2022 (5) TMI 133 - AT - Income Tax

Tribunal directs AO to re-determine disallowance under Section 14A

The Tribunal allowed the appeal in favor of the assessee, directing the AO to re-determine the disallowance under Section 14A and to allow the claimed ... Disallowance u/s 14A - Disallowance exceeding amount of dividend income - HELD THAT:- As in the assessee’s own case for the assessment year 2004-05 and 2005-06, [2022 (1) TMI 44 - ITAT DELHI] the Co-ordinate bench has directed the Ld. AO to re-determine the disallowance u/s 14A of the Act after considering the judgment of Hon’ble Supreme Court of India in Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT] and further directing that in no way disallowance determined by the AO shall exceed 10% of the amount of dividend income. It was submitted that unlike in the earlier years in the revised return of income suo moto disallowance was made by the assessee but the Ld. Tax Authorities below have not taken the same into consideration. . Ld. DR could not distinguish the facts or cite any other legal proposition to contrary. The bench is of considered view that the present matter also deserves to be restored to the files of ld. AO to determine the disallowance in terms of aforesaid observations. Accordingly, Ground no. 1 is allowed for statistical purposes. Nature of expenditure - amount paid by the assessee to M/s Vilter Manufacturing Corporation, USA as fee for user of know-how - capital expenditure or revenue expenditure - HELD THAT:- As in the assessee’s own case for the assessment year 2004-05 and 2005-06, [2022 (1) TMI 44 - ITAT DELHI] not finding favour with the view taken by the lower authorities wherein they had rejected the assessee's claim for deduction of the payment made for the technical know-how to M/s Vilter Manufacturing Corporation, USA as a revenue expenditure, and had dubbed the same as a capital expenditure, set- aside the.order of the CIT(A) and direct the' A.O to allow the assessee's claim for deduction of the aforesaid amount of payment as a revenue expenditure - Decided in favour of assessee. Depreciation @ 60% on UPS - AO restricted the claim of depreciation @ 15% only on the UPS and disallowed the excess 45% - HELD THAT:- UPS is integral part of the computer and the depreciation upon same should be one given upon the computers @ 60%. Accordingly the ground is decided in favour of assessee and the ld. AO shall reassess the depreciation @ 60%- Decided in favour of assessee. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Treatment of payment made under an agreement as capital or revenue expenditure.3. Rate of depreciation on UPS.Issue-wise Detailed Analysis:Ground No. 1: Disallowance under Section 14AThe appellant declared a gross income of Rs. 1,04,00,712/- and claimed exemption under Section 10(34) and (35) of the Income Tax Act, 1961. The appellant added back Rs. 1,49,036/- as expenditure disallowable under Section 14A in the revised return. The Assessing Officer (AO) invoked Rule 8D of the Income Tax Rules, 1962, and disallowed Rs. 20,41,367/-, later rectified to Rs. 14,96,211/-. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted the disallowance to 10% of the exempt income, following the Tribunal's decision in the appellant's case for AY 2001-02. The Tribunal directed the AO to re-determine the disallowance, ensuring it does not exceed 10% of the dividend income, following the Supreme Court's judgment in Maxopp Investment Ltd. The matter was restored to the AO for re-determination.Ground No. 2: Treatment of Payment as Capital or Revenue ExpenditureThe appellant entered into an Intellectual Property License and Non-Compete Agreement with M/s Vilter Manufacturing Corporation, USA, and paid Rs. 15,39,793/- as part consideration. The AO treated this sum as capital expenditure under Section 32(1)(ii) of the Act, allowing depreciation on it. The CIT(A) upheld this view, following the decision in the appellant's case for AY 2004-05. However, the Tribunal noted that the payment for technical know-how was for facilitating the ongoing business and should be treated as revenue expenditure, following the Delhi High Court's judgment in CIT vs. Hero Honda Motors Ltd. Consequently, the Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction as revenue expenditure.Ground No. 3: Rate of Depreciation on UPSThe appellant claimed 60% depreciation on UPS, but the AO restricted it to 15%, disallowing the excess 45%. The CIT(A) upheld this view, allowing 60% depreciation only on printers. The Tribunal, referencing the Delhi High Court judgments in DCIT vs. Hotel Excelsior Ltd. and CIT vs. Oriented Ceramics and Industries Ltd., held that UPS is an integral part of the computer and should be depreciated at 60%. The AO was directed to reassess the depreciation at 60% for UPS.Conclusion:The Tribunal allowed the appeal in favor of the assessee, directing the AO to re-determine the disallowance under Section 14A and to allow the claimed deductions and depreciation rates as per the Tribunal's observations.Order Pronouncement:The order was pronounced in open court on April 29, 2022.