AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 1001
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....r passed by the learned Commissioner of Income Tax (Appeals) I, Bangalore to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2.1 The learned CIT(A) I, Bangalore has erred in confirming the disallowance of depreciation amounting to Rs. 28,06,462/- claimed under section 32(1)(ii) in respect of business or commercial rights held by the appellant. 2.2 On facts and in the circumstances of the case and law applicable, depreciation in respect of business or commercial rights is to be allowed as claimed in the return of income. 2.3 Alternatively and without prejudice, the learned CIT(A) I, Bangalore has erred in not allowing (i) the entire amount as revenue expenditure; (ii) at least, the proportionate....
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....come of Rs. 9,87,23,674/-. While doing so, the AO disallowed depreciation claim on leasehold property and also made disallowance of Rs. 7,91,394/- under the provisions of sec.14A treating the expenses incurred towards earning of exempt income. 4. The factual matrix leading to the impugned additions is as under: As stated earlier, assessee-company is in the business of development, and maintenance of infrastructure facilities for software and related sectors. For this purpose, it had taken land on lease for a period of 66 years from Software Technological Park of India (STPI). In consideration of granting the leasehold rights, assessee-company had developed 42,665 sq.ft. of space for use by STPI in terms of agreement entered into by it wi....
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....he assessee borrowed funds on interest which paid interest of Rs. 2,29,54,519/- and therefore, inferred that borrowed funds have been utilised for the purpose of making investment in HDFC mutual funds and by applying the formula of total expenditure multiplied by exempted income divided by total income arrived at a disallowance of Rs. 7,91,394/-. The assessee's contention that no borrowed funds were utilised was rejected by the AO. 5. Being aggrieved, appeal was filed before the CIT(A) who vide impugned order, confirmed the disallowance of depreciation in the following words: "....It is the contention of the appellant that the rights in the undivided port ion of the land in terms of the agreement with STPI constitute intangible asset ....
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....pany contended that leasehold right on land constitutes an intangible asset as defined under the provisions of section 32(1)(ii) of the Act. Therefore, the claim of depreciation is allowable in light of the Hon'ble Supreme Court's judgment in the case of CIT vs. Smifs Securities Ltd.(348 ITR 302)(SC). As regards disallowance u/s 14A, learned AR of the assessee contended that the AO is not justified in making disallowance without recording a finding as to how the claim of the assessee that no expenditure was incurred for earning exempt income is incorrect. He further contended that the provisions of rule 8D(2)(iii) are also not applicable to the facts of the present case as sec.8(1) is not applicable. When there was no application of provisi....
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....ovisions of sec.32(1)(ii) of the Act. There is no dispute about the cost of acquisition. The only dispute is with regard to nature of the asset acquired. Whether leasehold rights par take character of land or intangible asset. Intangible asset has been defined under section 32(1)(ii) of the Act as follows: "Depreciation. 32. (1) In respect of depreciation of- (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, Owned, wholly or partly, by the assessee and used for the purposes of the business or pr....
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.... the above legal position, we hold that by virtue of lease only an interest in land is created which does not qualify for allowance e of depreciation. 8. Now, we will deal with the alternative claim of the assessee-company that the cost incurred on development of commercial space given to STPI should be allowed as a revenue expenditure, as mentioned above, the expenditure is incurred for acquiring interest in the land which is capital in nature. Therefore, the question of allowing it as revenue expenditure does not arise at all. Hence, this ground of appeal filed by the assesseecompany is dismissed. 9. Ground No.3 of appeal relates to disallowance made under the provisions of sec.14A of the Act. It is the claim of the assessee-company....