Dy. CIT v. Aban Offshore Ltd.

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The Tax Publishers2012 TaxPub(DT) 1090 (Chen-Trib) : (2012) 013 ITR (Trib) 0180 INCOME TAX ACT, 1961 --Depreciation--AllowabilityWindmills purchased by assessee after completion of lease--The assessee had claimed depreciation in respect of its windmills. Disallowance was made by the AO for a reason that windmills were purchased by the assessee after completion of a lease, on residual value and depreciation was denied in the earlier assessment years 2003-04 and 2004-05. In its appeal before the CIT(A), the assessee pointed out that this Tribunal in its order dated 26-3-2008 in I. T. A. No. 1964/Mds/2006 for the assessment year 2003-04, had decided this issue in favour of the assessee and held that the assessee was eligible for claiming such depreciation. Now, the only contention raised by the Departmental representative is that the abovereferred decision of the Tribunal in the assessee's own case for the assessment year 2003-04 has not been accepted. Per contra, the authorised representative pointed out that the matter stood decided in favour of the assessee by the Tribunal. Held: Justified. Income Tax Act, 1961 Section 32(1) INCOME TAX ACT, 1961 --Exempt income--Disallowance under section 14AApplicability of section 14A read with rule 8--The assessee had claimed the entire dividend income received by it as exempt under section 10(34). The AO was of the opinion that at least a part of the expenditure incurred for maintaining its establishment and administration, would be attributable to the activity of earning dividend. As per the AO, the management and staff would have also been involved in the decision making process with regard to the investments resulting in dividends. The assessee replied to the AO that it had deployed only surplus funds generated from its business and further, rule 8D of the IT Rules, 1962 could not be applied retrospectively. The AO, however, relying on the decision of the Special Bench in the case of ITO v. Daga Capital Managemerit P. Ltd. (2009 ) 117 ITD 169 (Mum), held that rule 8D had to be retrospectively applied and section 14A(2) and 14A(3) were procedural. Disallowance made came to Rs. 30,12,454. In its appeal before the CIT(A), argument of the assessee was that the investments giving raise to the dividend were not out of borrowed funds, but made out of interest free funds available to it. The assessee also relied on cash flow statement for the relevant previous year for substantiating its contention that fresh borrowings were utilised only for purchasing assets and no part thereof was used for making any investments. Reliance was also placed on the decision of the Punjab and Haryana High Court in the case of CIT v. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) : 2010 TaxPub(DT) 0960 (P&H-HC) for arguing that unless there was a finding regarding incurring of expenditure for earning exempt income, disallowance under section 14A could not be made. The CIT(A) was of the opinion that the audited accounts and cash flow statement filed by the assessee did show that out of Rs. 18,99,26,740 incurred as interest expenditure, a sum of Rs. 18,25,99,371 was used for acquisition of rigs and windmills. In so far as balance amount of Rs. 73,27,369 was concerned, the CIT(A) was of the opinion that the assessee's contention regarding use of such amount towards working capital requirements was not disproved by the AO. Further, as per the CIT(A), it could not always be considered that direct or indirect expenditure was incurred and disallowance under section 14A was required to be made in every case. He, therefore, deleted the disallowance made by the AO. Held: Justified. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1090 (Chen-Trib) : (2012) 013 ITR (Trib) 0180

INCOME TAX ACT, 1961

--Depreciation--AllowabilityWindmills purchased by assessee after completion of lease--The assessee had claimed depreciation in respect of its windmills. Disallowance was made by the AO for a reason that windmills were purchased by the assessee after completion of a lease, on residual value and depreciation was denied in the earlier assessment years 2003-04 and 2004-05. In its appeal before the CIT(A), the assessee pointed out that this Tribunal in its order dated 26-3-2008 in I. T. A. No. 1964/Mds/2006 for the assessment year 2003-04, had decided this issue in favour of the assessee and held that the assessee was eligible for claiming such depreciation. Now, the only contention raised by the Departmental representative is that the abovereferred decision of the Tribunal in the assessee's own case for the assessment year 2003-04 has not been accepted. Per contra, the authorised representative pointed out that the matter stood decided in favour of the assessee by the Tribunal. Held: Justified.

Income Tax Act, 1961 Section 32(1)

INCOME TAX ACT, 1961

--Exempt income--Disallowance under section 14AApplicability of section 14A read with rule 8--The assessee had claimed the entire dividend income received by it as exempt under section 10(34). The AO was of the opinion that at least a part of the expenditure incurred for maintaining its establishment and administration, would be attributable to the activity of earning dividend. As per the AO, the management and staff would have also been involved in the decision making process with regard to the investments resulting in dividends. The assessee replied to the AO that it had deployed only surplus funds generated from its business and further, rule 8D of the IT Rules, 1962 could not be applied retrospectively. The AO, however, relying on the decision of the Special Bench in the case of ITO v. Daga Capital Managemerit P. Ltd. (2009 ) 117 ITD 169 (Mum), held that rule 8D had to be retrospectively applied and section 14A(2) and 14A(3) were procedural. Disallowance made came to Rs. 30,12,454. In its appeal before the CIT(A), argument of the assessee was that the investments giving raise to the dividend were not out of borrowed funds, but made out of interest free funds available to it. The assessee also relied on cash flow statement for the relevant previous year for substantiating its contention that fresh borrowings were utilised only for purchasing assets and no part thereof was used for making any investments. Reliance was also placed on the decision of the Punjab and Haryana High Court in the case of CIT v. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) : 2010 TaxPub(DT) 0960 (P&H-HC) for arguing that unless there was a finding regarding incurring of expenditure for earning exempt income, disallowance under section 14A could not be made. The CIT(A) was of the opinion that the audited accounts and cash flow statement filed by the assessee did show that out of Rs. 18,99,26,740 incurred as interest expenditure, a sum of Rs. 18,25,99,371 was used for acquisition of rigs and windmills. In so far as balance amount of Rs. 73,27,369 was concerned, the CIT(A) was of the opinion that the assessee's contention regarding use of such amount towards working capital requirements was not disproved by the AO. Further, as per the CIT(A), it could not always be considered that direct or indirect expenditure was incurred and disallowance under section 14A was required to be made in every case. He, therefore, deleted the disallowance made by the AO. Held: Justified.