TaxTMI 
TaxTMI 
2010 (9) TMI 291
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.... confirming the disallowance of depreciation - Rs. 2,96,631/- in respect of non-compete fees paid by the appellant on acquisition of business in earlier years. 3. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that similar issues involved in assessee's own case for the earlier years i.e. A.Y. 2003-04 & 2004-05 have been decided by the Tribunal in assessee's own case vide its common order dated 10.9.2009 passed in ITA No. 6807/M/06 and 6233/M/07. A copy of the said order is placed on record and a perusal of the same shows that similar issues have been decided by the Tribunal in favour of the assessee for the following reasons given in para No. 18 of the said order: "We have considered the rival submissions. Reading of provisions of section 43(6) clause (c)(b) shows that WDV of block asset can be reduced only in the case of sale, discarding or demolition or destruction of an asset forming part of block assets. It is not in dispute that goodwill and non-compete fees already formed part of block of assets and depreciation had been allowed on the same in the past. During the previous year, there was no sale, discardin....
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....rned Commissioner of Income Tax (Appeals) failed to consider that the Appellant had proved that investments had been made from its own funds and that no borrowings were utilized. 7) The learned Commissioner of Income Tax (Appeals) failed to consider that disallowance can be made only of expenditure which is incurred "in relation to" exempt income. Having regard to the facts and circumstances of the case and the provisions of law, the appellant submits that the Assessing Officer be directed to delete the disallowance under section 14A read with Rule 8D(2)(ii) amounting to Rs. 33,20,000/-. 8) The learned Commissioner of Income Tax (Appeals) erred in holding that Rs. 13,77,000/- was required to be disallowed under section 14A read with Rule 8D(20(ii). The appellant submits that the disallowance is unjustified and is required to be deleted." 6. During the year under consideration, the assessee company had earned the dividend income of Rs. 3 crores which was claimed as exempt income u/s 10(34). According to the A.O., interest as well as administrative expenses incurred by the assessee to the extent attributable to earning of the said exempt income were liable to be disallowed a....
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.... disallowed u/s 14A. Since the investment in shares of Rs. 30.42 crores made by the assessee was to the extent of 31.61% of the total funds of Rs. 96.18 crores, he treated the borrowed funds of Rs. 31.98 crores to the extent of Rs. 10.10 crores as utilized for making investment in shares on pro rata basis and proportionate interest attributable to the said amount worked out at Rs. 1,02,21,276/- was disallowed by him u/s 14A. He also identified the common administrative expenses incurred by the assessee company at Rs. 1,63,05,007/- and applying the ratio of 17.39% between the dividend income and total income, he worked out the disallowance u/s 14A on account of the said expenses at Rs. 28,35,404/-. Thus, a total disallowance of Rs. 1,30,56,716/- was made by the A.O. on account of expenses attributable to the exempt income earned by the assessee company in the form of dividend on shares. On appeal, the ld. CIT(A) upheld the action of the A.O. in invoking the provisions of section 14A to make a disallowance out of interest and other administrative expenses. He, however, restricted the quantum of such disallowance made by the A.O. to Rs. 46,97,000/- by applying Rule 8D of the Income Ta....
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.... authorities below have not disputed this position. According to them, the assessee, however, could have utilized its surplus funds in repaying the borrowings instead of investing in shares and by not doing so, there was diversion of borrowed funds towards investment in shares to earn dividend income. In the case of CIT vs. Hero Cycles Ltd. 323 ITR 518 cited by the ld. Counsel for the assessee, a similar contention was raised in the context of disallowance of interest expenditure u/s 14A and reliance in support of this contention was placed on behalf of the Revenue on the decision in the case of CIT vs. Abhishek Industries Ltd. 286 ITR 1. The Hon'ble Punjab & Haryana High Court, however, did not accept this contention raised on behalf of the Revenue observing that the judgment of Abhishek Indiustries Ltd. (supra) was on the issue of allowability of interest paid on loans given to sister concerns without interest. It was held that the relevant observations recorded in the said judgment therefore have to be read in that context. In the case of Hero Cycles Ltd. (supra), a finding was recorded by the Tribunal that the investment in shares and funds was made by the assessee out of th....