2019 (12) TMI 213 - AT - Income Tax

Tribunal Decision on Income Tax Disallowance & Depreciation Rates

M/s. National Stock Exchange of India Ltd. Versus Addl. CIT, Rg. 7 (1), Mumbai (Vice-Versa)

The Tribunal partly allowed the appeal for statistical purposes regarding the disallowance under Section 14A of the Income Tax Act for AY 2007-08. The ... Disallowance u/s 14A r.w.r 8D - business of running a stock exchange - interest on tax free bonds and dividend income - assessee made suo moto disallowance of expenses u/s 14A of the Act computed at 0.1% of exempted income as expenditure attributable to earning of tax free income - Held that:- the year under consideration is Asst Year 2007-08, for which year, the computation mechanism provided in Rule 8D(2) of the Rules cannot be made applicable as it was introduced only with effect from 24.3.2008 relevant to Asst Year 2008-09 and was held to be prospective in operation - AO directed to disallow 1% of exempt income and work out the disallowance u/s 14A of the Act accordingly after reducing the amount already disallowed by the assessee in the return of income. - Decided partly in favor of assessee. Disallowance of proportionate amortized amount of lease premium paid to Bombay Metropolitan Regional Development Authority in respect of leasehold land - Capital or Revenue nature - Held that:- Matter restored before the AO for deciding the issue in the light of decision of Hon’ble Gujarat High Court in the case of Sun Pharmaceuticals India Ltd [2009 (3) TMI 587 - GUJARAT HIGH COURT] Disallowance of lease premium being included in the maintenance expenses - Held that:- Since the issue of disallowance of lease amortization premium of ₹ 1,29,52,157/- has been restored back to the file of ld AO supra, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue also to the file of ld AO for denovo adjudication in accordance with law. Treatment of maintenance charges recovered together with rental income - Held that:- As all these issues are interlinked with each other, we deem it fit and appropriate, in the interest of justice and fairplay, to restore this issue also to the file of ld AO for denovo adjudication in accordance with law. Rate of depreciation on computer software. - Held that:- Earlier, tribunal by placing reliance on the Special Bench decision in the case of Amway India Enterprises vs DCIT [2008 (2) TMI 454 - ITAT DELHI] had allowed depreciation at the rate of 60% on computer software. - Decided in favor of assessee. Bad debts - amounts written off as irrecoverable as trading / business loss.- Held that:- the genuineness of the aforesaid deposits paid to the parties in the ordinary course of business of the assessee company was never disputed by the revenue. Hence we hold that the said write off of deposits paid in the ordinary course of business would be allowable as a trading / business loss u/s 28 of the Act. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Proportionate amortized amount of lease premium paid.3. Disallowance of lease premium included in maintenance expenses.4. Treatment of maintenance charges recovered and rental income.5. Rate of depreciation on computer software.6. Disallowance of claim of deduction for amounts written off as irrecoverable.7. Disallowance of depreciation on VSAT network equipment.Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:- The assessee challenged the disallowance under Section 14A read with Rule 8D.- The assessee had claimed an exempt income and made a suo moto disallowance of expenses.- The AO applied Rule 8D(2) and made a total disallowance of Rs. 2,67,97,478.- The CIT(A) reduced the disallowance by applying a specific formula.- The Tribunal held that Rule 8D(2) cannot be applied for AY 2007-08 as it is prospective from AY 2008-09.- Following judicial precedent, the Tribunal directed the AO to disallow 1% of exempt income after reducing the amount already disallowed by the assessee.2. Proportionate Amortized Amount of Lease Premium Paid:- The assessee challenged the disallowance of Rs. 1,29,52,157 being the proportionate amortized amount of lease premium.- The Tribunal referred to a similar case (IOT Infrastructure & Energy Services Ltd) and the decision of the Gujarat High Court in Sun Pharmaceuticals Ind. Ltd.- The issue was restored to the AO for fresh adjudication in light of the Gujarat High Court decision.3. Disallowance of Lease Premium Included in Maintenance Expenses:- The assessee argued that Rs. 63,10,678, part of the maintenance expenses, was already added back in the computation of income.- The Tribunal found that the lease amortization premium was included in the total maintenance charges.- The issue was restored to the AO for fresh adjudication, allowing the assessee to present further arguments and evidence.4. Treatment of Maintenance Charges Recovered and Rental Income:- The assessee argued that maintenance charges collected should not be treated as income from house property.- The Tribunal noted the interlinking of this issue with the lease amortization premium.- The issue was restored to the AO for fresh adjudication, allowing the assessee to present further arguments and evidence.5. Rate of Depreciation on Computer Software:- The assessee claimed a higher depreciation rate of 60% on computer software.- The lower authorities had granted 25% depreciation, treating it as an intangible asset.- The Tribunal referred to its earlier decision in the assessee’s own case and allowed 60% depreciation.6. Disallowance of Claim of Deduction for Amounts Written Off as Irrecoverable:- The assessee wrote off deposits as irrecoverable and claimed them as business loss.- The AO disallowed the claim, treating the deposits as capital expenditure.- The Tribunal held that the write-off of deposits paid in the ordinary course of business is allowable as a business loss under Section 28.- The Tribunal directed the AO to grant the deduction of Rs. 58,23,274.7. Disallowance of Depreciation on VSAT Network Equipment:- The revenue challenged the deletion of disallowance of depreciation on VSAT network equipment.- The CIT(A) had relied on earlier orders in the assessee’s own case.- The Tribunal upheld the CIT(A)’s order, dismissing the revenue’s appeal.Summary of Judgments:- ITA No. 2687/Mum/2011 (AY 2007-08): Partly allowed for statistical purposes.- ITA No. 1751/Mum/2011 (AY 2007-08): Dismissed.- ITA No. 1739/Mum/2013 (AY 2008-09): Allowed for statistical purposes.- ITA No. 1738/Mum/2013 (AY 2009-10): Allowed for statistical purposes.Conclusion:The Tribunal provided detailed judgments on each issue, restoring several matters to the AO for fresh adjudication and allowing the assessee to present further evidence and arguments. The Tribunal also upheld certain decisions based on judicial precedents and earlier orders in the assessee’s own case.