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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Sandeep Gosain (JM)
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the assessee is directed against the order dated 14.11.2014 passed by the learned CIT(A)-9, Mumbai and it relates to A.Y. 2011-12. Ground of appeal urged by the assessee give rise to the following issues : a) Disallowance made u/s. 14A of the Act b) Applicability of section 50C to sale of depreciable asset c) Levy of interest u/s. 234B & 234C of the Act
2. The assessee company is engaged in the business of manufacture and sale of pharmaceutical formulations, dietetic specialties and animal husbandry products. The first issue relates to disallowance made u/s. 14A of the Act. During the year under consideration, the assessee received dividend income of ` 9.92 crores and claimed the same as exempt. In the original return of income, the assessee disallowed a sum of ` 1.05 crores u/s. 14A of the Act
2 M/s. Raptakos Brett & Co. Ltd. towards expenditure incurred in relation to exempt income. However, in the revised return of income, the assessee reduced amount disallowable u/s. 14A of the Act as per details given below :-
Disallowance out of expenses : 12,72,714/- PMS charges : ` 73,90,132/- The Assessing Officer, however computed the disallowance at ` 2,12,13,447/- by applying provisions of Rule 8D of the I.T. Rules as per detailed given below:- a) Direct expenses u/r. 8D(2)(i) : ` 75,01,867/- b) Indirect interest expenditure u/r. 8D(2)(ii) : ` 38,84,966/- c) Indirect expenses at 0.5% of average investment u/r. 8D(2)(iii) : ` 98,26,613/-
The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
We have heard the parties and perused the record. Learned AR submitted that own funds available with the assessee was ` 354.15 crores as against investment (which includes strategic investment, investment in foreign companies and units of growth funds) of ` 176/- crores. Learned AR submitted that there is no requirement to make any disallowance under these set of facts in view of the decision rendered by Hon'ble Jurisdictional Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. (366 ITR 505). Learned AR submitted that the assessee has worked out the expenditure relatable to the exempt income in a scientific manner by properly allocating expenses relating to exempt income. He submitted that the Assessing Officer did not examine the workings made by the assessee and also did not record any dissatisfaction thereon. He submitted that the Coordinate Bench of the ITAT has considered an identical issue in assessee’s own case in relating to A.Y. 2010-11 and the Tribunal, vide its order dated 10.11.2016, has deleted an identical addition made by the Assessing Officer u/r. 8D(2)(iii) in A.Y. 2010- 11. He further submitted that Kolkata Bench of the ITAT has considered the 3 M/s. Raptakos Brett & Co. Ltd.
identical issue in Britannia Industries Ltd. (ITA No. 390/Kol/2013 dated 2.3.2016), wherein the Tribunal has expressed the view that the Assessing Officer has to examine the computation made by the assessee and only if, on an objective satisfaction was recorded by the Assessing Officer with regard to the incorrectness of the workings, the Assessing Officer can proceed to apply provisions of Rule 8D(2) of the I.T. Rules.
7. On the contrary, learned Departmental Representative placed strong reliance on the orders passed by the tax authorities.
Having heard the rival submissions, we find merit in the contentions of the assessee. We noticed that the disallowance out of interest expenditure u/r. 8D (2)(ii) is not required to be made in view of the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra), i.e. in the instant case, own funds available with the assessee is in excess of the value of investments and hence there is no requirement to make any disallowance out of interest expenditure as per decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd.(supra). With regard to disallowance made u/r. 8D(2)(iiii), we noticed that the assessee has given workings of expenditure to be disallowed u/r. 8D(2)(iii) of the Act in the revised return of income. We noticed that the Assessing Officer did not examine the same and accordingly did not record any objective satisfaction to the effect that working made by the assessee was not correct. Under identical set of facts the Coordinate Bench of the ITAT has deleted the identical addition made by the Assessing Officer in assessee’s own case relating to A.Y. 2010-11 referred supra. Accordingly, by following the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and also the decision rendered by the Coordinate Bench in assessee’s own case relating to A.Y. 2010-11 (referred supra), we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to delete the addition made under section 14A of the Act.
4 M/s. Raptakos Brett & Co. Ltd.
Next issue relates to the disallowance of depreciation by applying provisions of section 50C of the Act to a depreciable asset sold by the assessee. Facts relating to the same are stated in brief. During the year under consideration, the assessee sold a godown named “Kalher godown” located at Bhiwandi, which formed part of block of assets on which depreciation was claimed at 10%. The Assessing Officer noticed that the assessee has sold the property for ` 21 lakhs and the market value of the property for stamp duty purpose was shown at ` 45,50,500/-. The Assessing Officer took the view that provisions of section 50C should be applied to the sale of the above said building. The AO noticed that assessee had reduced ` 21,00,000/- from WDV of block and claimed depreciation at 10% on the closing WDV of the block. The Assessing Officer substituted the same to ` 45,50,500/- and accordingly, reduced the depreciation allowable on that block by ` 2,45,500/- (10% of Rs.45,50,500/- (-) Rs.21,00,000/-. The learned CIT(A) also confirmed the same.
Learned AR submitted that the provisions of section 50C is a deeming provision and the same shall come into operation only when the income under the head ‘capital gains’ is computed. He submitted that the provisions of sec.50C cannot be applied to ascertain the WDV of a block of assets. Learned AR submitted that the assessee has sold an asset on which it had claimed depreciation. As per the provisions of the Act, the sale value of the said asset has been reduced from WDV of the block and block continues to exists even after such reduction i.e. block does not cease to exist. Hence the question of computing capital gains does not arise in the instant case. Since the assessee did not compute capital gains, the provisions of section 50C of the Act should not have been applied by the AO. In support of his contentions, the Ld A.R placed reliance on the decision rendered by the Coordinate Bench in the case of Bhaidas Cursondas & Company (154 ITD 521). Learned AR further submitted that the learned CIT(A) has placed reliance on the decision rendered by Special bench of Mumbai ITAT in the case of ITO Vs. United Maritime
5 M/s. Raptakos Brett & Co. Ltd.
Academy (2011) 130 ITD 113 to decide the issue against the assessee. However in the case of Bhaidas Cursondas & Company (supra), the coordinate Bench has also considered the decision of the Special bench (supra) and has held that provisions of section 50C will not have application when WDV is computed in terms of section 43(6) of the Act.
On the contrary, learned Departmental Representative placed reliance on the orders passed by the tax authorities on this issue.
We have heard the rival contentions and perused the record. We noticed that an identical issue was considered by the coordinate Bench in the case of Bhaidas Cursondas & Company (supra) and it has decided the issue in favour of the assessee after considering the special bench decision referred supra. For the sake of convenience, we extract below the operative portion of the order passed by the co-ordinate bench:-
6. Grounds No. 3 and 4 of the Revenue's appeal relate to the disallowance of deprecation. The A.O. during the course of assessment proceedings observed the assessee to have sold a part of the assets forming part of the block of assets 'Building' on 25.03.2008, i.e., during the previous year relevant to A.Y. 2008-09, the immediately preceding assessment year, at Rs.1,50,000/-. The same attracts section 50C. The value adopted by the stamp value authority was at Rs.2,30,000/-. He, accordingly, recomputed the opening WDV of the relevant block of assets by reducing the said sum, as 'moneys payable', and allowed the depreciation for the current year accordingly, working the same to Rs.2,78,970/-, i.e., at Rs.5,700/- less than that claimed by the assessee. In appeal, the assessee found favour with the ld. CIT(A) in-as-much as section 50C only applies for computing 'capital gains' arising to the assessee on the transfer of capital assets specified & 5021/M/12 (A.Y. 2009-10) Bhaidas Cursondas and Company therein, so that the same would have no implication toward computing the WDV of the relevant block of assets. Aggrieved, the Revenue is in appeal before us.
We have heard the parties, and perused the material on record. The Revenue bases its claim on the decision by the special bench of the tribunal in the case of ITO vs. United Marine Academy [2011] 130 ITD 113 (Mum)(SB). Even as noted by the ld. CIT(A), the said decision, in ratio, only
6 M/s. Raptakos Brett & Co. Ltd. holds that section 50C shall apply equally in respect of depreciable assets; it being the assessee's claim in that case that immovable property, the asset class specified in section 50C, would yet not apply in-as-much as the same is a depreciable asset being used for the purposes of its business by the assessee. We are in complete agreement with the ld. CIT(A). The deeming of section 50C is for the limited purpose for computing the capital gains u/s.45 r/w s. 48 on the assets specified under the said section. The only purport of section 50C is the extent of the matter specified therein, providing (to that extent) an alternate basis to that specified u/s.48, for computing the capital gains chargeable u/s.45. The WDV would have to be necessarily computed in terms of section 43(6), and for which section 50C has no application. The decision in the case of United Marine Academy (supra) shall, therefore, have no application in the facts of the case, even as clarified by the ld. CIT(A), whose decision is accordingly upheld. In fact, how we wonder the opening WDV could be altered without first changing the depreciation for the immediately preceding year and, concomitantly, the WDV at the close of that year. The Revenue's case is wholly untenable in law. We decide accordingly, dismissing the relevant grounds.
Consistent with the view taken by the coordinate Bench in the above said case, we also hold that the provisions of sec. 50C cannot be applied to determine the WDV of a block. In the instant case, we have noticed earlier that the block did not cease to exist and hence the assessee has deducted sale value of Rs.21.00 lakhs to ascertain the WDV of block, i.e., the assessee did not compute capital gains. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the addition made on this issue.
The next issue relates to the charging of interest u/s 234B and 234C of the Act. Charging of interest is consequential in nature and and hence this issue does not require adjudication.
7 M/s. Raptakos Brett & Co. Ltd.
In the result, appeal filed by the assessee is allowed.
Order has been pronounced in the Court on 23.2.2017.