Sanjay Arora, Accountant Member - This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-12, Mumbai ('CIT(A)' for short) dated 27.09.2012, partly allowing the assessee's appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated 30.11.2010.

2. The appeal raises three issues per its three grounds, which we shall take up in seriatim. The first issue is in relation to the disallowance u/s.14A. The Assessing Officer (A.O.) during the course of assessment proceedings observed the assessee to have earned dividend income and long term capital gains (LTCG) at Rs.68.31 lacs and Rs.20.87 lacs respectively for the current year, claiming the same as tax exempt. The assessee had, per its computation of income, disallowed a sum of Rs.1,51,974/- u/s.14A. The assessee's accounts did not reveal any correspondence between the expenses and the exempt income so as to determine that incurred in relation to such income. Accordingly, he proceeded to apply the method prescribed under Rule 8D, mandatory w.e.f. the current year. The assessee having not incurred any interest expenditure, he estimated the indirect expenditure, other than interest, by applying rule 8D(2)(iii) @ 0.5% of the average investments for the year, reckoning the same at one half of the book value of the investment yielding tax exempt income as outstanding as at the beginning and close of the year, i.e., at Rs.14,45,674/-. The direct expenditure, disclosed by the assessee at Rs.1,51,794/-, which would fall to be covered u/r.8D(2)(i), was left undisturbed. It is this disallowance for Rs.14.46 lacs that stands agitated by the assessee. The assessee's plea before the ld. CIT(A) was that it had not incurred any expenditure, i.e., indirect, in relation to the income not forming part of the total income. Further still, the dividend cannot be said to be tax exempt in-as-much as the same is subject to dividend distribution tax, which only shifts the incidence of tax on dividend, for better administration, on the company distributing the same. The basis of the assessee's claim for non-incurring any expenditure was that it had not paid any portfolio management fee, and was being guided by its broker, who had not charged any fee for the same, being remunerated only by way of brokerage on the sale and purchase of shares, which stand accounted as a part of cost of acquisition or, as the case may be, sale of shares. Relying on the decision in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) and CIT v. Maganlal Chhaganlal (P.) Ltd. [1999] 236 ITR 456/103 Taxman 602 (Bom.), as well as that by the Tribunal, including by its Special Bench in the case of Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Delhi - SB), he was of the view that an estimation of the administrative expenses incurred by the assessee toward its investments in equity shares and mutual funds, yielding tax exempt income, would be required to be made. The assessee's accounts, being composite accounts for both the sets of income, i.e., income/s forming part of, and not so, the total income under the Act, not disclosing the said expenditure, the prescription of rule 8D shall apply. The disallowance as made was accordingly confirmed. Aggrieved, the assessee is in second appeal.

3. We have heard the parties, and perused the material on record. We find the Revenue's case as unexceptional. The validity or otherwise of the assessee's claim of the expenditure incurred by it in relation to income not forming part of the total income, which in the present case is limited to direct expenditure of Rs.1.52 lacs, is under law to be with reference to the assessee's accounts (refer section 14A(2) r/w s. 14A(3)). The A.O. has issued a definite finding, since endorsed by the ld. CIT(A), that in-as-much as the assessee's accounts are composite, it is not possible to ascertain there-from the expenditure incurred by it in relation to such income. The assessee has not rebutted the said finding at any stage, including before us. Clearly if the assessee's accounts are not maintained activity-wise, the same would presumably bear expenditure incurred both in relation to incomes forming part of, and not so, of the total income, so that that incurred, commonly for the latter, would require being estimated. An estimation toward said expenditure, therefore, would have to be made, and for which the prescription of rule 8D would have to be followed. Reference in this context may be made to the decision in the case of AFL P. Ltd. v. Asstt. CIT [2013] 60 SOT 63/37 taxmann.com 274 (Mum) and Kunal Corpn. v. Asstt. CIT [2013] 28 ITR (Trib) 277 (Mum), rendered following the decision in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). That a good part of the investment, which is liable to yield income which is tax exempt, is in group companies, is in our view of little moment. This is for the simple reason that the estimation mandated by law does not provide any exception in the matter, i.e., in estimating the expenditure, which is essentially a matter of fact, so that it would in fact vary with each fact situation and, perhaps, from year to year even from the same assessee. So, however, we, if only to provide an opportunity to the assessee to present its case, factually and/or legally, restore the matter back to the file of the ld. CIT(A), who shall decide the same in accordance with the law, disposing of each of the assessee's objections to estimation of such expenditure applying r. 8D, if any, made before him, with the onus to substantiate its claims being only on the assessee. We decide accordingly.

4. The second issue projected by the assessee's ground no. 2 is in respect of the non-allowance of the set off of the long term capital loss of Rs.30,01,338/- for A.Y. 2005-06 against the LTCG for the current year. The basis of the said disallowance is that the assessee's claim for A.Y. 2005-06 stands not been accepted by the Revenue, and there is accordingly no question of the same being carry forward for being allowed set off of against income for the subsequent year/s. The assessee's case, which however did not find favour with the ld. CIT(A), resulting in the instant appeal, is that the assessee had not accepted the Revenue's stand and is in appeal, which is at present outstanding before the appellate tribunal. The assessee's claim, therefore, pending the disposal of its appeal, could not be dismissed.

5. We have heard the parties, and perused the material on record. We find no basis in the assessee's case. The loss for A.Y. 2005-06 has not been accepted by the Revenue, so that it is in appeal before the tribunal. There is as such no question of it being allowed carry forward of the same for set off against the income for the subsequent years, which could only be in terms of the specific provision of law, i.e., section 74, falling under Chapter VI of the Act. The assessee's plea of being in appeal for A.Y. 2005-06 is though not without merit. But that by itself would not give rise for a claim for the current year in-as-much as the relevant order is only that for A.Y. 2005-06, i.e., as modified by the appellate order (by the first appellate authority) for that year, which continues to be the operative order/s. If, when and to the extent the same is reversed or modified, the assessee would be entitled to all the consequential benefits, including the set off against the income for the subsequent years in terms of the relevant provisions of law. We decide accordingly.

6. The third and the final issue arising is in respect of the disallowance of the assessee's claim for deprecation on a 'leased premises' for the current year. The brief facts are that the assessee had incurred an expenditure of Rs.19.20 lacs on repairs and renovation of premises taken on leave and licence basis, which expenditure stood capitalized in accounts and depreciation claimed thereon. Upon vacation of the premises, the assessee wrote off the written down (book) value of the said asset as appearing in its books to the profit and loss account. Though the claim of write off stood disallowed, adding back the same in the computation of income, the assessee continues to claim depreciation on the said asset, no longer in 'existence'. The same forms the basis of the disallowance of the said claim for depreciation. The same found acceptance by the ld. CIT(A) in-as-much as the property having been vacated and handed over back to the lessor, the same is neither owned by the assessee nor used by it, i.e., for the current year, so that both the basic conditions entitling a claim for depreciation are not satisfied. Reliance for the purpose was made on the decision in the case of Asstt. CIT v. Rishiroop Polymers (P.) Ltd. [2006] 102 ITD 128 (Mum), clarifying the principles for the claim of depreciation. The assessee's alternate claim for being allowed the entire WDV on the leased asset, since 'returned' to the lessor, also did not find his acceptance in the absence of the relevant details being furnished by the assessee. Aggrieved, the assessee is in second appeal.

7. We have heard the parties, and perused the material on record. In our view, the decision by the tribunal in the case of Rishiroop Polymers (P.) Ltd. (supra), rendered following the decision by the hon'ble jurisdictional high court in the case of Dineshkumar Gulabchand Agrawal v. CIT [2004] 267 ITR 768/141 Taxman 62 (Bom.), would apply in the facts and circumstances of the case. The said decisions, in ratio, which alone has precedence value, and in the instant case being by the hon'ble jurisdictional high court is judicially binding, is that the user, along with the ownership of a capital asset, represents a primary condition for the claim of depreciation allowance u/s.32. As such non-satisfaction of this essential condition would disqualify a claim for depreciation. In the facts of the instant case, the assessee expended Rs.19.20 lacs on the renovation of premises of which it held right of occupancy. The same, though a capital expenditure, on a building not owned by it, would yet entitle it to depreciation thereon in view of Explanation 1 to section 32(1)(ii), which deems the assessee to be the owner of such building, i.e., qua the said expenditure. However, the building being not used by the assessee for the purpose of its business, no depreciation (claimed @ 10% at Rs.1.92 lacs) would be exigible for the current year.

Coming to the assessee's claim for the entire expenditure, i.e., in view of section 32(1)(iii), we are unable to agree with the basis of its rejection by the ld. CIT(A), i.e., non-availability of the relevant details. If that be so, he should have called for the details from the assessee or sought a remand report in the matter from the A.O., who would in that case also get an opportunity to examine the assessee's case, made in the alternative. Further, we would ourselves prefer to follow the same course. However, the issue that confronts is legal, and the provision of section 32(1)(iii), which reads as under, unambiguously clear:

"Depreciation.
32. (1) In respect of depreciation of—

(iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof:

Provided that such deficiency is actually written off in the books of the assessee.

Explanation. — For the purposes of this clause,—
(1) "moneys payable" in respect of any building, machinery, plant or furniture includes—

so, however, ……"

The discarding of the asset has to be in the year other than the previous year in which the asset is first brought to use. In the present case, the asset has not been brought to use in any earlier year. Accordingly, there is no question of the same being allowed with reference to the said provision. In other words, there being no user in any earlier year, the same does not qualify to be depreciable asset, for the provision of section 32(1)(iii) to apply, i.e., on it being sold, discarded, destroyed, etc. The assessee's alternate claim would, therefore, also not hold. We decide accordingly.