent for future years to secure any reduction in rent payable for future years or for any other business consideration. We are, therefore, unable to appreciate arguments advanced by Ld. Counsel that these advances paid are towards advance rent. Even from the terms of agreements, it is not clear as to whether advances paid has been adjusted against future rent or whether these are in the nature of security deposits which are refundable in nature on termination of agreements. Both parties before us have expressed their intention regarding issue being re-adjudicated by assessing officer de novo. Accordingly, we are inclined to set aside this issue to Ld. AO for fresh adjudication. Ld. AO shall investigate upon and take all necessary steps to ascertain true nature of alleged lease premium paid by assessee in the three agreement made as per law. Depreciation at rate of 60% on computer peripherals allowed. See CIT vs. BSES Yamuna Power Ltd.[2010 (8) TMI 58 - DELHI HIGH COURT ] Addition on account of Sec. 14A read with Rule 8D - Held that:- Issue of section 14A read with Rule 8D for year under consideration is also set aside to Ld. AO with a similar direction to re-compute disallowance of expenditure under section 14A read with Rule 8D as per ratio laid down by Hon’ble Delhi High Court in the case of Cheminvest Ltd., vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT]. Issues Involved:1. Disallowance of amortization charges of leasehold land.2. Disallowance under Section 14A read with Rule 8D.3. Excess depreciation on computer peripherals.Detailed Analysis:1. Disallowance of Amortization Charges of Leasehold Land:The assessee argued that the amortization charges for leasehold land should be allowed as business expenditure since the land was not owned but leased for business purposes. The CIT(A) upheld the AO's decision to disallow these charges, stating that the payments were capital in nature, providing enduring benefits over a 90-year lease period. The Tribunal noted the lack of clarity on whether the payments were advance rents or security deposits. Consequently, the Tribunal remanded the issue back to the AO for fresh adjudication to ascertain the true nature of the payments made under the lease agreements with JBM Industries Ltd., Greater Noida Authority, and Maharashtra Development Corporation.2. Disallowance under Section 14A read with Rule 8D:For the assessment year 2008-09, the AO disallowed Rs. 1,30,107 under Section 14A read with Rule 8D, attributing indirect expenses to investments that earned exempt income. The CIT(A) upheld this disallowance. The Tribunal, referencing the Delhi High Court's decision in Cheminvest Ltd. vs CIT, set aside the issue to the AO for recomputation in light of the said judgment, which emphasizes considering only those investments that yield dividend income.For the assessment year 2009-10, the AO initially disallowed Rs. 45,53,081, which the CIT(A) reduced to Rs. 4,51,375. The Tribunal again directed the AO to recompute the disallowance following the Cheminvest Ltd. decision, thereby setting aside the issue for fresh consideration.3. Excess Depreciation on Computer Peripherals:The AO disallowed excess depreciation of Rs. 16,532 claimed at 60% on computer peripherals, asserting they did not qualify as computers. The CIT(A) allowed the depreciation based on precedent from the Tribunal in Howarth India Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, citing the Delhi High Court's rulings in CIT vs. BSES Yamuna Power Ltd. and CIT vs. Orient Ceramics & Industries Ltd., which support higher depreciation rates for computer peripherals.Conclusion:- The issue of amortization charges for leasehold land was remanded to the AO for fresh adjudication.- Disallowances under Section 14A read with Rule 8D for both assessment years were set aside to the AO for recomputation based on the Cheminvest Ltd. judgment.- The CIT(A)'s decision to allow higher depreciation on computer peripherals was upheld.Outcome:- Assessee's appeals for both assessment years were allowed for statistical purposes.- Revenue's appeal for the assessment year 2009-10 was partly allowed.