As Regards Question (A) Is Concerned, Mr. Suresh Kumar Infairness Agreed That It Would Be Covered By The Judgment Of The Hon’bleapex Court In Commissioner Of In v. 2014] 41 Taxmann.com 262 (Bombay

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 181 OF 2018 ALONGWITHINCOME TAX APPEAL NO. 848 OF 2017 The Commissioner of Income Tax – 9 V/s.Grindwell Norton Ltd. ….Appellant …Respondent ---- Mr. Suresh Kumar for Appellant.Mr. P.J. Pardiwalla, Senior Advocate a/w Mr. Jitendra Jain i/b Mr. Atul K.Jasani for Respondent. ---- CORAM : K.R. SHRIRAM & M.M. SATHAYE, JJ. DATED : 7[th] JUNE 2023 P.C. : 1.The following three substantial questions of law are proposed by the Revenue in both appeals. SUBSTANTIAL QUESTION OF LAW a. Whether on the facts and in the circumstances of the case, the Ld.ITAT erred in law in directing the AO to allow the depreciation onintangible assets totally ignoring the fact that the independentenquiries conducted by the AO proved the ineligibility of the assesseeto claim such depreciation as per provisions of section 32 of the I.T.Act ? b. Whether on the facts and in the circumstances of the case, the Ld.ITAT erred in law in restricting the disallowance made under section14A of the Income Tax to the extent of 2% of the dividend income ? c. Whether on the facts and in the circumstances of the case and inlaw, the Ld. ITAT has erred in deleting the addition made by the AOon account of prepayment of deferred sales tax liability treating thesame as capital receipt ignoring the findings of the AO that assesseehad received prepayment of deferred sales tax liability, which is aclearly a revenue receipt ? 2.As regards question (a) is concerned, Mr. Suresh Kumar infairness agreed that it would be covered by the judgment of the Hon’bleApex Court in Commissioner of Income Tax vs. SMIFS Securities Ltd.[1]. Infact, the Division Bench of this court in Commissioner of Income Tax - 2 vs.Birla Global Asset Finance Co. Ltd.[2] following SMIFS Securities Ltd. (supra)had held that the contention of the Revenue is that intangible assets likebusiness and commercial brand equity are goodwill on which depreciation isnot allowable is not correct. 3.As regards question (c) is concerned, the same is also coveredby the judgment of the Hon’ble Apex Court in Commissioner of Income Tax– 6, Mum. vs. Balkrishna Industries Ltd.[3] where the Hon’ble Apex Courtupheld the view taken by the Division Bench of this court that the AssessingOfficer was not correct in treating the amount saved by the assessee whilepre-paying the deferred sales tax liability as income, by applying theprovisions of Section 41 of the Income Tax Act, 1961 (the Act). 4.As regards question (b) is concerned, the case at hand relates toAssessment Year 2007-08. The Tribunal in the impugned order has reliedupon order of the Tribunal for Assessment Year 2006-07 in assessee’s owncase wherein disallowance was confirmed at 2% of the dividend income.Relying on the order of the Tribunal for Assessment Year 2006-07, the ITAT 1 [2012] 348 ITR 302 (SC) 2 [2014] 41 taxmann.com 262 (Bombay) 3 [2017] 88 taxmann.com 273 (SC) in the impugned order has held that the disallowance on account ofexpenses under Section 14A of the Act should be restricted to 2% of thedividend income. The ITAT also clarifies that the disallowance with regardto interest should be made after excluding those mutual funds which aredebt funds. 4.As regards question (b) is concerned, the case at hand relates toAssessment Year 2007-08. The Tribunal in the impugned order has reliedupon order of the Tribunal for Assessment Year 2006-07 in assessee’s owncase wherein disallowance was confirmed at 2% of the dividend income.Relying on the order of the Tribunal for Assessment Year 2006-07, the ITAT 1 [2012] 348 ITR 302 (SC) 2 [2014] 41 taxmann.com 262 (Bombay) 3 [2017] 88 taxmann.com 273 (SC) in the impugned order has held that the disallowance on account ofexpenses under Section 14A of the Act should be restricted to 2% of thedividend income. The ITAT also clarifies that the disallowance with regardto interest should be made after excluding those mutual funds which aredebt funds. 5.As regards Income Tax Appeal No. 181 of 2018 is concernedthat related to Assessment Year 2009-10 relying on the judgment of thiscourt in CIT vs. Reliance Utilities and Power Ltd.[4] and HDFC Bank Ltd. vs.DCIT[5] the Tribunal, after referring to the Balance Sheet of respondent hadcome to a conclusion that the Share Capital plus Reserves and Surplusamount of Rs.318.21 Crores are in excess of the investment of Rs.41.65Crores and that point indicated that sufficient interest free funds wereavailable to cover the level of investment in question and therefore, thepresumption would arise that such investments have been made out of noninterest bearing funds. In fact, the Hon’ble Apex Court in South Indian BankLtd. vs. Commissioner of Income Tax[6] has also confirmed the position thatwhen interest free own funds available with the assessee exceeded theirinvestments, it would be presumed that investments were made out ofassessee’s own funds and proportionate disallowance was not warrantedunder Section 14A of the Act. 4 313 ITR 340 (Bom) 5 383 ITR 529 (Bom) 6 [2021] 130 taxmann.com 178 (SC) 6.Therefore, we find no fault with the order of the Tribunal. Theentire issue is fact based. The Tribunal having come to the factualconclusion on the basis of materials on record, no question of law arises. Inthe circumstances, we see no reason to interfere. 7.Both appeals dismissed. (M.M. SATHAYE, J.) (K.R. SHRIRAM, J.)