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2014 (11) TMI 171 - AT - Income TaxClassification of expenses - Capital or Revenue expenditure - Software expenditure Held that:- The system software did not form part of the profit-making apparatus of the assessee, that the business of the assessee was that of manufacturing of piston ring, casting ring etc., that Software was an enterprise resource and it facilitated the assessee's trading operations or enabled the management to conduct the assessee`s business more efficiently or more profitably - But, it would not make the software a profit-making apparatus - So, the expenditure incurred by the assessee has to be held to be revenue expenditure following the decision in CIT Versus Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High Court] Decided in favour of assessee. Disallowance u/s 40A(3) Held that:- The assessee had made a payment to one of the employees, who had bank account and her salary and other emoluments were deposited in that account - the assessee auditor of the company in his report has specifically mentioned that the amount was paid in violation of the provisions of section 40A(3), the assessee had not produced any evidence before the auditor or the AO to prove that the payments were covered by the exceptions mentioned in Rule 6DD of the Rules - the assessee had not proved that 'exceptional and unavoidable circumstances' existed thus, the order of the FAA is upheld Decided against assessee. Adhoc disallowance @ 20% of the miscellaneous expenses(ME) Held that:- As decided in assessees own case for the earlier assessment year, it has been held that the addition made by the AO under the head ME is to be set aside as there was no scope for making ad hoc disallowance Decided in favour of assessee. Expenses incurred for business purposes disallowed Held that:- FAA had specifically directed the AO to allow the expenditure in the earlier AY, if same was not already allowed in that year - the expenditure was incurred for business purposes and has to be allowed in one of the years - It is not uncommon business practice that in some cases bills are received in subsequent year for a particular item - But, that does not mean that the assessee is not entitled to claim the expenditure only because it is following mercantile system of accounting - the expenditure claimed by the assessee has to be allowed in the year Decided in favour of assessee. Calculation of claim made u/s 80HHC Held that:- The assessee had not furnished the details of the miscellaneous income before the AO or the FAA, that FAA culled out necessary details and had decided the issue on merits, that he had partly allowed the issue of sale of scrap in favour of the assessee, that he had followed the decision with regard to the benefits of ₹ 92.79 lakhs - the order of the FAA does not suffer from any legal infirmity Decided against assessee. Interest expenses on investment disallowed Held that:- The AY involved is prior to 2008-09 and as per the decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] the provisions of section 14A r.w.r.8D cannot be invoked for making proportionate disallowance - reasonable disallowance could be made in earlier AYs - disallowance sustained by the FAA i.e.5% of the exempt income is reasonable and does not need interference Decided against revenue.
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