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2017 (11) TMI 1715 - AT - Income TaxDisallowance u/s 14A in respect of expenditure incurred for setting up STPI unit at Chennai - contention of the assessee that no disallowance can be made u/s 14A, when there is no exempt income - Held that:- As decided in the case of Cheminvest Ltd vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT] has observed that when there is no exempt income, disallowance of expenditure u/s 14A cannot be made. Therefore, we direct the AO to delete addition made towards expenditure incurred for setting up of STPI unit u/s 14A of the Act. We further direct the AO to delete adjustment made towards book profit computed u/s 115JB of the Income-tax Act, 1961. As a result, grounds raised by the assessee are allowed. Nature of expenditure - Disallowance of expenditure incurred in respect of legal and professional fees and stamp duty - expenditure incurred is in the nature of capital expenditure OR revenue expenditure - Held that:- We find that the expenditure incurred is in the nature of professional expenditure for Oracle migration and accounting software for STPI unit and annual membership fees paid to STPI, a government of India undertaking are in the nature of recurring expenditure which does not give any enduring benefit to the assessee. Stamp duty incurred for registration of lease agreement is also revenue expenditure irrespective of period of lease. This legal proposition is supported by the decision in the case of CIT vs Cinecita (P) Ltd [1982 (2) TMI 58 - BOMBAY HIGH COURT] wherein it was held that expenditure on registration fee, stamp duty and solicitor’s fee incurred in connection with registration of lease deed is revenue expenditure irrespective of period of lease. Therefore, we are of the view that the AO was erred in treating the expenditure as capital in nature. Also AO has made addition towards total expenditure incurred for setting up of STPI unit at Chennai u/s 14A and also made separate addition towards capital expenditure. Though relief is granted in the rectification order dated 10- 03-2011, there is no clarity on the issue as to whether the relief was allowed towards addition made u/s 14A or addition made under the head ‘legal and professional charges’. Therefore, we are of the view that the issue needs to be re-examined by the AO and hence, we set aside the issue to the file of the AO and direct him to give a finding as to whether relief is given towards addition made under the head ‘legal and professional charges’ or disallowance u/s 14A of the Act. TDS u/s 194C/194J - professional fees, purchase of samples, hall hire charges and food charges for failure to deduct tax at source - According to the assessee, all these expenses are reimbursement of expenditure incurred by third parties on behalf of the assessee without any profit element - Held that:- . Though the assessee claims to have reimbursed the expenditure, on perusal of the details filed by the assessee it appears that most of the expenditure like hall hire charges and food charges are incurred for the purpose of conducting interview are directly incurred by the assessee. Insofar as reimbursement of interview charges to certain parties, the assessee has filed some confirmation letters to prove that these are reimbursement of expenses. Therefore, we are of the view that the issues need to be re-examined by the AO afresh; hence we set aside the issue to the file of the AO and direct him to consider the issue afresh after affording an opportunity to the assessee. Set off of business loss - Held that:- As pre condition of continuation of business has been dispensed by the Finance Bill, 1999 and, therefore, the provisions of section 72 would be applicable but not provisions of section 71 as held by the AO and the first appellate authority. We are of the view that the AO was erred in restricting set off of brought forward business losses; hence, we direct the AO to allow brought forward losses as claimed by the assessee. Disallowance of miscellaneous hardware expenditure - revenue or capital expenditure - depreciation claim - Held that:- We find force in the arguments of the assessee for the reason that once a particular expenditure has been disallowed as capital expenditure, the AO is bound to allow depreciation allowable on such capital expenditure as per the provisions of the Act. Therefore, we direct the AO to allow depreciation on miscellaneous hardware expenditure treated as capital expenditure. Hence, the ground of assessee is dismissed. MAT computation - adjustments towards provision for fringe benefit tax for book profits computed u/s 115JB - Held that:- We find that though the assessee has taken a ground on the issue, on perusal of the assessment order of AO as well as directions of the DRP u/s 144(5), the AO has not made any adjustments to book profit computed u/s 115JB of the Act. The AO has accepted book profit computed by the assessee without any modification except addition made u/s 14A in respect of expenditure incurred for STPI unit at Chennai. Therefore, we are of the view that the issue is not emanating from the orders of lower authorities; hence, there is no merit in the ground raised by the assessee.
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