TaxTMI 
TaxTMI 
2015 (8) TMI 708
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not to be made by ignoring the fact that though investments were made in the immediately preceding assessment year out of interest bearing funds." 3. Briefly stated, the facts of the case are that the assessee filed return declaring dividend income of Rs. 1,68,07,438 which was claimed as exempt. No disallowance was offered under section 14A. On being called upon to explain as to why no disallowance was offered under this section, the assessee submitted that its main source of income was advertisement revenue, sale of newspapers and periodicals and, hence, no specific expenses were incurred for earning the exempt dividend income. The Assessing Officer rejected the assessee's contention. Applying rule 8D(2)(iii), the Assessing Officer made disallowance equal to half per cent. of the average of the value of investments. This resulted into an addition of Rs. 41,32,830. The learned Commissioner of Income-tax (Appeals) came to hold that rule 8D was not applicable to the assessment year under consideration. Considering the Tribunal order passed for the immediately preceding year, the learned Commissioner of Income-tax (Appeals) upheld the disallowance to the tune of Rs. 8,11,948 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the impugned order that the allocation of total expenses has been made in the ratio of exempt income to taxable income. The Revenue argued before the Tribunal in the preceding year that the disallowance under section 14A ought to have been made on the basis of exempt income and taxable income and not the exempt income and gross sales. The viewpoint of the Revenue canvassed for the immediately preceding year seems to have been accepted by the learned Commissioner of Income-tax (Appeals) who chose to apportion total expenses in the ratio of exempt income to "taxable income" instead of gross sales. The learned Departmental representative could not point out any other more suitable basis for apportioning expenses towards exempt income. We, therefore, approve the view taken by the learned Commissioner of Income-tax (Appeals) in making apportionment of total expenses in the ratio of exempt income to taxable income. 7. As regards the third ground, it is apparent that while taking the expenditure of Rs. 2.88 crores liable to be bifurcated between exempt income and taxable income, the learned Commissioner of Income-tax (Appeals) did not consider the proportionate amount of depreciatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g Co. Ltd. [2012]-TIOL-102-SC-IT, in which it has been held that the club membership fee for employees incurred by the assessee is business expenditure allowable under section 37 of the Act. The facts of the instant case are on all fours with the ratio laid down by the hon'ble Supreme Court in this case. We, therefore, allow this ground of appeal. 15. The first issue raised by the Department in its appeal through some grounds is against the reduction in the amount of disallowance under section 14A. 16. Briefly stated, the facts of the ground are that the assessee made investment during the year under consideration in the securities yielding exempt income and earned dividend of Rs. 2,37,38,831, which was claimed as exempt. No disallowance was offered under section 14A. The reasons advanced during the course of the assessment proceedings for not offering any disallowance under this section were rejected by the Assessing Officer vide para 3.3 of the assessment order. Thereafter, the Assessing Officer invoked rule 8D for making disallowance under section 14A. The first disallowance was made at Rs. 1,04,89,137 towards interest and the second disallowance of Rs. 1,09,34,433, be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount of shareholders' fund is much higher than the amount of investments yielding exempt income. As such, we uphold the view taken by the learned Commissioner of Income-tax (Appeals) in deleting disallowance under section 14A on account of interest. 19. The second component of the disallowance is out of the administrative and other expenses, made by the Assessing Officer at half per cent. of the average value of investments and reduced by the learned Commissioner of Income-tax (Appeals) to Rs. 8,93,534. In this regard, we find that the learned Commissioner of Income-tax (Appeals) has followed the same yardstick of apportioning total expenditure in the ratio of exempt income : taxable income, which has been upheld by us for the earlier year. We, therefore, approve the apportionment of expenses in the ratio of exempt income to taxable income. However, as regards the non-consideration of depreciation on furniture, fixture, vehicle, etc., we increase the amount of disallowance by Rs. 1 lakh to Rs. 9,39,534. This disposes of grounds Nos.1 to 3 taken by the Revenue. 20. As regards, the fifth ground, the learned authorised representative did not agitate the addition of Rs. 9,3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on record. It is observed that the assessee claimed depreciation on computer peripherals at 60 per cent. which was restricted by the Assessing Officer to 15 per cent. The learned Commissioner of Income-tax (Appeals), following the judgment of the hon'ble jurisdictional High Court in CIT v. BSES Yamuna Powers Ltd. [2013] 358 ITR 47 (Delhi), accepted the assessee's claim. 28. Having heard the rival submissions and perused the relevant material on record, we find that the learned Commissioner of Income-tax (Appeals) has taken an appropriate decision on this issue by drawing strength from the judgment of the jurisdictional High Court which is binding on all the authorities under its jurisdiction. The hon'ble Delhi High Court in the case of BSES Yamuna Powers Ltd. (supra), has held that depreciation on computer peripherals should be allowed at 60 per cent. instead of 15 per cent. We, therefore, uphold the view taken by the learned Commissioner of Income-tax (Appeals) on this issue. 29. In the result, the appeals of the assessee and the Revenue are partly allowed. Assessment year 2008-09 30. Ground No. 1 of the Revenue's appeal and ground No. 1 of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obvious from para 3.3.1 of the assessment order that the Assessing Officer recorded a proper satisfaction about the assessee incurring expenses in relation to the exempt income and not offering them for disallowance. At this stage, it would be apposite to reproduce the contents of para 3.3.1 of the assessment order, as under : "3.3.1 It is further observed that the earning of exempt income is not in nature of passive activity having no input. In fact in present situation making of investment, maintaining or continuing investment and time of exit from investment are well informed and well co- ordinated management decisions involving not only inputs from various source but also acumen of senior management functionaries. Therefore, cost is in-built into even so called 'passive' investment. There are incidental expenditures of collection, telephone, follow up, research, etc. Therefore expenses in relation to earning of income are embedded in indirect expenses. The investment made, being a conscious decision and having deployment of funds clearly brings into picture expenditure by way of cost of funds 'invested'. Composite fund having cost needs to be s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowance under clause (iii) of rule 8D(2) at Rs. 2,08,21,695. 37. As regards the Revenue's contention about the deletion of disallowance of interest under clause (ii) of rule 8D(2), we find that the Assessing Officer computed disallowance at Rs. 6.86 crores, which was deleted by the learned Commissioner of Income-tax (Appeals), impliedly on the premise of the assessee's own capital and interest bearing funds were more than the investment in the securities yielding exempt income. 38. Recently, the hon'ble Delhi High Court in CIT v. Taikisha Engineering India Ltd. [2015] 370 ITR 338 (Delhi) has laid down vide its judgment dated November 25, 2014 that if rule 8D applies then the assessee's claim that interest is not disallowable on the ground of "own funds", is not acceptable. It has been laid down by their Lordships that : "the decisions relied upon by the Tribunal in the case of CIT v. Tin Box Co. [2003] 260 ITR 637 (Delhi), CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), CIT v. Suzlon Energy Ltd. [2013] 354 ITR 630 (Guj) and East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC) could not be now applicable, if we apply and comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Assessing Officer for deciding this aspect afresh, in conformity with the law laid down in Taikisha Engineering (supra), after allowing a reasonable opportunity of being heard to the assessee. 39. In so far as the first component of disallowance at Rs. 3 lakhs is concerned, we find that it is this amount which was offered by the assessee voluntarily as disallowable under section 14A. When the assessee offered this amount for disallowance, the action of the Assessing Officer in again adding this amount under clause (i) of rule 8D amounted to double disallowance to this extent. We, therefore, order for the deletion of addition to this extent and direct that this amount should be reduced from the ultimate amount determined as disallowable under section 14A. 40. Before parting with this issue, we want to make it clear that the assessee earned total exempt income at Rs. 2.94 crores and the disallowance made by the Assessing Officer stands at Rs. 8.97 crores. The hon'ble jurisdictional High Court in CIT v. Holcim India P. Ltd. vide its judgment dated October 17, 2014, reported in [2014] 90 CCH 681 (Delhi) and in a couple of other judgments has held that the disallowance un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 20 per cent. was granted. Both sides are in appeal on their respective stands. 46. We have heard the rival submissions and perused the relevant material on record. In so far as the question of allowing depreciation at 60 per cent. on computer peripherals is concerned, we find that the view taken by the learned Commissioner of Income-tax (Appeals) is in conformity with the view of the hon'ble jurisdictional High Court in CIT v. BSES Yamuna Powers Ltd. [2013] 358 ITR 47 (Delhi). Following the same, we uphold the action of the learned Commissioner of Income-tax (Appeals) in allowing depreciation at 60 per cent. on computer peripherals. 47. As regards the assessee's claim for allowing depreciation at 60 per cent. on computer to plate, it is noticed that section 32(1)(iia) of the Act provides for allowing additional depreciation in the case of any new machinery or plant acquired and installed after March 31, 2005 by an assessee engaged in the business of manufacture or production of any article or thing, etc. The Assessing Officer has recorded a categorical finding in not accepting the assessee's claim for additional depreciation to the effect that : "computer and com....