IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : C : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM
ITA Nos.2508, 2507/Del/2013
Assessment Years : 2006-07 & 2007-08
ITA No.986/Del/2012
Assessment Year: 2008-09
ACIT, Vs. HT Media Ltd.,
Circle 12(1), 18-20, KG Marg,
New Delhi. New Delhi.
PAN: AABCH3165P
ITA Nos.2203 & 2202/Del/2013
Assessment Years: 2006-07 & 2007-08
ITA No.340/Del/2012
Assessment Year : 2008-09
HT Media Ltd., Vs. ACIT,
18-20, KG Marg, Circle 12(1),
New Delhi. New Delhi.
PAN: AABCH3165P
(Appellant) (Respondent)
Assessee By : Shri V.P. Gupta, Advocate
Department By : Shri RIS Gill, CIT, DR
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
Date of Hearing : 16.03.2015
Date of Pronouncement : 18 .03.2015
ORDER
Per Bench:
These six cross appeals three by the assessee and equal number
by the Revenue relate to the assessment years 2006-07, 2007-08 and
2008-09. Since some common issues are raised in these appeals, we are,
therefore, disposing of these appeals by this consolidated order for the
sake of convenience.
Assessment Year : 2006-07
2. The only issue raised by the Revenue through various grounds is
against the disallowance u/s 14A of the Income-tax Act, 1961
(hereinafter also called `the Act') . The first grievance in this regard
through ground number 1 is against the holding by the ld.CIT(A) that:
`proportionate disallowance out of interest is not to be made by ignoring
the fact that though investments were made in the immediately
preceding assessment year out of interest bearing funds.'
2
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
3. Briefly stated, the facts of the case are that the assessee filed return
declaring dividend income of Rs.1,68,07,438/- which was claimed as
exempt. No disallowance was offered u/s 14A. On being called upon to
explain as to why no disallowance was offered under this section, the
assessee submitted that its main source of income was advertisement
revenue, sale of newspapers and periodicals and, hence, no specific
expenses were incurred for earning the exempt dividend income. The
AO rejected the assessee's contention. Applying rule 8D(2)(iii), the AO
made disallowance equal to ½% of the average of the value of
investments. This resulted into an addition of Rs.41,32,830/-. The ld.
CIT(A) came to hold that rule 8D was not applicable to the assessment
year under consideration. Considering the Tribunal order passed for the
immediately preceding year, the ld. CIT(A) upheld the disallowance to
the tune of Rs.8,11,948/- by considering the total expenditure of Rs.2.88
crore incurred in the current year, being the cost of Finance department
and remuneration of CFO and Directors and, thereafter, allocating it in
3
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
the ratio of exempt income to taxable income. The remaining amount of
disallowance was deleted in the first appeal.
4. We have heard the rival submissions and perused the relevant
material on record. It is observed that the assessment year under
consideration is 2006-07 and, hence, rule 8D cannot be applied for
making disallowance u/s 14A of the Act. Our view is fortified by the
judgment of the Hon'ble jurisdictional High Court in the case of Maxopp
Investment Ltd. Vs. CIT (2012) 347 ITR 272 (Del. It has been laid down
in this judgment that the provisions of rule 8D can apply only from the
AY 2008-09 and in a period anterior to that, the disallowance is to be
made on a reasonable and acceptable method of apportionment.
Adverting to the facts of the instant case, we find that the AO principally
made disallowance under clause (iii) of rule 8D(2) towards
administrative and other expenses incurred in earning the exempt
income, by picking up rate of disallowance at 0.5% of the average of
the value of investments. There is no specific disallowance made by the
AO on account of interest expenditure. It is manifest that the ld. CIT(A)
4
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
has sustained disallowance by apportionment of total of such
expenditure in the ratio of exempt income to taxable income. In view of
the fact, that neither the AO made any disallowance on account of
interest under section 14A nor did the ld. CIT(A) go into this aspect by
making any enhancement etc., ground no.1 raised by the Revenue for
sustenance of disallowance towards interest is held to be not arising
from the impugned order.
5. As regards Ground nos.dfgh2 and 3, the Revenue is aggrieved
against the apportionment of common expenses of Rs.2.88 crore
between exempt income and taxable income and, further, the failure of
the ld. CIT(A) to consider proportionate amount of depreciation
attributable to furniture, fixture, vehicles, printers and fax machine as a
part of the base amount determined at Rs.2.88 crore.
6. It is manifest from the impugned order that the allocation of total
expenses has been made in the ratio of exempt income to taxable
income. The Revenue argued before the Tribunal in the preceding year
that the disallowance u/s 14A ought to have been made on the basis of
5
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
exempt income and taxable income and not the exempt income and
gross sales. The viewpoint of the Revenue canvassed for the
immediately preceding year seems to have been accepted by the ld.
CIT(A) who chose to apportion total expenses in the ratio of exempt
income to `taxable income' instead of gross sales. The ld. DR could not
point out any other more suitable basis for apportioning expenses
towards exempt income. We, therefore, approve the view taken by the
ld. CIT(A) in making apportionment of total expenses in the ratio of
exempt income to taxable income.
7. As regards the third ground, it is apparent that while taking the
expenditure of Rs.2.88 crore liable to be bifurcated between exempt
income and taxable income, the ld. CIT(A) did not consider the
proportionate amount of depreciation, which is otherwise required to be
considered. The ld. DR argued that such proportionate amount of
depreciation to be included in the amount of disallowance worked out by
the ld. CIT(A) at Rs.8,11,948/-, should not be less than Rs.50,000/-. The
ld. AR did not raise any objection to this. As such, accepting the view
6
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
point of the ld. DR, we increase the disallowance u/s 14A to
Rs.8,61,948. Whereas ground no.2 is not allowed, ground no.3 is partly
allowed.
8. Ground no. 4 is against the addition of disallowance of Rs.8,11,948
in the computation of income u/s 115JB. The ld. AR did not agitate this
issue and fairly conceded that the amount disallowable u/s 14A should
be properly considered while computing income u/s 115JB. We,
therefore, direct that the amount of disallowance u/s 14A at
Rs.8,61,948/- should be added while computing book profit u/s 115JB.
It is but natural that only such amount in this regard can be added in the
computation u/s 115JB, which is exempt u/s 14A. Nothing over and
above that calls for further addition on this score.
9. The only ground taken by the assessee in this appeal about the
sustenance of disallowance of depreciation amounting to Rs.68,000/- on
motor vehicle was not pressed by the ld. AR. The same is, therefore,
dismissed.
7
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
10. In the result, the appeal filed by the Revenue is partly allowed and
that of the assessee is dismissed.
Assessment Year : 2007-08
11. The first ground of the assessee's appeal was not pressed. The
same is, therefore, dismissed.
12. The only other ground which survives in this appeal is against the
confirmation of disallowance of club expenses of Rs.5,37,384/-.
13. Briefly stated, the facts apropos this ground are that the assessee
claimed deduction for club expenses amounting to Rs.5,37,384/- which
was not allowed by the AO. The ld. CIT(A) sustained the disallowance.
14. After considering the rival submissions and perusing the record,
we find that this issue is no more res integra in view of the judgment of
the Hon'ble Supreme Court in the case of CIT vs. United Glass
Manufacturing Company Ltd. 2012-TIOL-102-SC-IT, in which it has
been held that the club membership fee for employees incurred by the
assessee is business expenditure allowable u/s 37 of the Act. The facts
8
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
of the instant case are on all fours with the ratio laid down by the
Hon'ble Supreme Court in this case. We, therefore, allow this ground of
appeal.
15. The first issue raised by the Department in its appeal through some
grounds is against the reduction in the amount of disallowance u/s 14A.
16. Briefly stated, the facts of the ground are that the assessee made
investment during the year under consideration in the securities yielding
exempt income and earned dividend of Rs.2,37,38,831/-, which was
claimed as exempt. No disallowance was offered u/s 14A. The reasons
advanced during the course of the assessment proceedings for not
offering any disallowance under this section were rejected by the AO
vide para 3.3 of the assessment order. Thereafter, the AO invoked rule
8D for making disallowance u/s 14A. The first disallowance was made
at Rs.1,04,89,137/- towards interest and the second disallowance of
Rs.1,09,34,433/-, being ½% of the average value of investment as per
rule 8D. The total disallowance was made u/s 14A at Rs.2,14,23,570/-.
The ld. CIT(A), following the view taken by him in apportioning the
9
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
total expenses in the ratio of exempt income to taxable income,
sustained disallowance towards administrative and other expenses at
Rs.8,39,534/-. The other part disallowed by the AO towards interest was
deleted by noting in the last para on page 5 of the impugned order that
no borrowed funds were utilized by the company in investments made
by it and such investments were `made out of own funds of the
company.' Accordingly, no interest was disallowed. The Revenue is
aggrieved against the reduction in the addition.
17. After considering the rival submissions and perusing the relevant
material on record, we find that the disallowance u/s 14A made by the
AO in this year has two components viz., interest and other expenses. In
so far as interest aspect is concerned, the AO made disallowance of
interest amounting to Rs.1,04,89,137/- by applying rule 8D(2)(ii),
which the ld. CIT(A) deleted by observing that the assessee had its own
capital to finance the investment in securities fetching exempt income.
The finding recorded by the ld. CIT(A) that investment in securities
yielding exempt income was made out of own capital of the assessee and
10
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
no interest bearing funds were utilized, have not been controverted by
the ld. DR with any cogent material or evidence. The question arises, as
to whether any disallowance towards interest can be made u/s 14A in the
absence of any investment having been made in such securities out of
interest bearing funds.
18. Recently, the Hon'ble Bombay High Court in CIT Vs. HDFC Bank
Ltd. (2014) 366 ITR 505 (Bom) has held that no disallowance of interest
can be made u/s 14A if the assessee's own capital is more than the
investments fetching exempt income. Similar view has been taken by the
Hon'ble Gujarat High Court in CIT Vs. Suzlon Energy Ltd. (2013) 354
ITR 630 (Guj). In view of these precedents, it becomes ostensible that
there can be no question of disallowance of interest u/s 14A in this case
because the amount of share-holders fund is much higher than the
amount of Investments yielding exempt income. As such, we uphold the
view taken by the ld. CIT(A) in deleting disallowance u/s 14A on
account of interest.
11
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
19. The second component of the disallowance is out of the
administrative and other expenses, made by the AO at ½% of the
average value of investments and reduced by the ld. CIT(A) to
Rs.8,93,534/-. In this regard, we find that the ld. CIT(A) has followed
the same yardstick of apportioning total expenditure in the ratio of
exempt income : taxable income, which has been upheld by us for the
earlier year. We, therefore, approve the apportionment of expenses in
the ratio of exempt income to taxable income. However, as regards the
non-consideration of depreciation on furniture, fixture, vehicle, etc., we
increase the amount of disallowance by Rs.1 lac to Rs.9,39,534/-. This
disposes of ground nos.1 to 3 taken by the Revenue.
20. As regards, the fifth ground, the ld. AR did not agitate the addition
of Rs.9,39,534/- in the computation of book profit u/s 115JB relatable to
exempt dividend income. This ground is disposed of accordingly.
21. The fourth ground of the Revenue's appeal is against the direction
of the ld. CIT(A) to exclude the fringe benefit tax of Rs.3.65 crore from
the net profit while computing book profit u/s 115JB of the Act.
12
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
22. Briefly stated, the facts of this ground are that the assessee
deducted amount of fringe benefit tax amounting to Rs.3.65 crore in the
computation of book profit for the purposes of section 115JB of the Act.
The AO did not approve the action of the assessee. However, the ld.
CIT(A), relying on CBDT Circular 08/2005 dated 29.8.2005, accepted
the assessee's claim.
23. We have heard the rival submissions and perused the relevant
material on record. It is observed that the decision taken by the ld.
CIT(A) accords with the mandate of Circular issued by the CBDT. The
ld. DR was fair enough to concede this position. This ground is,
therefore, not allowed.
24. Ground no. 6 is against the deletion of disallowance of training
expenses amounting to Rs.2,08,90,762/-. The AO made the
disallowance of training expenses amounting to Rs.2.08 crore incurred
by the assessee, by treating it as a capital expenditure. The ld. CIT(A),
however, directed to consider it as revenue expenditure.
13
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
25. After considering the rival submissions and perusing the relevant
material on record, we find that the view taken by the ld. CIT(A) accords
with the judgment dated 27.4.2010 of the Hon'ble jurisdictional High
Court in the case of CIT vs. Solus Pharmaceuticals Ltd., in which it has
been held that the training expenses are to be allowed as revenue
expenses. We, therefore, uphold the view taken by the ld. CIT(A). This
ground fails.
26. The only other ground which survives for our consideration is
against the allowing of depreciation on computer peripherals at 60%.
27. We have heard the rival submissions and perused the relevant
material on record. It is observed that the assessee claimed depreciation
on computer peripherals @ 60% which was restricted by the AO to 15%.
The ld. CIT(A), following the judgment of the Hon'ble jurisdictional
High Court in CIT vs. BSES Yamuna Powers Ltd. 2010-TIOL-636-HC-
DEL-IT, accepted the assessee's claim.
28. Having heard the rival submissions and perused the relevant
material on record, we find that the ld. CIT(A) has taken an appropriate
14
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
decision on this issue by drawing strength from the judgment of the
jurisdictional High Court which is binding on all the authorities under its
jurisdiction. The Hon'ble Delhi High Court in the case of BSES Yamuna
Powers Ltd.(supra), has held that depreciation on computer peripherals
should be allowed at 60% instead of 15%. We, therefore, uphold the
view taken by the ld.CIT(A) on this issue.
29. In the result, the appeals of the assessee and the Revenue are partly
allowed.
Assessment Year 2008-09
30. Ground No.1 of the Revenue's appeal and ground No.1 of the
assessee's appeal is against disallowance u/s 14A.
31. Briefly stated, the facts of these grounds are that the assessee
earned income from mutual fund investments amounting to
Rs.2,94,38,025/- which was claimed as exempt. The assessee offered
disallowance at Rs.3 lac in the return of income on account of expenses
disallowable u/s 14A. The AO, during the course of assessment
15
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
proceedings, required the assessee to show cause as to why
disallowance be not computed as per rule 8D. In response to that, the
assessee submitted that no expenditure was incurred for earning
dividend income. The AO observed that several expenses were incurred
by the assessee in relation to the exempt income which were not offered
for disallowance. Rejecting the assessee's contention, the AO computed
disallowance as per rule 8D amounting to Rs.8,97,49,579/- consisting of
three amounts, namely, Rs.3 lac, being the amount of expenditure
directly incurred relating to exempt income under clause (i) of Rule 8D
(2); Rs.6,86,27,884/-, being the interest expenditure incurred under
clause (ii) of Rule 8D(2); and Rs.2,08,21,695/-, being the amount equal
to 0.5% of the average value of investments under clause (iii) of Rule
8D(2). When the matter came up before the ld. CIT(A), he held that rule
8D is applicable to the assessment year under consideration. He upheld
the disallowance at 0.5% amounting to Rs.2,08,21,695/- as per clause
(iii) of rule 8D(2). The other additions were deleted. Both the sides are
in appeal on their respective stands.
16
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
32. We have heard the rival submissions and perused the relevant
material on record. The assessment year under consideration is 2008-09.
As per the judgment of the Hon'ble jurisdictional High Court in the case
of Maxopp Investment (supra), rule 8D is applicable from this
assessment year onwards. As such, the disallowance, if any, u/s 14A is
required to be computed as per rule 8D.
33. The ld.AR argued that the AO did not record any satisfaction about
the assessee not properly offering expenditure incurred in relation to the
exempt income at Rs.3 lac and, hence, the entire addition be deleted.
We are not convinced with the submission advanced on behalf of the
assessee. It is obvious from para 3.3.1 of the assessment order that the
AO recorded a proper satisfaction about the assessee incurring expenses
in relation to the exempt income and not offering them for disallowance.
At this stage, it would be apposite to reproduce the contents of para 3.3.1
of the assessment order, as under:-
"3.3.1 It is further observed that the earning of exempt
income is not in nature of passive activity having no input. In
17
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
fact in present situation making of investment, maintaining or
continuing investment and time of exit 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,
research, 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."
34. It can be further noticed that the AO also continued with his
recording of satisfaction in para 3.6, reading as under:-
"3.6 In view of the facts and circumstances and legal
position on the issue as discussed above, I am satisfied that
assessee has incurred expenses to manage its investments
which may yield exempt income, and assessee grossly failed
18
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
to calculate such expenses in a reasonable manner to
ascertain the true and correct picture of its income and
expenses. Therefore, undersigned is left with no option
except to compute such expenses as per the provisions of
statute. Accordingly, disallowance is done while applying
section 14-A r.w. Rule 8D as under:-"
35. In view of the above categorical satisfaction recorded by the AO,
there can be no scope for accepting the assessee's contention that the
addition so made u/s 14A read with rule 8D be deleted for want of
recording of proper satisfaction by the AO.
36. The ld. AR argued that the ld. CIT(A) failed in sustaining the
disallowance at 0.5% of the average value of investment towards
administrative and other expenses. We are not convinced with the
submission advanced by the ld. AR on this score. The obvious reason is
that when rule 8D has come into the picture and has become applicable,
the disallowance is required to be computed with reference to the
mandate given in rule 8D, if the assessee's computation of disallowance
turns out to be incorrect, as has happened in this case. It is only to get
19
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
rid of the rigorous exercise of identifying the amounts incurred in
relation to the exempt income that the delegated legislature has
prescribed the manner of computation of disallowance as per rule 8D.
Since the ld. CIT(A) has sustained disallowance under clause (iii) of rule
8D(2) at 0.5% of the average value of investment, which amount is
obviously much less than the actual expenditure incurred and claimed as
deduction by the assessee, we fail to appreciate the contention for
reducing the amount of such disallowance to a lower level on an ad
hocism. We uphold the disallowance under clause (iii) of rule 8D(2) at
Rs.2,08,21,695/-.
37. As regards the Revenue's contention about the deletion of
disallowance of interest under clause (ii) of rule 8D(2), we find that the
AO computed disallowance at Rs.6.86 crore, which was deleted by the
ld. CIT(A), impliedly on the premise of the assessee's own capital and
interest bearing funds were more than the investment in the securities
yielding exempt income.
20
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
38. Recently, the Hon'ble Delhi High Court in CIT vs. Taikisha
Engineering India Ltd. has laid down vide its judgment dated
25.11.2014 that if rule 8D applies then the assessee's claim that interest
is not disallowable on the ground of `own funds', is not acceptable. It
has been laid down by Their Lordships that : ` the decisions relied upon
by the Tribunal in the case of Tin Box Co. 260 ITR 637 (Del), Reliance
Utilities and Power Ltd. 313 ITR 340 (Bom.), Suzlon Energy Ltd. 354
ITR 630 (Guj) and East India Pharmaceutical Works Ltd. 224 ITR 624
(SC) could not be now applicable, if we apply and compute the
disallowance under Rule 8D of the Rules. The said Rule in sub Rule (2)
specifically prescribes the mode and method for computing the
disallowance under Section 14A of the Act. Thus, the interpretation of
clause (ii) to sub Rule (2) to Rule 8D of the Rules by the CIT(A) and the
Tribunal is not sustainable. The said clause expressly states that where
the assessee has incurred expenditure by way of interest in the previous
year and the interest paid is not directly attributable to any particular
income or receipt then the formula prescribed would apply. Under
21
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
clause (ii) to Rule 8D(2) of the Rules, the Assessing Officer is required
to examine whether the assessee has incurred expenditure by way of
interest in the previous year and secondly whether the interest paid was
directly attributable to particular income or receipt. In case the interest
paid was directly attributable to any particular income or receipt, then
the interest on loan amount to this extent or in entirety as the case may
be, has to be excluded for making computation as per the formula
prescribed'. In view of this judgment of the Hon'ble Delhi High Court,
which is a binding precedent for the Delhi Benches of the Tribunal, it is
manifest that the disallowance on account of interest under rule 8D
cannot be deleted simply on the ground that the assessee's capital and
interest free funds are more than the funds invested in securities yielding
exempt income. This judgment is relevant in the context of rule 8D,
which is applicable from the AY 2008-09. Thus, the reasoning given by
us for deleting such disallowance u/s 14A on account of interest for the
immediately preceding year, being the own funds and interest free funds
higher than the amount of investments, cannot be applied to the A.Y.
22
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
2008-09 onwards, when the mandate of rule 8D has come into force.
Ergo, we find no force in the contention of the ld. AR and the resultant
view canvassed by the ld. CIT(A) that since own capital and interest free
funds exceeded the amount of investments in securities yielding exempt
income, hence no disallowance be made. In our considered opinion, the
ends of justice would meet adequately if the impugned order on this
issue is set aside and the matter is restored to the file of AO for deciding
this aspect afresh, in conformity with the law laid down in Taikisha
Engineering (supra), after allowing a reasonable opportunity of being
heard to the assessee.
39. In so far as the first component of disallowance at Rs.3 lac is
concerned, we find that it is this amount which was offered by the
assessee voluntarily as disallowable u/s 14A. When the assessee offered
this amount for disallowance, the action of the AO in again adding this
amount under clause (i) of rule 8D amounted to double disallowance to
this extent. We, therefore, order for the deletion of addition to this
23
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
extent and direct that this amount should be reduced from the ultimate
amount determined as disallowable u/s14A.
40. Before parting with this issue, we want to make it clear that the
assessee earned total exempt income at Rs. 2.94 crore and the
disallowance made by the AO stands at Rs.8.97 crore. The Hon'ble
jurisdictional High Court in CIT vs. Holcim India Pvt. Ltd., vide its
judgment dated 17.10.14, reported in (2014) 90 CCH 681 (Delhi High
Court) and in a couple of other judgments has held that the disallowance
u/s 14A cannot exceed the amount of exempt income. The AO is,
therefore, directed to take into consideration the ratio of these judgments
while computing finally disallowable amount u/s 14A. The ground
taken by the assessee is dismissed and that by the Revenue is allowed for
statistical purposes.
41. Ground no. 3 of the Revenue's appeal is against the deletion of
addition of Rs.2,26,02,315/- made by the AO on account of
capitalization of training expenses.
24
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
42. Both the sides are in agreement that the facts and circumstances of
this ground are, mutatis mutandis, similar to those of ground no. 6 of the
Revenue's appeal for assessment year 2007-08. Following the view
taken hereinabove, we uphold the impugned order in deleting this
disallowance. This ground is not allowed.
43. Ground no. 4 of the Revenue's appeal is against the deletion of
addition of Rs.15,14,019/- made by the AO on account of club expenses.
Here again we find that similar issue has been decided by us in the
assessee's appeal for the AY 2007-08. Following the view taken
hereinabove, we uphold the action of the ld. CIT(A) in deleting this
disallowance.
44. The only issue which survives in the Revenue's appeal is against
the deletion of addition of Rs.1,04,38,807/- made by the AO on account
of depreciation on computer peripherals. The assessee in ground no. 2 is
against not allowing 60% depreciation on `Computer to Plate' (CTP).
45. The facts of these grounds are that the assessee claimed depreciation
on computer peripherals, UPS, etc., @ 60%, which the AO reduced to
25
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
15%. Apart from that, the assessee claimed additional depreciation @
20% on Computer to Plate which was installed in the factory. The AO
rejected the assessee's contention for allowing depreciation on computer
peripherals at 60% and also repelled the assessee's contention for
allowing additional 20% depreciation on CTP. The ld. CIT(A) accepted
the assessee's claim of allowing depreciation @ 60% on computer
peripherals except CTP, on which rate of depreciation was restricted to
15%, but, additional depreciation @ 20% was granted. Both the sides
are in appeal on their respective stands.
46. We have heard the rival submissions and perused the relevant
material on record. In so far as the question of allowing depreciation @
60% on computer peripherals is concerned, we find that the view taken
by the ld. CIT(A) is in conformity with the view of the Hon'ble
jurisdictional High Court in BSES Yamuna Power Ltd. (supra).
Following the same, we uphold the action of the ld. CIT(A) in allowing
depreciation at 60% on computer peripherals.
26
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
47. As regards the assessee's claim for allowing depreciation @ 60%
on CTP, it is noticed that section 32(1)(iia) of the Act provides for
allowing additional depreciation in the case of any new machinery or
plant acquired and installed after 31.3.2005 by an assessee engaged in
the business of manufacture or production of any article or thing, etc.
The AO has recorded a categorical finding in not accepting the
assessee's claim for additional depreciation to the effect that: `computer
and computer software is out of the ambit of plant and machinery.'
When we look at Appendix to Income-tax Rules, it turns out that Item at
Sr. No. III in new Appendix I is: `Machinery and plant.' Item at Sl. no.
(5) covered under Item III of the Appendix is: `Computers including
computer software.' Thus, it is ostensible that the viewpoint of the AO
that the computers are not to be considered as part of the machinery for
the purpose of additional depreciation, is not sustainable. The
legislature has not specifically excluded computers used in factory from
the ambit of `new plant and machinery' eligible for additional
27
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
depreciation @ 20%. We, therefore, approve the view taken by the ld.
CIT(A) in directing to allow additional depreciation on CTP at 20%.
48. As regards the assessee's grievance about not allowing
depreciation on CTP at 60%, we are unable to find out anything in the
language of the section or the Rules by which an item of Plant and
machinery which calls for depreciation at a higher rate becomes
ineligible for additional depreciation. Here is a case in which the
assessee used CTP processor and CTP software for converting the data
of printing plates for use in printing press as master pages. In other
words, CTP performs the functions of receiving and processing data
ready for printing process. The CTP is nothing but part of machinery
used by the assessee in its business of printing press in the factory itself.
Since CTP is otherwise an item of plant and machinery, but, falls under
the broader head of `Computers including computer software,' which is
subject matter of item (5) under the broader heading `III of Appendix I,'
we hold that the assessee is entitled to depreciation on CTP at higher
28
ITA Nos.2508, 2203, 2202, 2507/Del/2012,
ITA Nos.986 & 340/Del/2012.
rate, in line with other computer peripherals. The Revenue's ground is
dismissed and the assessee's appeal is allowed.
49. In the result, the Revenue's appeal is partly allowed for statistical
purposes and the assessee's appeal is partly allowed.
The order pronounced in the open court on 18.03.2015.
Sd/- Sd/-
[C.M. GARG] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 18th March, 2015.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
29
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