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2012 (12) TMI 240 - AT - Income TaxDisallowance of provision for Leave encasement on actuarial basis Sec.43B(f) - Whether clause (f) of Section 43B is arbitrary, unconscionable and dehorse - Assessee is following mercantile system of accounting and the provision for leave encashment was made on actuarial basis – Held that:- Following the decision in case of Bharat Earth Movers (2000 (8) TMI 4 - SUPREME COURT) and Exide Industries Limited (2007 (6) TMI 175 - CALCUTTA HIGH COURT) held that leave encashment is not a contingent liability if the provision is made on some scientific basis. Therefore disallowance made by AO is not justified. In favour of assessee Disallowance u/s 14A – Expense incurred in relation to earn exempt income – Held that:- As concluded from the facts of the case as well as that of the A.Y 2006-07, no disallowance is called for u/s 14A out of interest expenditure because own funds of the assessee were many times more than the amount invested in shares. Some disallowance is justified out of administrative expenses. A.O. is directed to restrict the disallowance u/s 14A to ₹ 1 lac. Issue partly allowed Software license fees – Capital or revenue in nature – Assessee has paid license fees for user of Finance, Purchasing, Order Management and Manufacturing users – Held that:- The most important test is the functional test and if it is found that the function being carried out with the help of the software is such which can be said to be a part of profit making apparatus of the assessee then the same has to be considered as capital expenditure and if it is only for increasing the organizational efficiency, the same cannot be treated as forming part of the profit making apparatus of the assessee company and should be treated as revenue expenditure. Software will help the assessee in increasing the efficiency but the same cannot be treated as forming part of profit making apparatus of the assessee company and, therefore, the expenditure on this software cannot be treated as capital expenditure. In favour of assessee Disallowance u/s 40(a)(ia) - Reimbursement of expenses of C&F agents – Held that:- if bills for reimbursement of expenditure have been raised by the commission agent separately, TDS was not required to be deducted for reimbursement and as a consequence, section 40(a)(ia) is not applicable with regard to such reimbursement. A.O. shall decide this issue afresh and pass necessary order. Issue remand back to AO
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