ARCADIA SHARE & STOCK BROKERS P.LTD,MUMBAI vs. ADDL CIT RG 4(1), MUMBAI

1.The ld. Commissioner of Income tax (Appeals) erred in confirming disallowance of Rs.14,58,112/- u/s 14A r.w. Rule 8D without appreciating that no expenditure directly or indirectly was incurred during this year for earning exempt income and investments in shares were made in earlier years out of own fund and not out of borrowed found and hence disallowance u/s.14A r.w. Rule 8D may be deleted.

2. The learned CIT(A) failed to appreciate that dividend income is directly credited to Bank Account and appellant does not have to incur any expenditure for earning exempt income and hence disallowance u/s. 14A r.w. Rule 8D may be deleted.

3. The learned CIT(A) failed to appreciate that interest expenditure of Rs.2,35,49,746/- has no nexus with earning of exempt income as the investments on which exempt M/s Arcadia Share & Stock Brokers Pvt. Ltd.

income is earned is out of own funds and hence disallowance u/s14A r.w. Rule8D may be deleted.

4. The learned CIT(A) erred in holding that A.O. duly recorded satisfaction before invoking section 14A r.w. Rule 8D without appreciating the fact that assessee had shown bifurcation of Financial expenses to A.O. to show that interest expense was not incurred for investment in shares or for earning exempt dividend income and A.O. did not reject the same and still A.O. applied Rule 8D in an automatic fashion and hence, no satisfaction was recorded by A.O. as required u/s 14A before invoking Rule 8D.

M/s Arcadia Share & Stock Brokers Pvt. Ltd.

2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a limited company, engaged in trading of bulk and fine, chemicals, solvent and pharmaceutical raw materials declared its income at Rs.74,40,000/- on 26/09/2009. The assessee credited dividend income of Rs.1,82,262/- in its profit and loss account. The Assessing Officer while framing the assessment invoke section 14A r.w. Rule 8D by contending that assessee claimed various expenses which are related to exempt income in its profit & loss account and disallowed Rs.14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were utilized for earning the exempt income by the assessee and further the dividend were directly credited in the bank account of the assessee and no expenditure was claimed. What it may be, we find that the assessee only received Rs.1,82,362/- as dividend income, therefore, there is no question of disallowance of Rs.14,58.412/- by invoking section 14A r.w. Rule 8D under the facts available on record. It was also explained by the ld. counsel for the assessee that on identical fact in earlier years, no disallowance was made. In the present assessment year also, no borrowed funds were invested by the assessee for making investment in shares or for earning dividend income. At best, if any disallowance could be made that can be restricted to Rs. 1,485/- which were claimed as demat charges. Disallowance u/s 14A r.w. Rule M/s Arcadia Share & Stock Brokers Pvt. Ltd.

8D cannot exceed the exempt income. In view of this fact, we find merit in the claim of the assessee. The appeal of the assessee is therefore, allowed. Finally, the appeal of the assessee is allowed.”

2.2. It is noted that the assessee claimed that nil expenditure was incurred by the assessee in relation to earning of dividend income and Rs.9,95,435/- was incurred by way of interest, which is not directly attributable to any source of income (Rs.97,21,446/-). The ld. Assessing Officer while framing the assessment invoked section 14A r.w.r.8D by contending that the assessee claimed various expenses, which relates to exempt income. Considering the totality of facts, argument of the assessee, the conclusion drawn in the aforesaid order of the Tribunal and peculiar facts of the present appeal, we are of the view, that at best, the disallowance may be restricted which cannot exceed the exempt income. We hold so.

the purposes of enabling screen based trading by the members is entitled to full depreciation. Reliance was also placed in ITO vs Omni Global Information Technologies India Pvt. Ltd. (2011) 131 ITD 280 (Del. Trib.), wherein, it was held that computer peripherals such as printers, scanners, servers, UPS, etc. are integral part of computer system on which higher rate of depreciation of 60% is allowable. The ld. DR did not controvert the assertion of the ld. counsel for the assessee.

3.1. We have considered the rival submissions and perused the material available on record. It is noted that identically, on the issue of depreciation, the Bench in the case of M/s Idea Cellular (ITA No.3847/Mum/2013), order dated 07/10/2015 held as under:-

“3. The next ground pertains to deleting the addition of Rs.15,01,908/- on account of excess claim of depreciation on printers, UPS and other accessories. The crux of argument on behalf of the Revenue is identical to the ground raised by contending that the accessories are part of power supply system and not of computer system, therefore, not entitled to higher rate of depreciation. On the other hand, the ld. counsel for the assessee, defended the conclusion arrived at in the impugned order.

3.1. We have considered the rival submissions and perused the material available on record. Without going into much deliberation, we are reproducing hereunder the M/s Arcadia Share & Stock Brokers Pvt. Ltd. relevant portion from the conclusion drawn by the ld. Commissioner of Income Tax (Appeals) for ready reference:-

“I have considered the facts of the case and submissions of the assessee. The Assessing Officer has held that the UPS is only a device to provide power back and it is neither performing any of the functions of a computer and similarly other items are also not functioning as computer. Whereas, the assessee has claimed that computer does not function in isolation or stand alone, the other items such as printer and UPS etc. are necessary for the functioning of the computer and, therefore, these items are also integral part of the computer and accordingly depreciation is to be allowed on these items at the same rate at which it is allowed to computers. The assessee's view finds support from various decisions of Hon'ble High Courts and Hon'ble ITAT as relied by the assessee and as reproduced above. Hon'ble Delhi High Court has held that UPS to be eligible for depreciation @ 60% in the case of Orient Ceramic and Industries Ltd. (supra). Hon’ble ITAT has found printers, scanners and servers as integral part of computer system and entitled for deduction @ 60% in the case of Omni Globe Information Technologies India Pvt. Ltd. (supra). Similar is the decision of Hon'ble ITA T in the case of Expeditors In International (India) Pvt. Ltd. (supra) and Datacraft (India) Ltd. (supra). Therefore, respectfully following the decisions relied by the assessee A.O. is directed to allow depreciation @ 60% on such items consisting of UPS, Printers Scanners and other items which are integral part of computers after verification. In result, the ground of appeal is treated as allowed.”

3.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available M/s Arcadia Share & Stock Brokers Pvt. Ltd. on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that this issue is squarely covered in favour of the assessee by the ratio laid down in DCIT vs Datacraft India Ltd. (2010) 40 SOT 295 (Mum)(SB), DCIT vs BTA Cellcom Ltd. (ITA No.3658/Del./2011), M/s Weizmann Ltd. vs DCIT (ITA No.768, 742, 770/Mum/2012) order dated 31/10/2013, Expeditors International (India) Pvt. Ltd. vs Addl. CIT (2008) 118 TTJ 652 (Del.). In these cases, it has already been held that peripherals such as printers, scanners, NT server etc, are integral part of computer, therefore, eligible for depreciation at higher rate. Respectfully, following the ratio laid down in the aforesaid cases, we affirm the stand of the ld. Commissioner of Income Tax (Appeals). Finally, the appeal of the Revenue is dismissed.” In the aforesaid order, the Tribunal placed reliance upon various decisions and concluded that higher rate of depreciation is allowable to the assessee. Identical ratio was laid down in the cases relied upon by the assessee before us. Considering the totality of facts, we are of the view, higher rate of depreciation, is allowable to the assessee. This ground of the assessee is therefore allowed.

Finally, both the appeals are disposed of in terms indicated hereinabove.

This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 23/03/2016.