ACIT 14(2)(2), MUMBAI vs. ORIX AUTO INFRASTRUCTURE SERVCIES LTD, MUMBAI

3. The brief facts qua the issue raised in Ground No.1 are that, assessee is a Public Limited Company engaged in the business of leasing, hire purchase and renting of cars. Apart from these activities, assessee also carried out the business of granting loans and providing other services. During the course of assessment proceedings the learned Assessing Officer noted that assessee has made investment in equity shares amounting to Rs.2,24,98,700/- and hence, disallowance u/s 14A is called for. In response to the show-cause notice, as to why disallowance u/s.14A read with Rule

M/s.Orix Infrastructure Services Ltd., 8D should not be made, the assessee submitted that it has made suo-moto disallowance of indirect expenditure u/s.14A of Rs.62,495/-. The learned Assessing Officer held that since these investments are kept for the purpose of earning exempt income, therefore, disallowance u/s.14A read with Rule 8D has to be made. Accordingly, he computed disallowance of Rs.5,70,100/- which mainly comprised of disallowance of interest under Rule 8D (2)(ii), including indirect expenditure u/r 8D (2)(iii) of Rs.62,495/- as shown by the assessee. Thus, the only dispute before the first appellate authority was with regard to disallowance of interest expenditure. Before the ld. CIT (A), it was submitted that assessee had huge surplus funds in the form of ‘reserves and surplus’, operating profit and share capital which far exceeded the investments made by the assessee. The availability of funds and investments made in the Financial Year 2009-10 had been incorporated by the CIT (A) at pages 2 & 3 of the appellate order.

M/s.Orix Infrastructure Services Ltd., 2,24,98,700/-. On examining the above facts, it is clear that the share capital and reserves are more than the investments. Hence no interest disallowance can be levied. Interest disallowance cannot be upheld in view of the decision of Bombay He in the case' of CIT Vs Reliance Utilities 313 ITR 340 and similar view in the case CIT Vs. HDFC Limited 330 ITR 212 HC Bombay in which it is held that if funds are more than investments, it is to be treated as investment from own funds and no disallowance of interest expenses under sec. 14A of the Act. Following the jurisdictional HC's decision, AO's disallowance for interest expense is deleted. 'However as appellant had himself disallowed 0.5% of the average investment, no further disallowance is required. Hence ground of appeal is partly allowed.

5. After hearing both the parties and on perusal of the impugned order, we find that the learned CIT (A) has examined the availability of surplus funds and the investments made by the assessee. The reserves and surplus of assessee as on 31/03/2010 itself was Rs.82.74 crores whereas the investment made by the assessee was only Rs. 2.25 crores. In view of such availability of surplus interest free funds, the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. HDFC Limited is squarely applicable. Moreover, this decision is reiterated by the Hon’ble High Court in the subsequent decision in the case of HDFC Bank itself, since reported in 373 ITR 529. Thus, we do not find any reason to deviate from the finding of the CIT(A) as it is based on appreciation of facts and law as upheld by the Hon’ble Jurisdictional High Court. Accordingly, ground No.1 raised by the revenue is dismissed.

M/s.Orix Infrastructure Services Ltd., 6. As regards the issue of excess claim of depreciation of software license, the only dispute is, whether the rate of depreciation should be 25% or 60%. The learned Assessing Officer held that the software license has to be allowed @25% as is applicable for intangible assets. On the other hand the learned CIT(A) held that the depreciation of software has to be allowed @60%. His relevant finding in this regard reads as under:- 5.3. I have considered the facts of the case. The issue involved is appellant had claimed software 60% depreciation for more than 180 days and 30% depreciation for less than 180 days. The AO had allowed depreciation @20% for the use of computer software above 180 days and @12.5% depreciation for the use of computer software less than 180 days. However, when we perused the Income Tax Rules of 1962 Appendix I with respect to 2005 provides computer software has to be allowed depreciation @60% if it is used for more than 180 days and @30% if it is used for less than 180 days. In view of the Amendment of the IT Act, AO is directed to allow computer software @60% depreciation for the use of software for more than 180 days and @30% depreciation for the use of software for less than 180 days.

M/s.Orix Infrastructure Services Ltd., applicable would be 60%, the brief facts of the issue are that assessee has purchased printers for Rs.18,19,469/-, out of which Rs.6,49,533/- was used for more than 180 days and Rs.11,69,936/- was used for less than 180 days. The assessee has claimed depreciation @60% for the printers used for more than 180 days and 30% which is less than 180 days. On the other hand, the AO has allowed the rate of depreciation @15% and @7.5% respectfully. Learned CIT(A) following the decision of Special Bench in the case of DCIT vs. Datacraft India Ltd., and the decision of Hon’ble Delhi High Court in the case of CIT vs. BSES Yamuna Power Ltd., directed the AO to allow the depreciation @60%. The relevant observation of learned CIT (A) in this regards reads as under:- 6.3. I have considered the facts of the case. During the year under consideration, the appellant had purchased printers worth Rs.18,19,469/- out of which Rs.6,49,533/- were used for more than 180 days and Rs.11,69,936/- were used for less than 180 days. The appellant had claimed depreciation @60% and allowed it at 60% if printers were used for more than 180 days and @7.5% if it is used for less than 180 days though appellant claimed depreciation @30%. This issue was examined by ITAT Special Bench in ITAT Mumbai Special Bench in the case of DCIT vs. Datacraft India Ltd (2011) 9 ITR (Trib) 712 (Mum)(SB) wherein it is held that routers and switches and any electronic or high speedy processing device which performs logical, arithmetic and memory functions on data and includes all input and output devices which are connected to or related to computer is part of computer, and hence, entitled to depreciation @60% and the same view is held by the Delhi HC in the case of CIT Vs. BSES Yamuna Power Ltd., (2013) 358 ITR 47 (Del). Hence following the above decision, AO is directed to allow depreciation @60% depreciation if M/s.Orix Infrastructure Services Ltd., it is used for more than 180 days and @30% if it is used for less than 180 days. Therefore, ground of appeal is allowed.

9. Since the aforesaid finding of the learned CIT(A) is based on the principle laid down by the ITAT Special Bench and Hon’ble Delhi High Court, we do not find any reason to deviate from such finding no contrary decision has been brought before us to counter the conclusion of ld. CIT(A). Accordingly, the ground raised by the department was dismissed.

10. As regard the disallowance of expenditure under Section 14A while computing the book profit u/s.115JB, it has been admitted by both the parties that whatever disallowance is sustained u/s.14A, same should be added back to the book profit. Here in this case, the assessee has accepted the disallowance on account of indirect expenditure of Rs.62,495/-, therefore, same would be added back to the book profit. Accordingly Ground No. 4 is partly allowed.