Hindustan Times Ltd. Vs DCIT (ITAT Delhi)
Conclusion: Expenditure incurred on paintings was allowable as revenue expenditure deeming it essential for creating a conducive business environment and accordingly to be construed as expenditure wholly and exclusively incurred for the purpose of business of assessee.
Held: Assessee during the year incurred expenditure of Rs 61,49,308/- towards paintings, which were meant for display in the office of assessee. The said paintings were capitalized as furniture and fixtures in the fixed assets schedule and depreciation @ 10% was claimed by assessee depending upon the date on which they were put to use in accordance with provisions of section 32. AO disallowed the depreciation claimed by assessee on the ground that the paintings were “personal effects” and not “capital assets”. CIT(A) held that though the paintings were used in the business premises of assessee, depreciation thereon was not allowable as the same constituted “personal effects” and the value of paintings increased with the passage of time rather than diminishing. Assessee had challenged the disallowance of depreciation and had also raised an additional ground alternatively that the said cost of paintings which was being used in the business premises of the assessee would be eligible for deduction as revenue expenditure. It was held that the paintings / works of art constituted part of interior decoration to improve aesthetics of the reception and common area of the buildings, which were regularly visited by its clients and from the assessee was deriving income. The cost of paintings were meant for aesthetic purpose and for having better environment and accordingly to be construed as expenditure wholly and exclusively incurred for the purpose of business of the assessee herein. Hence, ITAT had no hesitation in allowing the cost of paintings as a revenue expenditure.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The appeal in ITA Nos. 1629/Del/2012, 1226, 1227 and 6512/Del/2013 for AY 2008-09, 2009-10 and 2010-11 arises out of the order of the Commissioner of Income Tax (Appeals)-XIX, New Delhi dated 20.1.2012, CIT(A)-9, New Delhi dated 05.12.2014 CIT-19, New Delhi dated 30.08.2013 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act’) dated 31.12.2010 by the Assessing Officer, DCIT, Central Circle-16(1), New Delhi (hereinafter referred to as „ld. AO’).
2. Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.
ITA No. 1629/Del/2012 – Asst Year 2008-09
The 3. assessee has raised the following grounds of appeal before us:-
“1. That the CIT(A) erred on facts and in law in confirming the disallowance of Rs. 1,54,06,773/- made by the assessing officer under section 14A of the Income tax Act, 1961 (‘the Act’) read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules’).
1.1 That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in applying provisions of Rule 8D in a routine manner, and in absence of any finding/satisfaction as to why the disallowance under section 14A of the Act made by the appellant in the return of income, was not correct.
2. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in adding back the aforesaid amount while computing ‘book profit’ under section 115JB of the Act.
2.1 That the CIT(A) erred on facts and in law in not appreciating that the provisions of section 14A and Rule 8D of the Rules are not applicable to section 115JB of the Act.
2.2 That the assessing officer erred on facts and in law in not appreciating that establishing co-relation between the earning of dividend income and the expenses incurred is a precondition for making addition in terms of clause (f) of Explanation 1 to section 115JB of the Act and that such correlation has not been established on facts of the appellant’s case.
3. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in disallowing the amount of Rs. 3,07,465/-, being depreciation claimed on paintings put up in the office premises.
4. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in disallowing the amount of Rs. 13,00,000/-, being amount written off on account of currency burnt in fire. ”
3. The assessee had raised the following additional grounds of appeal before us:-
“1.2. That on the facts and circumstances of the case and in law, while computing disallowance under section 14A of the Act read with Rule 8D(2)(iii) of the Rules, the investment which did not yield exempt income during the relevant year and strategic investment ought to be excluded while computing the average value of investment in terms of the aforesaid clause.
3.1. That on the facts and circumstances of the case and in law, expenditure of Rs 61,49,308 incurred on acquisition of paintings is allowable revenue deduction.
5. We find that the aforesaid additional grounds raised before us are purely legal in nature and go to the root of the matter not requiring any verification of facts. Hence the same are hereby admitted and taken up for adjudication along with the original grounds of appeal.
6. The Ground Nos. 1 , 1.1.and Additional Ground No. 1.2. raised by the assessee are challenging the disallowance made u/s 14A of the Act while computing income under normal provisions of the Act.
6.1. We have heard the rival submissions and perused the materials available on record. The assessee is a public limited company engaged in the business of real estate, provision of various facilities / services to tenants etc. The revised return of income was filed by the assessee declaring total income of Rs Nil after adjustment of brought forward losses under normal provisions of the Act and book profits of Rs 18,19,41,260/- u/s 115JB of the Act. During the year under consideration, the assessee received exempt income in the form of dividend amounting to Rs 13,15,40,042/-. The assessee stated that 97.2% of the dividend income was received from old strategic long term investments as under:-
