TaxTMI 
TaxTMI 
2020 (10) TMI 606
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....ircumstances of the case, Ld. CIT (A) erred in upholding the application of rule 8D on the shares held as stock in trade. 5. That on the facts and circumstances of the case, Ld. CIT (A) failed to appreciate that no cogent reason was given by the Assessing Officer for not being satisfied with the disallowance made by the appellant and thereby invoking rule 8D. The CIT (A) should have noted that while actual expenditure by way of fees to Custodian for entire investment portfolio of the appellant, amounted to ? 2,00,000 only, yet appellant in own volition made a disallowance of ? 10,00,000 as a consistent practice. 6. That on the facts and circumstances of the case, Ld. CIT(A) erred in upholding the action of Assessing Officer in applying Rule 8D while computing the book-profits u/s 115JB. 7. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing. 2. Briefly stated facts of the case are that the assessee is a public limited company engaged in the business of providing financial assistance to enterprises in the form of short, medium or long-term loans or working capital facilities or equity participation schemes etc. ....
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....e assets. The direction of the Learned CIT(A) are reproduced as under: "8.5. It is observed that although the appellant has made submissions before the AO that lessees have not claimed depreciation on leased assets, however, it. appears that the issue has not been verified by the AO as it is not known whether the certificates from lessees were ever produced before the AO. The assessment order is silent on the issue of such verification. Keeping in mind the decision of Hon'ble Apex Court, the issue on depreciation of leased asset is decided in appellant's favour subject to the verification to be made by the AO that in none of the cases of lessees, depreciation has been claimed by them on such leased assets. Ground No. 2 of appeal is therefore, allowed with these directions." 5.1 Before us, the learned Counsel of the assessee submitted that though the lessees have not claimed depreciation on the same assets, still the assessee cannot be held responsible for any wrong claim of depreciation, if any, by the lessees and, therefore, such direction need to be struck down. He relied on the order of the Tribunal in ITA No.1200/Del/2011 for assessment year 1999- 2000 and submitted that....
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....ain plant and machinery on lease from the assessee and during the tendency of the lease. They have not claimed any depreciation u/s 32 of the income tax act as the ownership of the assets remained with the assessee. Assessee has also produced the copy of lease agreement placed at page number six - 41 of the paper book, which has certain specific clauses tabulated by the assessee also in its return submission. 14. According to clause number 2.4 of the lease agreement it is agreed that upon termination of the agreement by a flux of time or otherwise, the lessee shall, at its own cost and expenses, forthwith deliver or cause to be delivered to the lessor the equipment, such time and place as may be directed by the lessor, in good repair, order and conditions subject to normal wear and tear. As per the article IV four of the agreement the lessee was to maintain and keep the equipment however to show with Mark that assessee is the soul and the exclusive owner of those assets. 15. Further, the learned authorised representative has also tabulated the relevant conditions of the lease agreement as under:- Features Words in the agreement Article/clause no. Intention of parties "L....
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....o Lessor being owner. "Not to claim any relief by way of depreciation or nay other deduction allowance or grant available to the Lessor as the owner of the equipment" Article IV - 4.17 Lessee is agent of Lessor for purpose of taking delivery. "The Lessor hereby appoints the Lessee as its agent to deliver, inspect, receive deliver/obtain clearance from port/customs authorities and installation of the equipment from/by the manufacturer and /or its agents" Article V - 5.1 Equipment is not stock in trade of the Lessor "The Lessor is not the manufacturer or dealer or supplier of the equipment anc has only purchased the equipment selected by the Lessee from the manufacturer or dealer or supplier designated by the Lessee" "The Lessor has not at any time, made nor does it hereby make any representation or warranty, whatsoever with respect to the merchantability, quality....or performance of the equipment." Article VI - 6.2, 6.3 Ownership recognized by successors in title "As between the Lessor and the Lessee and their respective successors in title, the equipment shall remain moveable property of and shall continue to be in the ownership of the Lessor" Article VI - 6.7F....
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.... is entitled to depreciation available to it u/s 32 of the act. 18. Further in Cosmo films private limited versus CIT [2011] 12 taxmann.com 217 (Delhi)/[2011] 200 Taxman 384 (Delhi)/[2011] 338 ITR 266 (Delhi)/[2011] 245 CTR 23 (Delhi), the honourable Delhi High Court has dealtyvith a question that: "Whether the Tribunal was justified in law in allowing depreciation on the assets for which the Assessing Officer had treated the transaction as that of finance and not of leasing?" 19. The honourable High Court held that once it is established that the ownership of the said equipment is that of the assessee, then it is clear that the respondent/assessee would be entitled to claim depreciation. 20. Further, in the present case lease rental is received regularly and has been shown in the Profit & Loss A/c. The other parties who are paying lease rentals to the assessee have shown lease rental paid to the assessee. The department has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee. Moreover, the assessee has produced the certificates fr....
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....uing direction by the Learned CIT(A) to the Assessing Officer for verification of the depreciation claimed by the lessees, before allowing depreciation to the assessee on such leased assest. Accordingly, this ground of the appeal of the assessee is allowed. 6. The third ground of the appeal relates to disallowance made under section 14A of the Act read with rule 8D of Income-tax Rules, 1962. 6.1 The assessee earned dividend income of Rs. 63,82,22,092/- as exempt income and made suo motu disallowance of Rs. 10 lakh against such exempted income. It was claimed that all the investment/subscription in shares had been made out of the interest-free funds and no borrowings were made for the purpose of the investment/subscription into shares. However, the Assessing Officer invoked rule 8D of Income-tax Rules and determined the disallowance at Rs. 5,14,64,963/- and after reducing the suo motu disallowance of Rs. 10 lakh, addition for the balance amount of Rs. 5,04,64,963/-was made by the Assessing Officer. The assessee could not succeed before the Learned CIT(A). The Ld. CIT(A) upheld the disallowance observing as under: "The appellant itself has admitted that it was incurring expendit....
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....akhs u/s 14 A of the income tax act which is also mentioned at paragraph number 6 of the assessment order. On reading of the assessment order at paragraph number 4 we find that the learned Assessing Officer noted that assessee has earned dividend income and tax-free income from boards. Looking at these, he asked the assessee to justify the non-disallowance of expenditure u/s 14 A of the act. He rejected the contention of the assessee with some general statements and thereafter reproduces the provisions of Section 14 A of the income tax act and computed disallowance as per rule 8D. Therefore, it is apparent that, the learned Assessing Officer has not recorded his own satisfaction / finding that how the disallowance shown by the assessee on its own of Rs. 2 lakhs is incorrect. The satisfaction of the Assessing Officer is mandatory in terms of the provisions of Section 14 A (2) of the income tax act. The satisfaction of the Commissioner of income tax appeals cannot be replaced for substituted for the satisfaction of the learned Assessing Officer. The honourable Supreme Court in Maxoop investments Ltd versus CIT [ 2018] 91 taxmann.com 154 (SC)/[2018] 254 Taxman 325 (SC)/[2018] 402 ITR ....
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....enditure relatable to earning of dividend income shall have to be disallowed. (ii) No evidence has been furnished by the assessee company to establish that no expense has been incurred in earning of the dividend income. This is especially required in light of the fact that certain expenses like cost of borrowings, salary, employee welfare expenses, postage/ telegram expenses, traveling and conveyance expenses, rent etc. are common expenses with regard to earning of dividend income/ interest income and normal/ regular business activity of the assessee company. (iii) The assessee company is also entitled to claim long term capital loss on sale/purchase of bonds on which dividend income has accrued to the assessee company. Thus, it is seen that on one hand the assessee company is claiming dividend income totally exempt u/s 10(34) and at the same time it is also getting benefited by the fact that due to earning of dividend income, the redemption price of the said bonds has also gone down. The assessee is not entitled to avail this double benefit. Hence, it is all the more necessary to apportion the expenses u/s 14A in respect of dividend income earned by the assessee company. (iv....
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.... from investment are well informed and well coordinated management decisions involving not only inputs from various source but also acumen of senior management functionaries. Therefore cost is inbuilt into even so called "passive" Investment. There are incidental expenditures of collection, telephone, follow up 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 spread so as to apportion appropriate cost of funds invested in the activity lending to carrying of exempt income. In view of above, the provisions of sub sections (2) of section 14 A and Rule 8D of IT Rules are in operation and therefore will strictly be adhered to by the assessee." 6.5 We find that the Assessing Officer is under the impression that no expenses have been incurred for earning the dividend income, whereas the assessee has made suo motu disallowance of Rs. 10 lakh. The Assessing Officer has not pointed out how the said claim of Rs. 10 lakh, is not correct. The Assessing O....