2019 (9) TMI 298 - AT - Income Tax

Tribunal rules in favor of assessee on depreciation & expenses disallowance, dismisses Revenue's appeal.

The Dy. Commissioner of Income Tax, Central Circle-2 (1) (1), And The Asst. Commissioner of Income Tax, Central Circle-2 (1) (1), Mumbai Versus BSE Ltd.

The Dy. Commissioner of Income Tax, Central Circle-2 (1) (1), And The Asst. Commissioner of Income Tax, Central Circle-2 (1) (1), Mumbai Versus BSE Ltd. - ... Issues Involved:1. Disallowance of depreciation on assets taken on lease.2. Disallowance of expenses related to exempt income under Section 14A read with Rule 8D.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Assets Taken on Lease:The first issue concerns the disallowance of depreciation on assets taken on lease from Hewlett Packard Financial Services India Pvt. Ltd. (HPFS). The assessee argued that the assets were acquired under a finance lease scheme, making them the owner of the assets, and thus eligible to claim depreciation. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the Assessing Officer's (AO) disallowance, stating that both the assessee and HPFS claimed depreciation on the same assets, which is not permissible. The assessee contended that once an asset is included in the block of assets and depreciation is allowed in the first year, subsequent depreciation claims cannot be disallowed if the first year's claim is not disturbed. The Tribunal agreed with the assessee, noting that the depreciation was allowed in the initial year and subsequent years, and thus, disallowance in the current year is inconsistent. The Tribunal allowed the assessee's claim for depreciation.2. Disallowance of Expenses Related to Exempt Income Under Section 14A Read with Rule 8D:The second issue involves the disallowance of expenses related to exempt income. The assessee had earned exempt income and made a suo moto disallowance of Rs. 40,13,000/- under Section 14A read with Rule 8D. The AO, however, computed the disallowance at Rs. 7,59,22,738/- as per Rule 8D, allowing the assessee's disallowance and making an additional disallowance of Rs. 7,19,09,738/-. The CIT(A) restricted the disallowance to Rs. 43,87,355/-, considering the ITAT's findings in earlier years. The Tribunal noted that the assessee had computed disallowance under Rule 8D(2)(iii) at Rs. 21,44,348/-, and the CIT(A) had accepted the disallowance under Rule 8D(2)(i) amounting to Rs. 21,52,635/-. The Tribunal directed the AO to restrict the disallowance to Rs. 21,44,348/- under Rule 8D(2)(iii), thus partly allowing the assessee's appeal and dismissing the Revenue's appeal.Conclusion:The Tribunal allowed the assessee's appeal regarding the disallowance of depreciation and partly allowed the appeal concerning the disallowance of expenses related to exempt income. The Revenue's appeal was dismissed, and the rectification application appeal was deemed infructuous.