TaxTMI 
TaxTMI 
2014 (7) TMI 422
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....sed out to ABSEB vide lease agreement dated 30.09.1997. The assessee had claimed depreciation @ 100%, assets being energy saving device eligible for 100% depreciation. However, the AO had disallowed the depreciation on the ground that this was merely a financial arrangement and the intention behind the lease agreement was never to own the assets but to lend money on the security of the assets. On appeal, the Ld.CIT(A) deleted the impugned disallowance on the basis of the earlier order of the Ld.CIT(A) providing relief to the assessee on similar issue for the assessment year 1996-97. Aggrieved by the impugned decision, the revenue is in appeal before us. 2.2 Having heard both the sides and perused the material on record, it is pertinent to mention that it is the contention of the revenue that according to the decision of the Special Bench in the case of IndusInd Bank Ltd. Vs. ACIT (2012) 135 ITD 165 (Mum) (SB), the transaction is merely a financial transaction and hence the assessee is not the owner of the asset and therefore depreciation cannot be availed by the assessee. On the other hand, it is the contention of the Ld.Senior Counsel for the assessee that at the time of render....
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....shares. However, the AO concluded that the assessee company was not dealer in shares and accordingly the interest paid during the year was treated as cost of acquisition of shares, thereby the deduction claimed by the assessee was denied by the AO. On appeal, the Ld.CIT(A) directed the AO to allocate the expenditure u/s 14A, on account of interest on borrowed funds against the tax free dividend income earned by the assessee. According to the Ld.CIT(A), the assessee company had borrowed funds amounting to Rs. 50.04 crores and the entire funds were invested for purchasing shares of other companies out of which it had earned tax free dividend income. The Ld.CIT(A), while noting that the assessee had earned tax free dividend income of Rs. 1,41,79,460/-, had observed that on the one hand the assessee claimed that the dividend income was exempt hence no interest expenditure should be allocated against it and on the other hand it also claim the expenditure on account of interest on borrowed funds u/s 36(1)(iii) of the Act. Aggrieved by the impugned decision, the assessee is in appeal before us. 3.2 Before us, the Ld.Senior Counsel for the assessee has argued that the interest expenditu....
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....ired to revise an assessment which includes order of enhancement issued by the CIT(A) in exercise of his powers. The assessment year under consideration being 1998-99, we are of the considered view that the said bar in the proviso to section 14A, according to the decision of the High Court of Kerala, is applicable in relation to the exercise of appellate power by the CIT(A) also. Therefore, the Ld.CIT(A) is not within his powers to direct the AO to allocate the expenditure u/s 14A, on account of interest on borrowed funds against the tax free dividend income earned by the assessee. Thus, the said direction is not legally tenable. Secondly, as regards the correctness of disallowing the interest on borrowed funds, the perusal of the findings of the Ld.CIT(A) contained in para 4.5 of the impugned order indicates that the Ld.CIT(A) has completely ignored the contentions of the assessee against the disallowance of interest expenditure made by the AO as the Ld.CIT(A) has altogether proceeded to decide the issue in the light of section 14A, which we have already held as not legally tenable in view of the proviso to section 14A. Therefore, we are of the considered view that it is just and ....
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....ourse of its financing business, i.e., business of giving loans to the customers. The company, being a non banking financial company, gives loan for purchase of vehicle and industrial equipment. The said stamping expenses represented a statutory obligation payable on the loans agreements. The stamp duty was required to the paid on each loan agreement depending on the prevailing rates of stamp duty in each state where the vehicle is financed by the assessee company. As the assessee was not in a position to reconcile the expenses and the receipts bill wise during the assessment proceeding, the AO was not in a position to verify the same and thereby disallowed the claim of the assessee. On appeal, the Ld.CIT(A) observed that the impugned expenses on account of stamp duty charges were legitimate business expenses in respect of vehicle finance contract. Further, since the income from which had been assessed to tax and the books of the accounts of the assessee company were audited, the Ld. CIT(A) held that stamp duty charges were incurred for the purpose of business and thereby allowed the deduction claimed by the assessee. Aggrieved by the impugned decision, the revenue is in appeal bef....
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....s the issue is no more a res integra, we do not find any infirmity in the direction of the Ld.CIT(A) since Rule 8D of the Income Tax Rules is not applicable for the assessment year under consideration. Therefore, Ground No. 3 of the Revenue's appeal is dismissed. 10.2.1 As regards the issue of disallowance on ad hoc basis @ 5% of exempt income, it is the contention of the assessee that no expenditure is attributable for earning of the exempt income and therefore, no disallowance has to be made. In this connection, it is pertinent to mention that the dividend income of the assessee was at Rs. 5.11 crores and the average value of the investment was around Rs. 67.42 crores. It has been settled now that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the A.Y.2008- 09. Depending on the facts in each case, such disallowance ranges between 2 to 5 percentage of the dividend income. After considering the entirety of facts and contention of both sides, we are of the considered view that it would be just and reasonable that 2% of the exempt income would constitute a reasonable disallowance on account of indirect expenses ....