TaxTMI 
TaxTMI 
2017 (2) TMI 557
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....he Hon'ble Bombay High Court decided in the favour of the Revenue in the case of Dineshkumar Gulabchand Agarwal vs.CIT & Anr. (Bom.) 267 ITR 768. 3. Whether Ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 13,99,056/- made by AO on account of disallowance on account of advance & securities written off?" 2. It transpires from the above grounds of appeal, that the Revenue has assailed the impugned order of ld. CIT(A) on deletion of following three disallowances made by the Assessing Officer : (i). Disallowance u/s. 14A Rs. 56,44,511/- (ii). Disallowance out of depreciation claimed Rs. 56,86,641/- (ii). Disallowance of advance & Securities written off Rs. 13,99,056/- 3. The factual matrix leading the first issue is that during the course of assessment proceedings, the AO noticed that the assessee company earned dividend income on shares at Rs. 5,14,95,795/- and on mutual funds at Rs. 62,55,905/- totaling to Rs. 5,77,51,700/- which was claimed as exempt income. However, as per AO since no expenses were claimed to have been incurred for earning this exempt income, the assessee was required to explain as to why the disal....
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.... However, this procedure is to be applied only, where the AO, having regard to the accounts of the taxpayer, is satisfied that the claim of appellant is not correct. Other than this procedure, no other method is legally permissible to compute the disallowance. 6.3.3 I find that the Ld. AO has actually not applied the prescribed method under Rule 8D but has used a thumb rule of his choice. Further, while rejecting the claim of the appellant, the Ld AO failed to appreciate that the appellant had suo moto disallowed an amount of Rs. 4.96 crores out of the total expenses of Rs. 5.57 crores, i.e., almost 89% of total expenses, by attributing the same not for earning taxable business income. No cogent findings were given by the Ld AO as to how this claim of the appellant with regard the balance amount of Rs. 60.77 lakhs was incorrect, having regard to the accounts of the appellant. The Ld. AO did not examine the claim of the appellant that the total personnel and administrative expense of Rs. 10,70,000/- were in respect of a thin strength of employees, who were working for providing IT enabled BPO services and were not involved in the activity of making investment in shares/mutual fun....
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.... the disallowance. He accordingly, urged for allowance of the appeal. 6. In his rival submissions, the ld. AR of the assessee placed before us a written synopsis, stating on this issue as follows: "It is a matter of fact and record that the assessee vide its computation of income (page 7 PB) has already suo moto offered to tax around 89% of total expenses as debited in the profit & loss account. Out of the total expenses of Rs. 55,687,000 as debited in profit & loss account the assessee has already offered to tax expenses of Rs. 49,611,000 as per the said computation. Only the bare minimum remaining expenses of 11% amounting to Rs. 6,077,000 which are in any case required to be incurred for running the corporate identity of the company have been claimed. This fact has been undisputed by the AO. In response to a query raised by the AO on disallowance of further expenses u/s 14A it was submitted vide submission dated 29/10/12 before the AO (reproduced at internal page 2 of AO order) that out of the total expenses incurred the assessee has already suo moto offered to tax a huge amount comprising of 89% of total expenses debited as per the profit & loss account & therefore any fu....
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....e assessee had suo moto disallowed almost 89% of total expenses. The CIT(A) records that no cogent findings have been given by the AO as to how the claim of the assessee with regard the balance amount of expenses of Rs. 60.77 lacs is incorrect having regard to the accounts of the appellant. Importantly the CIT(A) also records that the AO did not examine the claim of appellant that the total personnel and administrative expenses of Rs. 1,070,000 were in respect of a thin strength of employees who were working for the IT enabled BOP services and were not involved in the activity of making investment in shares / mutual funds. The CIT(A) also notes that vide para 6.3.3 of its order that the AO has already disallowed the individual expenses embedded in claim of Rs. 60.77 lacs resulting a double addition in the hands of assessee. The CIT(A) thereafter concludes while observing, interalia, at para 6.3.4 of its order that the AO had made a disallowance u/s 14A without giving any cogent reasons and without considering the fact that the assessee had already offered to tax 89% of expenses on a suo moto basis & without specifically identifying any expenses out of the remaining 11% expenses ....
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....is is that the entire expenses as per profit & loss account have been disallowed in fact the disallowance has been much more than the actual expenses of Rs. 60.77 lacs claimed by assessee as pointed by CIT(A) vide para 6.2 of its order. Such an approach of the AO is highly unjustified on the facts and circumstances of the case and in the law & also highly illogical. A direct reliance is placed in this regard on the following decisions from the Jurisdictional High Court, copies submitted: i. Decision of Delhi High Court in the case of CIT Vs Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del.): Held after extensively considering the earlier decision in case of Maxopp Investment Ltd. Vs CIT 347 ITR 272 (Del.) that the AO cannot proceed to make any disallowance u/s 14A without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. It would be pertinent to note the following observations of the High Court vide para 20: "20. However, in the present case, we need not refer to sub-rule (2) of rule 8D of the Rules as conditions mentioned in sub-section (2) of section 14A of the Act read with sub-rule (1) of rule 8D ....
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....of the fact that the assessee had already suo moto offered to tax 89% of expenses as debited in profit & loss account. The approach followed by AO has resulted in a disallowance of expenses more than actually claimed by assessee as precisely identified by the CIT(A) vide para 6.3.2 of its order being a highly unwarranted situation. It is respectfully submitted that the Ld. CIT(A) has given a well reasoned order on the issue and the same does not requires any interference." 7. We have considered the rival submissions and have perused the entire material available on record. Before we deal with the issue, it is felt necessary to reproduce the relevant provisions of section 14A of the Act, which read as under : 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed19, if the Assessing....
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....xpenditure incurred in relation to exempt income would be triggered only if the Assessing officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure." 9. Similar view has been taken by the coordinate bench of Delhi Tribunal in the case of Crown Corporation Pvt. Ltd. vs. ACIT vide order dated 27.06.2016, whereby the similar issue has been decided in favour of the assessee after following the decision of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (supra). Therefore, for want of statutory satisfaction recorded by the AO, the AO was not justified in resorting to the provisions of section 14A or Rule 8D of the Act. This view also gets support from the following decisions relied on by the assessee : (i). CIT vs. Taikisha Engineering India Ltd., 370 ITR 338 (Del.) (ii). CIT vs. I.P. Su....
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....essee for the business of Data Processing and Export thereof, which as per assessee stood already ceased to exist in July, 2008. He accordingly observed that the business of Data processing and export was stopped in F.Y. 2008-09 and the above fixed assets on which depreciation was claimed by assessee were not used for the purpose of business during the year under consideration. He therefore, concluded that the assessee had claimed depreciation on the assets which were not used for the purpose of business to minimize the taxable income from house property. He accordingly disallowed depreciation of Rs. 56,86,641/- out of total claim of depreciation of Rs. 58,08,280/-. The assessee carried the matter to the ld. CIT(A), who after relying on the decision of Hon'ble Delhi High Court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. 328 ITR 297, deleted the disallowance. 14. The ld. DR relied on the order of the AO whereas the ld. AR of the assessee supported the order of ld. CIT(A) stating that the issue is covered by the decision of jurisdictional High Court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. (supra) wherein the decision of Bombay High Court relied on by the Revenue ....
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....ery is available for use, though not actually used, it falls within the expression " used for the purposes of the business" and the assessee can claim the benefit of depreciation. 8. Looking at the facts from this point of view, an actual user is not required as has been contended by the Revenue. 9. The matter can be looked at from another angle also. No doubt, the expression used in section 32 is " used for the purposes of the business" . However, this expression has to be read harmoniously with the expression " discarded" as found in sub-clause (iii) of sub-section (1). Obviously, when a thing is discarded it is not used. Thus " use" and " discarding" are not in the same field and cannot stand together. However, if we adopt a harmonious reading of the expressions " used for the purposes of the business" and " discarded" then it would show that " used for the purposes of the business" only means that the assessee has used the machinery for the purposes of the business in earlier years. It is not disputed in the facts of the present case, and as discussed above, that the machinery in question was in fact used in the previous year and depreciation was allowed on the block of a....
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....ee, the appellant decided to write off the same. Similarly, a sum of Rs. 10,18,356/- was given to various authorities/parties for taking utility connections such as telephone, internet etc. and since the assessee closed its business of Data Processing and Export and the above amount was not recoverable or its recovery was fetching substantial time and inordinate cost, hence, the assessee had written of the same in its books of accounts. The AO disallowed the claim of assessee on the ground that no evidence was laid on record to substantiate any effort of recovery. The ld. CIT(A) deleted the addition observing that in view of the nature of business of assessee i.e., IT enabled services, such advances were given in the course of ordinary course of business and hence, the claim of written off amounts was allowable u/s. 28 of the Act. 18. The ld. DR relied on the order of Assessing Officer whereas the ld. Counsel for the assessee reiterated the submissions made before the ld. CIT(A) as also enumerated in its written synopsis placed before us. It was also submitted that the ld. AO has tried to step into the shoes of businessman and impose a condition that the assessee should have made ....