TaxTMI 
TaxTMI 
2019 (4) TMI 1809
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....he facts & circumstances of the case the Learned Cornmr. of Income Tax (A) has erred in confirming the disallowance of the claim of the depreciation of Rs. 56,40, 180/- in respect of residential properties which are let out. On the facts and circumstances of the case the appellant submits that the disallowance of depreciation of Rs. 56,40,180/- is not justified and the said disallowance may be deleted. 2. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of depreciation of Rs. 28,28,330/- in respect of residential properties which were vacant. On the facts and circumstances of the case the appellant submits that the disallowance of depreciation of Rs. 28,28,330/- is not justified and the said disallowance may be deleted. 3. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of the amortization of the premium paid on leasehold land on which the commercial complex has been constructed by the appellant amounting to Rs. 22,32,084/-. On the facts & circumstances of the case the appellant submit that the disallowance of the claim of amortisation o....
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....in concluding that the management fees is direct expense attributable to earning dividend income. The Learned Commr. Of Income Tax (Appeals) is erroneous and the disallowance confirmed by the Learned Commr. Of Income Tax (Appeals) may be deleted. 10. On the facts and circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred in directing the Learned Assessing Officer to rework out the total disallowance in terms of the direction given by the Learned Commr. of Income Tax (A) for A.Y. 2004-05. The appellant prays that the claim of the appellant be allowed and the direction of the Learned Commr. of Income Tax (A) may be set aside. 11. On the facts and circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred in confirming the disallowance of depreciation on the Toll Road amounting to Rs. 9,74,103/-. 12. On the facts and circumstances of the case the appellant submits that they have not received any income in respect of the Toll Road and the matter is in dispute. The Learned Commr. of Income Tax (Appeals) has erred in directing the Learned Assessing Officer to estimate the interest income due from MPSIDC. The appellant prays that they a....
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....bmits that the disallowance of Rs. l,77,1 1,030/- is not justified and be deleted. 19. On the facts & circumstances of the case the Learned Commr. of Income Tax (A) has erred in confirming the disallowance of Rs. 29,96,00,000/- being the expenditure relating to exempt income while computing hook profit u/s. 1 15JB. On the facts and circumstances of the case the appellant submits that the disallowance of Rs. 29,96,00,000/- is not justified and be deleted." 3. The Revenue, has more or less taken common grounds of appeal for all assessment years. For the sake of brevity, grounds of appeal taken for Assessment Year 2005-06 in ITA No.2841/Mum/2011 are reproduced hereunder:- "1(i). On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of interest attributable to the earning of exempt income to Rs. 28.76 crores as against the disallowance of Rs. 63.23 crores computed by the Assessing Officer u/s 14A of the Income Tax Act, 1961. 1(ii). On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance of managerial and administrative expenses attributable to the earning o....
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....e facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of the payment of Rs. 9,33,982/- made to clubs. 9. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 39,83,335/- made by the Assessing Officer out of the claim of deduction made by the assessee u/s 36(1)(viii) of the Income Tax Act, 1961. 10. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance of Rs. 39,54,481/- made by the Assessing Officer out of the expenditure incurred by the assessee under the head 'Travelling & Conveyance, Repairs & Maintenance, Staff Training & Welfare & Legal & Consultation' without appreciating that the assessee did not furnish specific details of the expenses for test verification by the Assessing Officer. 11. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the adjustment of Rs. 30,07,25,824/- made by the Assessing Officer on account of lease equalization reserve while computing the book profit u/s 115JB(2)." In these appeals, filed by the assessee a....
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...., Mumbai, 'I' Bench in assessee's own case. 9. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. We find that the Co-ordinate Bench of ITAT, 'I' Bench in assessee's own case for AY 2004-05 had considered an identical issue and after considering the relevant facts, held that with introduction of concept of block of assets, an individual assets losses its identity, therefore, no segregation thereof could be done notwithstanding the fact that the income from certain property was offered under the head 'income from house property'. However, when the Bench has posed specific question to the Ld. AR for the assessee to the effect that whether the assessee has claimed standard deduction as provided u/s 24(a) of the Act or not in respect of 'income from house property' in addition to depreciation and other maintenance expenses claimed, the Ld. AR for the assessee, fairly accepted that this aspect has not been examined by the authorities below and also there is no finding from the Tribunal in the earlier years. Therefore, the issue may be set-aside to the file of the AO for verification of facts with regard to standard d....
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....dras Auto Services P. Ltd (supra), we find the same distinguishable on the ground that in that case the dispute was with respect to claim of construction expenses only and hence the same could not help the assessee in any way. Similarly, the ratio of Apex court judgment relied upon by revenue in Enterprising Enterprises Vs. DCIT [supra] could also not be applied as the dispute in that case was with respect to claim of lease rentals towards extraction of certain minerals as observed by coordinate bench of Ahmedabad Tribunal in Dhara Vegetables Oil & Food Co. Ltd. [supra]. 4.3 At the outset, we are of the considered opinion that had the impugned payments were towards acquisition of land on which no depreciation was allowable, the said expenditure, being capital expenditure was clearly disallowable in the hands of the assessee. However, here is the case of lease premium paid towards acquisition of certain leasehold rights in the land which upon expiry of lease period, was to revert back to the authority. We find that the assessee entered into agreement to lease dated 15/03/1994 with the authority and executed a Lease deed dated 28/03/2003 to acquire certain leasehold rights in the ....
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....on in the following manner:- "20. In view of the above analysis, the court hereby concludes as follows: (1) Amounts paid as part of the lease premium in terms of the time-schedule(s) to the Lease Deeds executed between the petitioners and GNOIDA, or bi-annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments; (2) Amounts constituting annual lease rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent, and therefore subject to TDS. Since the petitioners could not make the deductions due to the insistence of GNOIDA, a direction is issued to the said authority (GNOIDA) to comply with the provisions of law and make all payments, which would have been otherwise part of the deductions, for the periods, in question, till end of the date of this judgment. All payments to be made to it, henceforth, shall be subject to TDS. 4.6 The Ld. AR contended that the same was revenue in nature and no TDS was deducted there-from since the land was acquired long ago when there was no requirement to deduct the TDS against the said payment. However....
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....g the expenses incurred on Project Finance Department, which is merely looking after the investment and infrastructure financing activities of the assessee. 17. The Ld. AR for the assessee, submitted that the issue needs to be go back to the AO to determine correct amount of disallowance of expenses incurred in relation to exempt income u/s 14A of the Act, considering the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT (2018) 91 taxmann.com 154(SC), where the Hon'ble Court has settled certain disputes with regard to strategic and long term investments earning exempt income irrespective of dominant purpose of making investment. However, the Hon'ble Supreme Court has not accepted the concept of 'Commercial Expediency' and consideration of disallowance on actual dividend yielding investments only. The Ld. AR further submitted that the Hon'ble Supreme Court in the case of Pr. CIT vs Sintex Industries Ltd. (2017) 82 taxmann.com 171(Gujarat) held that if assessee had its surplus fund against which minor investment was made, no question of making any disallowance of expenditure in respect of interest and administrative expenses u/s 14A of the Act, therefor....
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....the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT (supra), hence, we set-aside the issue to the file of the AO and direct him to reconsider the issue in light of our discussion hereinabove. 20. The assessee is also directed to substantiate its claim forthwith in light of our observation before the lower authorities, failure which the Authorities shall be at liberty to decide the same on the basis of material available on record. 21. The next issue that came up for our consideration from ground no.6 of assessee's appeal is disallowance of lease equalisation reserve. The facts with regard to the impugned dispute are that the assessee is giving assets on lease and collects lease rentals from the clients, which comprises recovery of cost of asset and finance charges. Recovery of cost was further bifurcated into depreciation as per the Companies Act and lease equalisation reserve ("LER") as prescribed in the guidance note on accounting for leases issued by ICAI. Gross rental was credited to P & L Account and LER was debited to Profit & Loss Account to derive at real income. The AO disallowed lease equalisation debited into Profit & Loss Account on the ground tha....
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.... Rate of Return [IRR], Depreciation and lease equalization charge. Lease rental in monetary terms is a sum total of the financing charge and the amount embedded in it in the form of a capital sum. The said financing charge constitutes the real income, which is to be offered for tax, which is determined by applying the IRR to the net investment made in the asset. The lease equalization charge is the result of the adjustment, which the assessee has to make whenever the amount put aside towards capital recovery is not equivalent to the depreciation claimed by the assessee. Lease equalization charges is a method of recalibrating the depreciation claimed by the assessee in a given accounting period. If the depreciation claimed is less than the capital recovery, the difference is debited in the profit & loss account in the form of lease equalization charge and similarly if, for any reason the depreciation claimed is more than the capital recovery, then the difference is credited, once again, in the form of lease equalization charge to the Profit & Loss Account. Therefore, the assessee in effect debits are credits its profit & loss account with a lease equalization charge depending on whe....
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....Act. The assessee has invested in several funds/trust and offering income from such funds/trust in same head as being considered by the Trust. The trust has earned exempt income has shown income/loss from other sources and issued Form 64 also for Venture Capital Funds covered u/s 115U and exempt u/s 10(23FB). The AO disallowed the loss from other sources on the ground that this expenses were incurred for earning dividend/exempt income rejecting the income bifurcation given by Venture Capital Funder under Form 64. In other words, the assessee reflected gross dividend income from trust in the Profit & Loss Account and claimed the same as exempted, whereas, the set off of share of loss from the said funds/trust were claimed under the head 'income from the other sources' which led the AO to make the impugned additions. 27. The Ld. AR for the assessee, at the time of hearing, submitted that this issue covered by the decision of ITAT, Mumbai Bench for AY 2004-05 in ITA No.3203/Mum/2008, where under identical set of facts, the Tribunal has restored this issue to the file of Ld. AO to re-examine the claim of the assessee that since the assessee is earning income from two types of Trusts-....
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....eceiving the income. The provisions being statutory provision has to be followed strictly. Therefore, the action of Ld. AO in attributing the loss under the head income from other sources to dividend income was not justified. Further, u/s 14A, the loss under the head income from other sources could not be allocated to exempt dividend income. Moreover, the revenue has not established that the assessee has incurred any expenditure to earn the same and therefore, no disallowance thereof could be made by the Ld. AO. 10.2 The Ld. CIT(A) after examination, found the proportion of total expenses to the interest income of the fund to be lopsided and directed the assessee to justify the admissibility of expenses u/s 57(iii) against interest income. Not convinced with the explanation of the assessee, the Ld. CIT(A) came to conclusion that majority of the expenses of these funds were incurred to earn the exempt dividend income and therefore, the same could not be allowed to the assessee. Finally, the matter was restored to the file of Ld. AO for redetermination of total disallowance after segregating the indirect expenses on proportionate basis. 10.3 The assessee also pointed out mistak....
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....owards earning of dividend income. Therefore, the matter is set aside for fresh adjudication keeping all the issues alive which results into assessee's grounds of appeal being allowed for statistical purposes." 28. In this view of the matter and consistent with view taken by the Co-ordinate Bench of the Tribunal in assessee's own case for earlier period, we restore this issue to the file of the AO and direct him to decide in accordance with direction given by the Tribunal for AY 2004-05. 29. The next issue that came up for our consideration from ground no.11 and additional ground no 1 and 12 is disallowance of depreciation on toll road. The brief, facts of the impugned dispute are that the assessee had constructed toll road in Rau-Pithampur in joint venture with Madhya Pradesh [MP] state government in the year 1995. The assessee was given a right to collect the tolls for a specified period to recover the cost of investment and desired yield as per agreement between the parties. The assessee has collected toll for initial year but later on government has stopped collection of toll. The assessee has capitalised expenditure incurred for construction of road under the head 'Plant &....
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....as under:- "11.10 We have heard the rival contentions. So far as the estimation of income from the toll road is concerned, we find that the issue in hand is related with estimation of income only and not with notional income since the claim of the assessee has already been crystallized by the Appellate Tribunal and the assessee has certain right to claim the same particularly when the payment is backed by the guarantee of the state government. There is no dispute as to the fact that the assessee has unfettered right to claim the same from the government agency and only the quantification thereof is in dispute. The contention of the Ld. AR is that since the government agency has agitated the same before higher authorities, the same has not yet attained finality. However, whatever the case may be, the assessee following mercantile system of accounting is obliged to offer the same to tax in view of crystallization thereof by Appellate Tribunal. 11.11 Therefore, on the facts and circumstances, we restore the matter back to the file of Ld. AO with a direction to estimate the income on the basis of latest decision of the Appellate Tribunal or any higher authority, as the case may b....
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....sue is covered against the assessee by the decision of ITAT, Mumbai. 36. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. This issue is covered by the decision of ITAT, Mumbai 'I' Bench in assessee's own case for AY -2004-05 in ITA No.3203/Mum/2008, where the issue has been restored back to the file of the AO. For the year under consideration, facts being identical, by following the decision of ITAT for earlier year, we restore this issue back to the file of AO with a direction to examine whether the assessee is an industrial undertaking within the meaning of section 35D of the Act, which makes it eligible to claim expenditure. The AO is also directed to consider the issue in light of findings recorded by the Tribunal for AY 2004-05. 37. The next issue that came up for our consideration from ground No.15 is levy of interest u/s 234B of the Act. This issue is consequential and mandatory in nature. The AO shall compute interest as applicable for the relevant period as per provisions of section 234B of the Act after determining total income of the assessee. Accordingly, the ground taken by the assessee is dismi....
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....ution in value of securities and provide the benefit of the same with respect to those scrips which are held as stock in trade and also the income of which has been offered under the head 'business income'. 43. Having heard both the sides and considering the material available on record, we find that the Tribunal has considered similar issue for AY 2004-05 in ITA No.3203/Mum/2008, where under identical set of facts has restored issue back to the file of the AO with following observations:- "5.2 We have heard the rival contentions. We note that the assessee has made provision of Rs. 1,70,58,371/- in the Profit & Loss Account towards investment valuation and cumulative figures of these provisions in Balance Sheet Schedule 'F' stood at Rs. 2,53,91,613/-. Further As per Note no. 34 in Schedule N-Notes forming part of the accounts, it has been stated that income from investments included in income from operations under Schedule I includes net profit on sale of securities Rs. 86,82,62,292/-. Further, the assessee in computation of income made suo-moto disallowance of Rs. 31,77,056/- towards provision for diminution in value of investments and shown certain profit on sale of strategi....
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....e case of ACIT vs Vireet Investment Pvt Ltd.(supra). But, fact remains that the issue of disallowance contemplated u/s 14A of the Ac read with Rule-8D has already been discussed by us in preceding paras in ground no. 4, 5, 7 and 10 of assessee's appeal, where the matter has been restored back to the file of the AO to recompute disallowance of expenditure by excluding investment which do not yield exempt income. The issue of computation of book profit with reference to 14A disallowance is bearing on the outcome of computation of disallowance u/s 14A of the Act in light of our discussions given in the grounds of appeal taken for the assessee's in its appeal. Therefore, we restore this issue back to the file of the AO and direct him to first re-compute disallowance contemplated u/s 14A and then decide this issue in accordance with findings of the Special Bench of ITAT, Delhi in the case of ACIT vs Vireet Infest Pvt. Ltd. (supra) and also the Hon'ble Bombay High Court in the case of CIT vs Ms/ Bengal Finance Investment Pvt. Ltd. in Income Tax Appeal No.337 of 2013. 50. The next issue that came up for our consideration from Ground no.13 of assessee's appeal is addition towards income ....
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....e in nature because the said explanation is declaratory statute inserted to supply an obvious omission and to cut and clear doubts, therefore, any company which is fulfilled the condition u/s 10(23G) and the investments are made before 01/06/1998, then any income received from such investment is exempted u/s 10(23G) of the Act. In this regard, he relied upon the decision of ITAT, Hyderabad in the case of VBC Ferro Alloys Ltd. vs ACIT (2007) 107 TTJ 925. The assessee also relied upon the decision of ITAT Ahmedabad Bench in the case of Gujarat Power Corporation Ltd. vs ACIT in ITA No.1663/Ahd/2008. 52. The Ld. DR on the other hand, submitted that unless the assessee to whom loans have been given is approved u/s 10(23G) by the CBDT as per prescribed procedure, the assessee would not get the benefit of exemption u/s 10(23G) of the Act, towards any income received from such investments/loans, therefore, the AO was right in making addition towards interest income earned from long term finance given to Tamilnadu Road Development Co. Ltd. and Mahendra Industrial Park because the required approval u/s 10(23G) has not been obtained by those companies for the relevant financial year. 53. ....
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.... by Finance Act, 1998 clearly states that any income by way of long term capital gain of an infrastructure capital fund is exempted u/s 10(23G) of the Act, because as per provisions of statute existing in 1997 read with explanation 2 introduced by the Finance Act 1997 mandates that income by way of long term capital gain of an infrastructure capital company from investment made before 01/04/1998 by way of any shares, any enterprise which is infrastructure facilities shall not be included in the total income. Similarly, the Co-ordinate Bench of ITAT, Ahmedabad in the case of Gujarat Power Corporation Ltd. (supra) has considered an identical issue and by following the decision of ITAT, Hyderabad in the case of VBC Ferro Alloys Ltd. vs ACIT (supra) held that assessee is entitled to exemption u/s 10(23G) of the Act, even though, investments in those companies are made prior to 01/04/1998. In this case, on perusal of facts available on record, there is no dispute with regard to the fact that the assessee is an infrastructure capital company, It is also not dispute that the assessee had given long term finance given to a company which is engaged in the business of development of infrastr....
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....essee submitted that this ground taken by the Revenue is already covered in ground taken by the assessee in respect of disallowance of expenditure u/s 14A of the Act, where applicability of the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT has been considered, therefore, this ground may also be sent back to the file of the AO with similar directions to re-compute disallowances contemplated u/s 14A of the Act. 57. Having heard both the sides and perused the material available on record. We find that we have already discussed this issue in assessee's appeal where the applicability of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT (supra) has been thoroughly discussed. Further, in assessee's appeal ground relating disallowance of expenditure u/s 14A has been restored back to the file of the AO. Therefore, we are of the considered view that this ground taken by the Revenue also needs to go back to the file of the AO to decide the issue in accordance with our findings given in assessee's appeal and also the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT (Supra) hence, we set-aside the issue to the....
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.... relief to the assessee. The Ld. AR placed reliance on the findings of Ld. CIT(A) and drew our attention to details of expenses as placed in Page No. 543 of the paper-book to support the contention that impugned expense, being revenue in nature, were allowable to the assessee and the Ld. CIT(A) provided relief to the assessee after due appreciation of the material facts. 20.2 We have considered the rival contentions and inclined to agree with the findings of Ld. CIT(A) who after appreciating the relevant material came to the right conclusion that the impugned expenditure being revenue in nature, were allowable to the assessee. A bare perusal of the said expenses reveals that the said expenditure are primarily revenue in nature and the Ld. AO disallowed the same on mere presumption. However, Ld. CIT(A) examined the same and provided relief to the assessee after appreciating the material and therefore, we find no reason to interfere with the same. The revenue's ground of appeal stands dismissed." 61. In view of the matter and consistent with view taken by the Co-ordinate Bench, we do not find any infirmity in the findings of the Ld. CIT(A) and hence, we are inclined to upheld th....
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....tion of income, the same is also restored back to the file of the AO to decide in accordance with our findings given in assessee's appeal for ground no.11 and additional ground. 1. 65. The next issue that came up for our consideration from ground no.5 of revenue's appeal is depreciation on leased assets. The assessee has claimed a sum of Rs. 6,42,53,527/- depreciation on leased assets. The AO has disallowed depreciation on leased assets on the ground that leases transaction of the assessee are in the nature of finance transaction, therefore, depreciation claimed on those leased assets is not allowable. 66. The Ld. AR for the assessee, at the time of hearing, submitted that this issue is covered in favour of the assessee by the decision of the ITAT for AY 2004-05, where, the Tribunal, by following its earlier order for AYs 1996-97 to 2003-04, allowed the claim of the assessee. The Ld. AR further submitted that now this issue has been settled by Hon'ble Supreme Court in the case of ICDS Ltd. 350 ITR 527(SC), where the Hon'ble Supreme Court held that depreciation on leased assets is allowable irrespective of fact that such leased transactions are in the nature of finance lease or ....
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.... of facts, the Hon'ble High Court by following its earlier decision in the case of Otis Elevator Co. (India) Ltd. vs CIT (1992) 195 ITR 682 (Bom.) held that Club membership fee paid to the club is in the nature of revenue expenditure, which is allowable as deduction. 70. Having heard both sides and considered the material available on record, we find that Hon'ble Bombay High Court has considered an identical question of law in assessee's own case for AY 1997-98 and by following its earlier order in case of of Otis Elevator Co. (India) Ltd. vs CIT (1992) 195 ITR 682 (Bom.) held that expenditure incurred on club facilities is revenue in nature, which is allowable deduction. Therefore, respectfully following the decision of the Hon'ble Bombay High Court in assesseee's own case, we direct the AO to delete the additions made towards disallowance of payments to Clubs. 71. The next issue that came up for our consideration from ground no.7 of Revenue's appeal is deletion of disallowance made on account of lease equalisation reserve on of book profit u/s 115JB of the Act. 72. The Ld. AR for the assessee, at the time of hearing, submitted that this issue is covered in favour of the ass....