ASST CIT 1(2)1, MUMBAI vs. STANDARD CHARTERED INVESTMENTS & LOANS (INDIA) LTD, MUMBAI

PER PAWAN SINGH, JUDICIAL MEMBER; 1. These four appeals out of two cross appeals for Assessment Year 2007-

08 and two cross appeals for Assessment Year 2008-09 are directed

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

against the order of ld. CIT(A)-3, Mumbai. In all the appeals, the

parties have raised certain common grounds of appeal, therefore, all the

appeals were clubbed, heard and are decided by a consolidated order.

For appreciation of fact, the appeals for Assessment Year 2007-08 is

treated as lead case. The assessee in its appeal has raised the following

grounds of appeal:

Ground 1 The learned Commissioner of Income-tax (Appeals) - 3 ('CIT (An erred in remanding the matter to Additional Commissioner of Income-tax, Range 1(3), Mumbai ('Addl. CIT') and not deleting the addition made in relation to the leasehold refurbishment expenses of Rs. 4,49,08,640 claimed by the Appellant as revenue expenditure. Ground 2 The learned CIT (A) erred in confirming the disallowance made by Addl. CIT in relation to the provision for depreciation on investments of Rs. 26,554,000 on the basis that investments in debentures under consideration is shown under the head 'Investments' and not under the head 'Stock-in trade' in its Balance-Sheet. The Appellant submits that the learned CIT(A) failed to appreciate the submissions made by the appellant during the course of appellate proceedings. The learned CIT(A) has observed that some critical questions remained unexplained by the Appellant. In this regard, the Appellant submits that the learned CIT(A) has not granted any reasonable opportunity of hearing for the same. Ground 3 The learned CIT(A) erred in remanding the matter to Addl. CIT and not deleting the addition of Rs. 22,000,000 in relation to the provision for doubtful advances debited to Profit & Loss account. Ground 4

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

The learned CIT(A) erred in granting only partial relief on the disallowance of expenses made by the Addl. CIT under section 14A of the Income-tax Act, 1961 considering the same as expenses incurred in relation to earning the exempt income. Ground 5 The learned CIT(A) erred in confirming the action of Addl. CIT in granting tax depreciation on printers, cable lines and other connectivity charges at 15% as against 60% thereby disallowing the depreciation claim of Rs. 45,46,456/-. 2. The revenue in its cross appeal has raised the following grounds of

appeal:

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

disallowance u/s. 14A r.w. rule 8D(2)(iii) of the IT, Act to 50% of the administrative expenses when there is no such provision under the Act?

ITA No. 7069/Mum/2016 for A.Y. 2007-08 by assessee 3. Brief facts of the case are that the assessee is non-banking finance

company. The assessment for Assessment Year 2007-08 was

completed on 28.12.2010. The Assessing Officer while passing the

assessment order made the following additions/disallowance: 1. Leasehold / Refurbishment expenses – Rs. 4,49,08,640/- 2. Income accrued on preference shares – Rs. 18,76,06,128/- 3. Debt issue expenses – Rs. 1,83,32,000/- 4. Provision for depreciation on investments – Rs. 265,54,000/- 5. Provision for doubtful advances – Rs. 2,20,00,000/- 6. Disallowance under Section 14A – Rs. 7,81,083/- 7. Excess tax Depreciation on Computers – Rs. 45,46,456/- 4. On appeal before the ld. CIT(A), the assessee was given partial relief

on lease hold refurbishment expenses and on disallowance under

section 14A. Thus, further aggrieved by the order of ld. CIT(A) both

the parties have filed their respective appeal by raising the grounds of

appeal as narrated above. 5. We have heard the submission of both the parties and perused the

material available on record. 6. Ground No.1 relates in relation to lease-hold refurbishment expenses.

The ld. AR of the assessee submits that this ground of appeal is

covered in favour of assessee in assessee’s own case for Assessment

Year 2006-07 in ITA No. 279/Mum/2011 dated 02.06.2017 wherein on 4

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

similar ground of appeal, the assessee was allowed relief. The ld. AR

of the assessee submits that there is no material change in the expenses

incurred for the year under consideration. Therefore, the assessee is

entitled for all expenses incurred by the assessee.

revenue relied upon the order of lower authorities.

material available on record. We have noted that on similar set of fact,

the assessee claimed similar expenses for Assessment Year 2006-07.

The Assessing Officer disallowed the expenses; however, on appeal

before the Tribunal, the following order was passed.

“6. We have heard the rival contentions and perused relevant material on record. It is undisputed fact that the assessee, being NBFC, was already engaged in corporate financing. It proposed to enter into retail finance segment and during the course, incurred the impugned expenditure. Therefore, as rightly noted by Ld. CIT(A), there was no new line of business. From the material available on record, it is evident that impugned expenditure was incurred against several properties located over different places and were incurred mainly on account of interior work, electrical works, cabling & wiring, carpets, signage expenses, architect's fees, brokerage expenses, consultants' fees etc. which prima facie, are expenses of revenue in nature. It is well settled principle that entries in the books of accounts are not conclusive / determinative of taxability of income and therefore, issue of taxability has to be adjudged within the statutory framework only. At this juncture, it would be prudent to reproduce the relevant observations of apex Court in CIT Vs. Madras Auto Services (P) Ltd. [supra]:- "11. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more 5

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure." Therefore, we find that the assessee may have received benefit of enduring nature but the same was not sole and decisive factor of determining the nature of impugned expenditure. The impugned expenses were only to conduct the business more profitably and therefore, allowable to the assessee as revenue expenditure. Therefore, after considering all the factors as discussed above and noting that the impugned expenditure did not bring into existence any capital asset, we see no reason to interfere with the findings of the Ld. CIT(A) and hence, the expenditure being revenue in nature and incurred towards refurbishment of leasehold properties were allowable to the assessee as revenue expenditure. The revenue's appeal stands dismissed with a direction to Ld. AO to verify the fact that the assessee has disallowed depreciation against the same in succeeding years and the assessee, in turn, is also directed to demonstrate the same before Ld. AO.” 9. Considering the decision of Tribunal on similar set of fact when the

similar expenses were allowed as revenue expenditure in favour of

assessee, no variation in facts nor any contrary law is brought is

brought to our notice therefore, respectfully following the decision of

co-ordinate bench of Tribunal, this ground of appeal is allowed in

favour of assessee.

investment. The ld. AR of the assessee submits that the investment was

held as “current investment” with the intention to trade. The assessee is

a non-banking finance company and its main object consist of to

acquire, hold, dispose deal and trade in through subscription, therefore,

purchase, sale, exchange or otherwise in the name of assessee-company

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

including of share, stock, debenture and debenture stock. The debts

securities were purchased by assessee in its ordinary course of business

with the intention to trade and are shown in the current investment. The

securities are valued at lower weight, the average cost of market value,

determined separately for each category of investment has shown in

page no. 13 of Paper Book. The revenue has allowed the provision for

depreciation in some Assessment Year and disallowed in some other

Assessment Year. Further on sale of these investments, the department

has allowed profit/loss as income/loss. There is inconsistent approach

followed by revenue. The ld. AR of the assessee furnished the details

showing the treatment by revenue for provision of depreciation of

investment and profit/loss on sale of investment in the following

manner:

Assessment Intimation under Amount of Treatment of Amount of Treatment Year Section Provision Provision by profit/loss on of 143(1)/Assessment Department sale of profit/loss investment on sale of investment 2005-06 Assessment u/s 32,51,57,000 Disallowed 8,25,000 Accepted 147 as Business Income 2006-07 Assessment u/s 10,56,44,000 Accepted as (1,60,171,000) Allowed as 143(3) allowable Business deduction Loss Disallowed 2007-08 Assessment u/s 2,65,54,000 (7,96,94,000) Allowed as 143(3) Business Loss Disallowed 2008-09 Assessment u/s 10,14,000 - - 143(3) 2009-10 Assessment u/s (1,41,000) Provision - - 143(3) reversed and offered to tax and accepted by the department 2020-11 Assessment u/s 61,66,000 Accepted as - - 7

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143(3) allowable deduction Note 1: The assessment of AY 2009-10 was reopened u/s 147 of the Income-tax Act, 1961. However, no addition on account of provision for depreciation on investment was made by the Assessing Officer.

of current investment or loss on sale of current investment is allowable

deduction while computing income under the head “Profit & Gains of

Business or Profession”. In support of his submission, the ld. AR of the

assessee relied upon the following decision:  DDIT vs. Chohung Bank [126 ITD 448 (Mumbai Trib.)]  CIT vs. Bank of Baroda [262 ITR 334 (Bombay HC)]  Yes Bank Ltd. vs. DCIT [46 ITR (T) 121 (Mumbai Trib.)]  JCIT vs. Rabo India Finance Limited (ITA No.3169/M/2011) 12. On the other hand, the ld. DR for the revenue supported the order of

lower authorities.

material available on record. During the assessment, the Assessing

Officer noted that the assessee has debited amount of Rs. 2,65,54,000/-

towards provision for depreciation on investment in its Profit & Loss

A/c. The assessee was asked to explain the treatment of provision for

depreciation on investment in its Profit & Loss A/c. The assessee filed

its reply as recorded by Assessing Officer in para-7.1 of the assessment

order. In the reply, the assessee stated that it is a non-banking finance

company, all NBFC’s has to follow Accounting Standard-13 (AS-13)

and Reserve Bank of India (RBI) Guidelines for classifying its 8

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

investment portfolio, the accounting standard permits to Non Banking

Finance Company (NBFC) to classify its investment into current

investment in long term investment. On certain criteria and intends

behind making and holding the investment. The assessee has classified

its investment into non-convertible debenture into current investment

following the AS-13 with intend to hold them for the purpose of

trading. The Memorandum of Association of assessee also included to

business of dealing and trading in share, stock, debenture and

debenture stock. The assessee submits that current investments are as

per the Accounting Standard. The market value is determined taking

certain reference quote from the brokers to reflect the value of these

securities as on 31.03.2006 and 31.03.2007, the reference quotes are

considered as market rates for sub-debts at the end of each year. The

assessee has debited the diminution in the value of investment of Rs.

2.65 crore to its Profit & Loss A/c for the Financial Year under

consideration. The contention of assessee was not accepted by

Assessing Officer by taking view that the investment are shown as

investment and not as stock-in-trade in the balance-sheet of the

company. The debenture bonds are steel carried in the books of

accounts at the cost of acquisition. The assessee has debited the said

difference between the market value and cost acquisition as provision

for depreciation. This amount is purely notional and cannot be jugglery 9

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

and disallowed the same. The ld. CIT(A) concur with the finding of

Assessing Officer by taking view that assessee failed to explain as to

whether it has credited the appreciated value of the investment in

earlier years before claiming depreciation in the year under

consideration.

revenue has accepted the claim in Assessment Year 2006-07, 2009-10

& 2010-11. However, disallowed in Assessment Year 2005-06, 2007-

08 & 2008-09 only. The ld. AR of the assessee strongly relied upon the

various decision of Tribunal and High Courts as noted above. In case

of DDIT vs. Chohung Bank (supra), the co-ordinate bench of Tribunal

while considering the issue of loss on sale of security as business loss

passed the following order:

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

investment. The distinction between the two is that the securities purchased with the intention of retaining it till the maturity of the security are to be classified as ‘permanent investment’, whereas the securities acquired by the bank with the intention of trading by taking advantage of short-term price/interest, are to be considered as ‘current investments’. The securities from which the assessee has incurred loss were depicted as ‘current investment’ as has also been noted by the Assessing Officer in the assessment order. A certificate from Chartered Accountant certifying that the securities sold by the assessee were under "current investment" category has been given to the lower authorities. When it is so the securities in the nature of current investments automatically become the stock-in-trade of the assessee and not investment. It is a settled legal position that the nomenclature given by the parties to a particular transaction is not material to decide its character. Rather it is the true nature of the transaction, which matters. Whereas any profit or loss from the sale of ‘Investment’ is taxed under the head ‘Capital gain’, such profit or loss from the sale of ‘stock-in-trade’ is considered under the head ‘Profits and gains of business or profession’. The instant loss of Rs. 77,000, arising from the sale of stock-in-trade referred to as ‘current investments’, in our considered opinion has been rightly held by the ld. CIT(A) to be a business loss. Accordingly, this ground is not accepted. 15. The Hon’ble Bombay High Court in CIT vs. Bank of Baroda (supra)

while considering the question of law whether on facts and

circumstances, the Tribunal was right in holding that assessee was

entitled for deduction on account of depreciation in value of investment

and consequently debited the disallowance of Rs. (xxx) answered the

question in favour of assessee by passing the following order: For

appreciation of facts and submission is extracted below:

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to deduction on account of depreciation in the value of investments and, consequently, debiting disallowance of Rs. 11,82,35,007?" FACTS 2. Assessee is a Nationalised Bank. Assessee-bank had in its possession, during the relevant assessment year, shares and securities worth several crores. The method of valuation followed by the assessee was to value investments at cost or market value whichever was lower. During the year of account, depreciation with regard to securities held by the assessee was to the tune of Rs. 11,82,35,007. The assessee-bank claimed deduction. 11

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

This was disallowed by the ITO. The assessee-bank went in appeal to the Commissioner of Income-tax (Appeals), who took the view that the said investments were rightly valued at the end of the year at cost or market value whichever was lower and the difference arising as a result of this valuation had to be allowed to the assessee as a loss. The assessee carries on business as a banking company. This order of CIT (Appeals) was confirmed by the Tribunal. Therefore, the Department has come by way of this Reference. Arguments 3. Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department contended that the securities were not held as stock in trade. That, they were held as investments and, consequently, the assessee-bank was not entitled to value such Investments on the principle of Cost or Market Value whichever was lower. It was argued that the securities were held by the assessee-bank as Permanent Investments. Findings 4. We do not find any merit in this argument. In the case of UCO Bank v. CIT [1999] 240 ITR 3551, the assessee-bank had submitted return for assessment year 1982-83 contending that there was a notional loss of Rs. 7.45 crores on account of closing stock of securities valued at market price which fell below the cost. The ITO accepted the said loss vide Assessment order dated 19-3-1985. However, the Commissioner of Income-tax intervened by order dated 9-3-1987 under section 263 of the Income-tax Act. By the said order, the Commissioner set aside the order of assessment holding that the assessee-bank had no right to calculate profit or loss arising out of Investment Trading Account as the said account did not form part of final account of the assessee-bank. That, since Investment Trading Account was not incorporated in the final account, the assessee- bank had no right to calculate profit or loss arising out of Investment Trading Account. In that matter, the assessee-bank was following Mercantile System of Accounting and the loss claimed by the assessee was not debited in the profit and loss account. Against the order of the Commissioner under section 263 of the Act, the assessee-bank preferred an appeal to the Tribunal which took the view that the assessee had claimed the loss by following the same method which it was following for last 30 years. Consequently, the order passed by the Commissioner under section 263 was set aside. Against the said order of the Tribunal, two questions were referred for opinion to the High Court. Answering the said questions, the High Court observed that the assessee-bank had not valued the stock of shares and securities in its books of account in accordance with the method of "Cost or Market Price whichever is lower"; if this method was not followed in preparing Investment Trading Account, then the assessee-bank cannot claim notional loss/notional method of stock valuation for computing income. The High Court took the view that the book results could be rejected by the ITO under section 145(1) of the Income-tax Act if the method adopted by the assessee-bank did not disclose a proper and true income. That, merely because in the past the system followed by the assessee-bank was not questioned was no ground 12

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to say that it should be accepted for all times. Consequently, the matter came before the Supreme Court. The Apex Court came to the conclusion that preparation of balance sheet by the assessee-bank was governed by Banking Regulation Act, 1949. That, under the Third Schedule to that Act, balance sheet and profit & loss account have been prescribed. That, in the prescribed form, there is a Column of "Property & Assets". Item 4 provides for Investments (Mode of Valuation i.e. Cost or Market Value). Note (f) in Column 4 states that where the value of investments was higher than the market value, the market value shall be shown separately. Further, under section 53 of the Banking Regulation Act, 1949, the Central Government on recommendation of RBI had issued a Notification for banks in respect of assessments to the effect that Note (f) shall not apply to UCO Bank in respect of balance sheet. On the basis of the said Notification, UCO Bank did not mention the market value of the investments. In the circumstances, the Supreme Court came to the conclusion that from the form of prescribed balance sheet, it was evident that Nationalised Banks were directed to put the value of shares and securities at cost and if the market value was lower than the cost then, it was to be shown separately in the brackets. Before the Supreme Court, however, it was argued on behalf of the Department that the balance sheet/audited accounts maintained on the basis of investment in shares at Cost would not disclose the real profit/loss of the bank in view of the fact that depreciation in the value of the shares or fall in the market price of shares and securities was not provided for in the audited accounts. On the other hand, it was argued on behalf of the assessee-bank that even though in the balance sheet the market price of shares and securities was not mentioned yet, for determining the real income of the assessee, the said price was required to be taken into account. That, for last 30 years, the assessee-bank was submitting income-tax returns after taking into account the market price of such shares and securities which was accepted by the Department. It was submitted that not making proper entries in the balance sheet could hardly be a ground for not assessing the real income. The Supreme Court came to the conclusion on the above arguments that where the market value of shares and securities had fallen below the cost before the date of valuation and where on the date of valuation, the market value is less than the actual cost then the assessee was entitled to value the articles at market price and the assessee was entitled to claim the loss which the assessee would probably incur at the time of sale of shares and securities. That, whichever method the assessee adopts, it should disclose the true picture of profits and gains. That, for determining the real income, the entries in the balance sheet were required to be maintained in the statutory form. However, such entries in the balance sheet were not decisive or conclusive. In such cases, it was open to the ITO and the assessee to ascertain true and proper income while submitting income-tax returns. That, for valuing the closing stock, it was open to the assessee to value the stock at cost or market price whichever is lower. That, the assessee was valuing the stock-in-trade at cost for the purposes of statutory balance sheet but, for the purposes of income-tax return, the assessee was valuing the stock-in-trade at cost or market value whichever was lower and that practice was accepted by the Department for 30 years. Consequently,

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

the Supreme Court allowed the appeal filed by UCO Bank. In our view, the judgment of the Supreme Court in UCO Bank's case (supra) squarely applies to the facts of this case. In fact, the present case before us is on a stronger footing because in the case of UCO Bank (supra), the loss was not debited to the profit and loss account whereas in this case, as can be seen from the working at pages 25 and 26 of the paper-book, the loss of Rs. 11,82,35,007 has been debited to the profit and loss account which is reflected as a provision for Liability in the balance sheet and shares and securities were valued at cost on the asset side. 5. For the reasons given hereinabove, we answer the abovequoted question in the affirmative i.e. in favour of the assessee-bank and against the Department. 16. Considering the decision of Hon’ble jurisdictional High Court and co-

ordinate bench of Tribunal and the fact that similar depreciation was

allowed by revenue itself in subsequent Assessment Year i.e. A.Y.

2009-10 & 2020-11. This ground of appeal raised by assessee is

allowed.

the assessee submits that the provision has been reflects in A.Y. 2009-

10 and offered to tax to avoid the double disallowance, the provision

should be allowed in the current year. The ld. AR of the assessee

further submits that the ld. CIT(A) has directed the Assessing Officer

to verify the fact in A.Y. 2009-10 and if the same is found that claim of

the year in order allowed relief to the assessee.

CIT(A) has already granted relief to the assessee, this there is no need

to pass further direction.

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

the fact that ld. CIT(A) has already directed in para-10 of his order to

the Assessing Officer to verify the plea of the assessee that if this

provision has been reversed in A.Y. 2009-10 and offered to tax in A.Y.

2009-10 and allowed the relief to the assessee, if found in year. 20. Considering the fact that ld. CIT (A) has already directed the Assessing

Officer to verify, therefore, the Assessing Officer is directed to comply

the order of ld. CIT(A) in its true spirit. 21. Ground no.4 relates to disallowance under section 14A. The ld. AR of

the assessee submits that during the relevant period, the assessee

earned dividend income of Rs. 35.50 lakhs which was claimed exempt

in the computation of income. The Assessing Officer invoked the

provision of Rule 8D for calculating the disallowance under section

14A. The ld. AR of the assessee submits that Rule 8D is not applicable

for the year under consideration and application from A.Y. 2008-09.

The ld. AR of the assessee submits that assessee’s own surplus fund

were more than the investment, therefore, no interest expenses

disallowance under section 14A is to be made. For indirect expenses,

the ld. AR of the assessee submits that disallowance under section 14A

may be restricted to 2% of the exempt income as held by Hon’ble

Bombay High Court in CIT vs. Godrej Agrovet Ltd. in ITA No. 934 of

2011. 15

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lower authorities. 23. We have considered the submission of both the parties and perused the

material available on record. During the relevant period, the assessee

has sown dividend income of Rs. 35.50 lakhs. The assessee has not

allocated any expenses for earning the said dividend income. The

Assessing Officer invoked the provision of Rule 8D and calculated the

disallowance under section 14A of Rs. 7,81,083/-. Admittedly, the

provisions of Rule 8D is not applicable for the year under

consideration. The ld. AR of the assessee prayed that disallowance

under section 14A should be restricted to 2% of the total exempt

income and strongly relied upon the decision of Hon’ble jurisdictional

High Court in Godrej Agrovet Ltd. (supra). 24. We have noted that Hon’ble jurisdictional High Court in Godrej

Agrovet Ltd. (supra), while considering the disallowance under section

14A for A.Y. 2005-06 restricted the disallowance to the extent of 2%

of total exempt income. Considering the decision of jurisdictional High

Court, the disallowance for the year under consideration is restricted to

2% of the exempt income. The Assessing Officer is directed

accordingly. 25. Ground no.5 relates to depreciation on printers, cables, routers and

other connectivity charges. The ld. AR of the assessee submits that this 16

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

ground of appeal is covered in favour of assessee by various decisions

of Tribunal including Special Bench of Mumbai Tribunal in DCIT vs.

Datacraft India Ltd. (ITA No. 754/Mum/2007), in DCIT vs. BSES

Rajdhani Powers Ltd. (ITA No. 1266 of 2010), in CIT vs. Bonanza

Portfolio Ltd. (ITA No. 833 of 2011). The ld. AR of the assessee

submits that computer peripherals and accessories such as printers,

cables, routers form and integral part of computer system and eligible

for depreciation as held in various cases as referred above. 26. On the other hand, the ld. DR for the revenue supported the order of

lower authorities. 27. We have considered the submission of both the parties and perused the

record. The Assessing Officer while passing the assessment order

allowed depreciation @ 15% against the claim of assessee of 60%. The

ld. CIT(A) confirmed the action of Assessing Officer. 28. We have noted that Hon’ble Delhi High Court in DCIT vs. BSES

Rajdhani Powers Ltd. (supra) and in CIT vs. Bonanza Portfolio Ltd.

(supra) held that computer peripherals and accessories form an integral

part of computer system and eligible for depreciation @ 60%.

Considering the decision of Tribunal, the Hon’ble Delhi High Court is

directed the Assessing Officer to allow the depreciation @ 60% on

printers, cable lines and other connected peripherals. Hence, this

ground of appeal is allowed. 17

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ITA No. 7089/Mum/2016 for A.Y. 2007-08 by revenue

income. At the outset of hearing, the ld. AR of the assessee submits

that these grounds of appeal are covered in favour of assessee in

assessee’s own case for A.Y. 2006-07 in ITA No. 2972/Mum/2011.

The ld. AR of the assessee further submits that Assessing Officer in

order giving effect has allowed the relief to the assessee. The ld. AR of

the assessee also furnished the copy of order giving effect for A.Y.

2006-07 dated 16.08.2018 passed under section 143(3) r.w.s. 244.

Assessing Officer.

through the orders of authorities below. We have noted that on similar

ground of appeal in assessee’s own case for A.Y. 2006-07, the issue

was restored to the file of Assessing Officer by Tribunal in ITA No.

2792/Mum/2011 passed the following order:

“17. We have heard the rival contentions and perused relevant material on record. First of all, a perusal of assessee's Balance Sheet as on 31/03/2006 placed at Page-26 of the paper-book, reveals that the preference shares has been shown under the head Long Term investments, the detailed break-up of which has been provided on Page- 32 of the paper-book according to which the assessee is holding preference shares of four companies namely (i) Idea Cellular Ltd. (ii)A.V. Digital Networks Pvt. Ltd. (iii) Deccan Digital Networks Pvt. Ltd. &(iv) Metro Digital Networks Pvt. Ltd.

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

material available on record. The assessee's ground of appeal stands allowed for statistical purposes.” 33. We have further noted that in order giving effect, the Assessing Officer

has granted relief to the assessee vide its order dated 16.08.2016.

Considering the decision of Tribunal in assessee’s own case for A.Y.

2007-08 wherein no material difference in fact is brought to our notice,

therefore, respectfully following the decision of Tribunal, the

Assessing Officer is directed to verify the fact in accordance with the

direction in assessee’s own case in ITA No. 2792/Mum/2011 and

allowed the relief to the assessee in accordance with law. 34. In the result, ground no. 1 to 3 is allowed for statistical purpose. 35. Ground No.4 & 5 relates to disallowance under section 14A. We have

noted that in assessee’s own appeal, we have restricted the

disallowance under section 14A to 2% of the exempt income.

Therefore, the Ground of appeal raised by revenue is become

infructuous. 36. In the result, appeal of the revenue is partly allowed.

ITA No. 7070/Mum/2016 by assessee for AY 2008-09 37. The assessee has raised following ground of appeal: 1. Disallowance for provision of depreciation on investment. 2. Disallowance under section 14A. 3. Not granting TDS credit. 38. Ground No.1 relates to disallowance for provision of depreciation on

investment. We have noted that this ground of appeal is similar to the 20

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

ground no.2 in assessee’s appeal for A.Y. 2007-08, which we have

allowed, therefore, following the principle of consistency, this ground

of appeal is allowed with similar direction. 39. Ground No.2 relates to disallowance under section 14A. The ld. AR of

the assessee submits that this ground of appeal is similar to the ground

no.4 in assessee’s appeal for A.Y. 2007-08. The assessee has sufficient

interest free fund available for making investment for earning exempt

income. Therefore, no disallowance under Rule 8D(2)(ii) be made. 40. On the other hand, the ld. DR for the revenue supported the order of

lower authorities. 41. We have considered the submissions of the parties and have gone

through the orders of the lower authorities. Considering the fact that

assessee has claimed that it has sufficient interest free funds available

for making investment for earning tax free income. Therefore, we

direct the Assessing Officer to verify the fact and allow relief to the

assessee on account of interest expenses under Rule 8D(2)(ii). Needless

to direct that before passing the order, the Assessing Officer shall grant

opportunity to the assessee to substantiate its claim. In the result, this

ground of appeal is allowed for statistical purpose. 42. Ground No.3 relates to non granting TDS credit. The ld. AR of the

assessee submits that the Assessing Officer has already granted relief

by passing order under section 154. Therefore, this ground of appeal 21

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

has become infructuous. Considering the contention of ld. AR of

assessee, this ground of appeal is dismissed.

ITA No. 7088/Mum/2016 by revenue for AY 2008-09

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

no. 1 to 3 are similar to the ground no.1 to 3 in revenue’s appeal for

A.Y. 2007-08 and similar order may be followed. 46. On the other hand, the ld. DR for the revenue relied upon the order of

Assessing Officer. 47. We have considered the submission and find that this ground of appeal

is identical to the ground no. 1 to 3 in revenue’s appeal for A.Y. 2007-

08, thus our decision in A.Y. 2007-08 will apply mutatis mutandi in

this year. 48. Ground No.4 relates to disallowance under section 14A r.w.r 8D(2)(ii).

We have noted that on similar ground of appeal in assessee’s appeal we

have restored the issue to the file of Assessing Officer. Therefore, our

direction in assessee’s appeal on ground no.2 would apply mutatis

mutandis. 49. Ground No.5 relates to directing the Assessing Officer to restrict the

disallowance under section 14A/Rule 8D(2)(iii) to 50% of

administrative expenses. The ld. DR for the revenue submits that ld.

CIT(A) restricted the disallowance under Rule 8D(2)(iii) to 50% of the

administrative expenses, when there is no such provision in the Act.

The ld. DR for the revenue prayed for upholding the order of Assessing

Officer.

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

administrative disallowance only those investment which yielded

exempt income is to be considered for calculating disallowance under

Rule 8D(2)(iii). In support of his submission, the ld. AR of the assessee

the decision of ACIT vs. Vireet Investment (P.) Ltd. (188 TTJ 1 (Del.

Trib.) (SB), Sajjan India Ltd. vs. ACIT (89 taxmann.com 21 (Mum.

Trib.), Kalyani Barter Pvt. Ltd. vs. ITO [2017] 79 taxmann.com 457

(Kol. Trib.), Yashoda Health Care Services Pvt. Ltd. vs. DCIT [2017]

88 taxmann.com 916 (Hyd. Trib.), REI Agro Ltd. vs. DCIT [2013] 35

taxmann.com 404 (Kol. Trib.) & Ewart Investments Ltd. vs. DCIT

(ITA No. 3623/Mum/2017 (Mum. Trib.). 51. We have considered the submission of both the parties and perused the

record. The Assessing Officer while making the disallowance

considered the average value of entire investment made for earning

exempt income. The ld. CIT(A) restricted the disallowance to 50% of

the amount on estimation basis. Considering the decision of Special

Bench of Delhi Tribunal in ACIT vs. Vireet Investment (P.) Ltd.

(supra), we direct the Assessing Officer to recompute the disallowance

by considering only those investments which yielded exempt income

during the year. Before making recomputation of disallowance under

this clause, the Assessing Officer shall grant opportunity to the

ITA No. 7070, 7069, 7088 & 7089 M 16-Standard Chartered Investments & Loans (India) Ltd.

assessee. In the result, this ground of appeal is allowed for statistical

purpose.

Order pronounced in the open court on 29/01/2020.

Sd/- Sd/- S.RIFAUR RAHMAN PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 29.01.2020 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4.The concerned CIT 5. DR “G” Bench, ITAT, Mumbai 6. Guard File

BY ORDER, Dy./Asst. Registrar ITAT, Mumbai