TaxTMI 
TaxTMI 
2019 (4) TMI 1809
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....11 are reproduced hereunder:- 1. On the 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 s....
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.... 9. On the facts and circumstances of the case the Learned Commr. of Income Tax (Appeals) has erred 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 di....
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.... the diminution in the value of strategic investments while computing book profit u/s. 11 5JB. On the facts and circumstances of the case the appellant submits 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 ....
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....ed vehicles without appreciating that the lease transaction of vehicles were actually finance transactions and the assessee was, therefore, not entitled to depreciation on the said leased vehicles. 8. On the 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 ....
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...., where under identical set of facts, the Tribunal allowed depreciation claimed by on residential premises. 8. The Ld. DR, on the other hand, fairly agreed that this issue is covered in favour of the assessee by the decision of the ITAT, 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....
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....e lease period was capital in nature and hence not allowable as deduction. The relevant observations of the Tribunal are as under:- "4.2 We have heard rival contentions including cited case laws. Upon perusal of the Apex court judgment in Madras 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 l....
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.... 4.5 Our view is supported by a recent decision of Hon'ble Delhi High Court rendered in Rajesh Projects (India) P. Ltd. & Others Vs CIT (TDS) [WP(C)No. 8085/2014 CM.Appl. 18876/2014 dated 16/02/2017] wherein the Hon'ble court has succinctly summarized its decision 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.....
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....me. Similarly, in respect of disallowance of indirect expenses, the Ld. CIT(A) has scaled down disallowance to Rs. 1.2 crores on the ground that the AO has worked out such expenses on pro-rata basis but on the other hand, the assessee has worked managerial and administrative expenses considering 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 th....
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....her expenditure. Therefore, we are of the considered view that the issue needs to be go back to the file of the AO for the purpose of determination of average value of investment and also quantum of disallowance of interest expenditure and other expenditure keeping in view that of the decision of 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 equalisa....
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....preciated the rival contentions and perused the Tribunal's decisions cited by the representatives. Upon appreciation of Guidance note on Leases issued by ICAI and the above cited judgments, we note that the four elements have to be considered for proper treatment of lease rentals viz. Lease Rentals, Implicit 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 re....
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....se equalisation reserve in accordance with the direction of Hon'ble Supreme Court in the case of Virtual Soft Systems Ltd. (supra). 26. The next issue that came up for our consideration from ground no.7 to 10 of assessee's appeal is disallowance of dividend income earned from Venture Capital Trust u/s 14A of the 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 heari....
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....isions of Section 115U. As per the mandate of this section, the trust has issued a certificate under Rule 12C in Form 64 giving details of income and character of income. As per Section 115U(3) the income of the venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the persons receiving 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 expe....
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....one exempt u/s 10(23FB) and the other not exempt u/s 10(23FB) and therefore, the provisions of Section 115U and 161 are applicable to them. The assessee is directed to substantiate its claim in this regard including justification of management fees and indirect expenses incurred by the Trust towards earning of the income, which as per revenue are mainly incurred towards 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. ....
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....asset is in the nature of plant and machinery. However, the Tribunal allowed depreciation as intangible asset being right to collect the toll. Similarly, in respect of estimation of income from toll road, direct the AO to ascertain correct facts with regard to attainment of arbitration proceedings before estimation of income. The relevant findings of the Tribunal are 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 f....
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.... is covered against the assessee by the decision of ITAT, Mumbai Bench for AY 2004-05 by earlier orders, where the Tribunal has restored the issue back to the file of AO to re-examine whether the assessee is an industrial undertaking within the meaning of section 35D of the Act, which makes it eligible to claim expenditure. 35. The Ld. DR, on the other hand, fairly accepted that this issue 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....
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....sed on retrospective amendment by the Finance Act, 2009. 42. The Ld. AR for the assessee, submitted that this issue is covered in favour of the assessee by the decision of ITAT, Mumbai, for AY 2004-05, where under identical set of facts, the Tribunal has restored the issue back to the file of the AO to appreciate the scrip wise details provided by the assessee to arrive at provisions for diminution 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 ....
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....e case of ACIT vs Vireet Investment Pvt Ltd. (2017) 82 taxmann.com 415 (Del. ITAT), wherein, the Tribunal held that disallowance contemplated u/s 14A shall not be added back while computing book profit u/s 115JB of the Act. 49. We have heard both the parties, perused materials available on record. We find that both issue is covered in favour of the assessee by the decision of ITAT Delhi Special Bench in the 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/....
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.... the approval for such company is obtained at later date. The AR further submitted that what is required to be seen is whether the assessee has granted long term loans for a company, which is developing infrastructure or not and further, such company has been approved u/s 10(23G) of the Act. The AR further submitted that even Explanation-2 inserted by the Finance Act, 1998 has also considered to be retrospective 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 wo....
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....d that exemption is available only if the company which is developing infrastructure facilities is approved u/s 10(23G) of the Act. We, find that a similar issue has been considered by the Co-ordinate Bench of ITAT, Hyderabad, in the case of VBC Ferro Alloys Ltd. vs ACIT (2007) 107 TTJ 925, where under identical set of facts, the Tribunal held that as per section 10(23G) as it existed immediately before amendment 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 entitl....
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....lief allowed to the assessee in light of recent decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT, where the issue of strategic investment and stock-in-trade has been considered by the Hon'ble Supreme Court. Further, the Hon'ble Court has not touched the concept of commercial expediency and consideration of disallowance on actual dividend yielding investment. 56. The Ld. AR for the assessee 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....
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....ure of AMC Charges, internet access charges, lease line expenses, anti-virus expenses, charges for link facility, software charges for accounting package and therefore, being revenue in nature and hence allowable to the assessee. 20.1 The Ld. DR has contended that no details were filed by the assessee before Ld. AO and therefore, the assessee has rightly been saddled with impugned additions and Ld. CIT(A) erred in providing 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 dis....
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....s fact, the income from toll road need to be estimated. We find that we have already considered similar issue while considering the issue of disallowance of depreciation on toll road in assessee's appeal vide ground no.11 and additional ground no. 1 and by following the findings of the Tribunal for AY 2004-05, we restore this issue back to the file of the AO to determine the amount of income from toll road. Since, this issue relates to estimation 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....
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.... the findings of the Ld. CIT(A) and reject the ground taken by the Revenue. 69. The next issue that came up for our consideration from ground. 6 of Revenue's appeal is expenditure on club facilities. 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 Hon'ble Bombay High Court in asessee's own case for AY 1997-98 in Income Tax Appeal No.2402 of 2013 where under identical set 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....