In “CIT v. Hero Cycles” (supra), it was held by the Punjab & Haryana High Court, inter alia, that the contention of the Revenue that directly or indirectly some expenditure was always incurred, which must be disallowed u/s 14A of the Act and the impact of the expenditure so incurred could not be allowed to be set off against the business income which may nullify the mandate of section 14A, could not be accepted;
and that the disallowance u/s 14A required a finding of incurring of expenditure and where it was found that for earning exempted income, no expenditure had been incurred, disallowance u/s 14A could not stand. In the present case, as seen, the AO has not established any nexus whatsoever between the borrowed funds and the investment made. Therefore, “Hero Cycles” (supra), is applicable.
Allowability of Balance Additional Depreciation in Subsequent Year
In this case, the assessee claimed additional depreciation @7.5%, being 50% of the additional depreciation of 15%, in respect of new plant and machinery installed at the new eligible industrial undertaking of the company which was allowed. Therefore, it was held that the eligibility of additional depreciation stands admitted and balance 50% of the depreciation is allowable in the current year.
INCOME TAX APPELLATE TRIBUNAL, DELHI
ITA No. 2431(Del) 2010 – Assessment year: 2006-07
Asstt. Commissioner of Income Tax V. SIL Investment Ltd.
C.O. No.349(Del)2010 – Assessment year: 2006-07
SIL Investment Ltd. v. Asstt. Commissioner of l. Tax
(2012) 73 DTR 233 (Del.)(Trib.)
54 SOT 54 (Del)
ORDER
PER A.D. JAIN, J.M.
These are DepartmentRs. s appeal and the assesseeRs. s cross objections against the order dated 4.2.2010 passed by the CIT(A), XI, New Delhi. The following grounds have been taken by the Department:-
1. “Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in restricting the disallowance of Rs. 2,08,83,181/- made by the AO u/s 14A of the I.T. Act to Rs. 16,54,531/-
2. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the disallowance of Rs. 5,000/- made by the AO on account of fines & penalties.
3. Ld. Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in directing the AO as under :-
i) To verify the claim of the assessee and exclude interest income from UTI from income after due verification.
ii) To allow the balance 50% of additional depreciation after verifying the contention of the assessee that 50% of additional depreciation was claimed and allowed in immediately preceding year i.e. A.Y. 2005-06.
iii) Verify the claim of the assessee and allow credit of the TDS.
Since the CIT(A), as per the provisions of section 251 (1)(a) of the I.T. Act, may confirm, reduce, enhance or annul the assessment and the above directions of the CIT(A) amount to setting aside the grounds of appeal.”
2. The assessee has raised the following cross objections:-
1. “That the CIT(A) erred on facts and in law in confirming the disallowance of expenditure amounting to ` 1 6,54,525/- under section 14A Income-tax Act, 1961 (the Act), alleged to have been incurred for earning tax free dividend income.
That the CIT(A) erred on facts and in law in not holding that disallowance under section 14A of the Act, could not have been worked out as per the method provided in Rule 8D of the Income-tax Rules, 1962 (Rs. the RulesRs. ) since the same was prospective in operation and was not applicable to the year under consideration.
2. That the CIT(A) erred on facts and in law in not directing the assessing officer to allow deduction under section 801A/80IB of the Act in respect of the three units of the appellant.
2.1 That the CIT(A) erred on facts and in law in not appreciating that deduction under section 80IA/80IB of the Act was not allowed in respect of the profits of the three units for the period 01.04.2005 to 30.06.2005 to the appellant as well as the resulting company.”
3. Apropos ground No.1 of the DepartmentRs. s Appeal & Cross Objection No.1 of the assessee, as per the assessment order, the AO noticed that the assessee had earned dividend income of Rs. 17,32,701/- and long term capital gain of Rs. 12,15,93,111/-, against which, no expenses had been claimed to have been incurred. The AO asked the assessee to explain as to why disallowance u/s 14A of the I.T. Act be not made in respect of expenses attributable to income exempt u/s 10 of the Act. The assessee submitted that no expenses had been incurred to earn the exempt income. The AO, however, disagreed with the stand taken by the assessee. It was observed that the assessee had an opening balance of investment of Rs. 88,85,47,596/- and a closing balance of Rs. 1,00,47,31,991/-, from which, the assessee had earned the exempt income; that as available from the assesseeRs. s Profit and Loss Account, the assessee had incurred an interest cost of Rs. 3,22,99,963/- during the year; that the assessee company had been carrying on the business of manufacture of yarn, which had been transferred to Sutlej Textiles and Industries Ltd. (Rs. STILRs. , for short), with effect from 1.7.2007, as per the scheme of arrangement sanctioned by the HonRs. ble Rajasthan High Court; that the assessee company had retained the investment business; that as such, 50% of the expenses on account of interest were being treated as incurred for investment business, from which, the assessee had earned income in the form of dividend and capital gains; and that it was clear that the assessee had earned exempt income at the costs debited to the Profit and Loss Account. The AO further held that following the Special Bench decision of the Tribunal in “ITO, Mumbai v. Daga Capital Management Pvt. Ltd.”, 2008 – TIOL – 509-Mumbai-(SB), Rule 8 D of the I.T. Rules read with Sections 14A(2) & (3) of the Act are applicable with retrospective effect. Holding so, the AO worked out the disallowance u/s 14 A of the Act as follows:-
