TaxTMI 
TaxTMI 
2025 (3) TMI 293
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....tion expenses for persons specified under section 40A(2)(b) of the Income-tax Act, 1961. 2. That on the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming disallowance of Rs 5,66,812/- on account write-off of advances for purpose of leasehold improvements. The appellant craves leave to add, alter, amend, or vary the above grounds of appeal at or before the time of hearing." ITA No.-3408/De/2011 1. The order of the learned CIT(APPEALS) is erroneous & contrary to facts & law 2. On the facts and in the circumstances of the case and in law, the Ld. CTT (Appeals) has erred in restricting the Addition under section 14A to Rs. 2,55,46,255/- as against Rs. 4,43,57,450/- made by the AO. 2.1. The Ld. CIT (A) has ignored the finding recorded by the AO and the fact that the addition was correctly made by the AO in accordance with the provisions of Rule ID of LT. Rules. 1962. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in deleting the addition of Rs. 17,263/- made by disallowing the excess depreciation of computer peripherals. 3.1. The Ld....
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....ctly made by the AO in accordance with the provisions of Rule SD of L.T. Rules, 1962. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) has been in deleting the addition of Rs. 4,00,432/- made on account of bad debts and sundry creditors. 3.1. The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not file the necessary evidence to substantiate its claim during the assessment proceedings. 4. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has been in deleting the addition of Rs. 54,72,357/- made on account of duty credit received. 4.1. The Ld. CIT (A) ignored the finding recorded by the AO and the fact that the assessee did not offer the sum in question for taxation and was not credited in the P & L account. 5. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing. ITA No.-1414/Del/2013 "4. That on the facts and circumstances of the case and in law the Learned CIT(A) erred in confirming disallowance of Rs 14,92,34,526/- under section 14A of the IT, Ac....
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....for assessment year 2007-08) and Rs. 14,92,34,526/- (for assessment Year 2009-10) on account of sponsoring of education expenses for the person specified u/s 40(2)(b) of the Act. 5.1 In this regards, the Ld. AO observed that the amount incurred towards education of son and daughter of the Director of the assessee company was not incurred wholly and exclusive for the purpose of business and there was no any nexus between foreign education incurred on behalf of the children of the Director of the assessee company and the business of the company and disallowed u/s 37 of the Act. 5.2 The Ld. CIT(A) observed while deciding this issue, of which relevant para 5.2 to 5.3 is hereby reproduced as under: "5.2 On facts, the expenditure on foreign education of Mr. Arjun Bhartia and Ms. Ashti Bharita who are son and daughter of Shri H.S. Bhartia, the director of the appellant company is held to be not laid out and expended wholly and exclusively for the purposes of business or profession of the assessee. The decisive test in a situation like this is to ask a question whether an assessee will incur expenditure of the type being claimed in case of appellant as business expenditure i....
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....ey University of which relevant extract as under: "An integrated liberal arts and business education produces thoughtful and well-informed civic leaders. It cultivates individual freedom through reflection and self-awareness. It leads individuals to think for themselves. It creates an understanding of the larger context of business issues and the role of business in society, history, culture and ideology. It leads to more creative, innovative and entrepreneurial thinking as a result of the cross-fertilization of ideas and the constantly fresh perspective that this produces." 5.4 The Ld. AR further submitted that education expenses were sponsored by the assessee / appellant company pursuant to Board Resolution dated 23.06.2024 by which resolved to the approved sponsoring education expenses, including boarding, lodging and tuition fees of Mr. Arjun Bhartia to study liberal, arts, in order to be well equipped to get education from reputed universities helpful in future growth and development of the assessee / appellant company, at Brown University, province US and S.S. Bhatia and H.S. Bhartia was authorized severally to settle terms and conditions on which assessee company....
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..... Bhartia, Directors of the Company be and are hereby authorised severally to settle terms and conditions on which the Company will employ him after he comes back to India on completion of his education." 5.5 It was also submitted that since 18.02.2010, both Mr. Arjun Bhartia and Ms. Ashti Bhartia served as Director of the assessee company and contributed immensely to its growth and profitably and did not receive any remuneration from the assessee / appellant company for two years till 31.03.2012 and with effect from 01.04.2012 remuneration was paid to Mr. Arjun Bhartia and the said remuneration expenses in the books of the assessee company was accepted and allowed by the AO during assessment proceedings. 5.6 The Ld. AR also contended that it is established principle of law that although the fact that employee whose education was sponsored was son of the Director of the assessee company could not be ignored, however, while judging the allowability of such expenditure, would be wholly irrelevant for the court to consider as to whether the assessee could have similarly assisted another employee unrelated to its management. He referred judgment passed by Hon'ble Delhi High Court....
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....ve similarly assisted another employee unrelated to its management is not a question which this Court has to consider. But that it has chosen to fund the higher education of one of its Director's sons in a field intimately connected with its business is a crucial factor that the Court cannot ignore. It would be unwise for the Court to require all assessee's and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class - unrelated to the management -would qualify for deduction under Section 37(1). We do not see any such intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent." 10. In view of the above discussion, having regard to the circumstances of the case, this Court is of the opinion that the expenditure claimed by the assessee to fund the higher education of its employee to the tune of Rs. 23,16,942/-....
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....tended towards the educational expenses and the nature of the education and also other attending circumstances, we are satisfied that the amount expended by the assessee is not a devise to avoid payment of tax or reduce payment of tax and this expenditure is a bona fide one in that view of the matter, we do not find any merit in these appeals." 5.8 On the basis of foregoing discussion and established principle of law, this ground deserves to be allowed in the favour of assessee and addition in question is hereby deleted. Ground no. 2 6. The Ld. AR submitted that the Ld. CIT(A) erroneously confirmed disallowance of Rs. 5,66,812/- on account of write-off of advances for the purpose of lease hold improvements. 6.1 The Ld. AO observed in this regards that only a trading debt will be debt allowable as it should be revenue in nature but the assessee company claiming an amount of Rs. 5,66,812/- as bad debts on payments / advances made towards lease hold improvements and since these payment / advances are in the nature of capital expenditure, can't be claimed as a revenue expenditure. 6.2 The Ld. CIT(A) confirmed the observation of the Ld. AO and sustained disallowance as me....
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....205/- the twin conditions of allowability of bad debts written off are not fulfilled. It is further observed that the amounts of Rs. 32,903/- and Rs. 6,396/- have been paid towards capital outley, non recovery of which could in the facts of the present case, amounts to a capital loss and cannot allowed as a business or revenue loss. In this context, reliance is placed on the decision of the jurisdictional High Court of Delhi in the case of CIT u. R.G. Scientific Enterprises (P) Ltd (2008) 311 ITR 401 (Delhi). Accordingly, disallowance of Rs. 1,45,205/- is hereby confirmed. In view of the aforesaid, out of total disallowance of Rs. 2,09,523/-, is directed to be deleted. As a result, the Grounds of Appeal No. 11 & 12 raised by the appellant are accordingly partly allowed." 39. Ld. Counsel has also placed his reliance upon circular No. 12/2016 issued by CBDT dated 13.05.2016 which supports view taken by Hon'ble Supreme Court in case of TRF Ltd (supra). Respectfully following same, we are inclined to confirm decision of Ld. CIT(A) and delete this ground of appeal raised by Revenue." 6.4 In conclusion by following the previous order passed by Coordinate Bench in assessee....
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.... 8D of the Rules, the Ld. CIT(A) rejected the same and recomputed disallowance applying proportionate method was submitted back to the Ld. AO for re-computation of disallowance with a direction to not to apply Rule 8D and in compliance thereof, the Ld. AO vide order dated 26.10.2018 recomputed the disallowance as per the proportionate method and on the grounds of consistency, the proportionate method should be accepted as the correct method for computation of disallowance u/s 14A of the Act. ITA No. 3198/Del/2011 11. Ld. AR for the assessee submitted that during the relevant previous year, the Appellant company earned dividend income of Rs. 3,25,32,763 The Appellant company also incurred administrative expenses of Rs. 30,69,65,765 personnel expenses of off Rs. 16,52,20,735 and finance charges of Rs. 21,63,98,894/-.Further, in the return of income filed for the relevant year, the Appellant made suo motu disallowance of Rs. 1,98,89,751 under section 14A of the Income-tax Act, 1961 ("the Act) read with provisions of Rule 8D of the Income-tax Rules, 1962 ("the Rules"). Further, while computing "the average value of investments" for the purposes of Rule 8D(2)(ii) and (iii) of the ....
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....Ground no. 1 & 2 13. The Ld. AR submitted that in the relevant previous year, the assessee / appellant company earned dividend income of Rs. 5,00,62,107/- and in the return of income filed for the previous year, the assessee made suo moto disallowance of Rs. 2,86,49,788/- u/s 14A of the Act on the basis of turnover method, which was consistently adopted in previous year. The Ld. AO enhanced the disallowance u/s 14A of the Act r/w rule 8D of the Income Tax Rules, 1962 to Rs. 17,78,84,314/- which was thereafter restricted to Rs. 14,92,34,526/- looking to the suo moto disallowance of Rs. 2,86,49,788/- by the assessee / appellant company and CIT(A) vide impugned order dated 28.12.2012 upheld the disallowance by stating that facts of case are similar to that for AY 2008-09 wherein similar disallowance was considered and upheld. 14. It is also submitted that disallowance u/s 14A u/s rule 8D should have been computed by taking into account only such investments on which dividend was received in the 'Average Value of Investment" while invoking Rule 8D (ii) and (iii) and referred the judgement passed by jurisdictional Delhi High Court in PCIT vs. Caraf Builders & Constructions Pvt. Lt....
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....al and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the Assessing Officer who shall do so after giving due notice to the party." 14.3 The Ld. AR also referred judgment of Hon'ble Delhi High Court passed in Cargo Motors (P) Ltd. vs. DCIT (2022) 145 taxmann.com 641 (Delhi) in which held that for the purpose of making disallowance of expenses u/s 14A r/w Rule 8 D, only those investments were to be considered for computing average value of investments which yielded exempt income during relevant year. 14.4 In the case of Joint investment (P) Ltd. vs. CIT (2015) 59 taxmann.com 295 (Delhi), the Hon'ble Delhi High Court held that where assessee declared tax exempt income and voluntarily disallowance certain expenditure u/s 14A, in absence of reason why assessee's claim for disallowance u/s 14A had to be rejected, the Ld. AO was not justified in recomputing disallowance and this case, matter was remitted back to the AO for fresh consideration. Relevant para 9 and 10 are as under: "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2.97....
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....income earned during the relevant previous year. 14.7 Fact situation mentioned hereinbefore and by following above-cited binding judicial precedents in order to resolve dispute in proper perspective remitting this issue back in the file of the Ld.AO for the consideration afresh in accordance with the prevailing laws and passed order as per law after providing effective opportunity of being heard to the assessee. ITA No. 3408/Del/2011 Ground no. 3 and 3.1 15. The Ld. Dr submitted that the Ld. CIT(A) erroneously deleted the addition of Rs. 17,263/- made by disallowing the excess depreciation of computer peripherals by ignoring that the depreciation computer peripherals allowed to @ 15% and not @ 60%. Per contra, the Ld. Ar contended that the assessee claimed depreciation computer peripherals @ 60% available in respect of computers, on the ground that UPS constitutes integral part of computer but the Ld. AO erroneously held that the UPS is not integral part of the computer. The Ld. AR relied upon the judgment passed by the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Power Ltd. (Delhi High Court), in ITA No. 1266/2010, dated 31.08.2010 of which relevant pa....