TMI Blog2011 (3) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... ous tests for deciding the issue regarding software expenses - This ground is partly allowed. Income on tax free bonds - The matter needs to be restored back to the file of AO in view of the decision of the Hon'ble Bombay High Court in the Godrej and Boyce Mfg. P.Ltd. vs. ACIT (2010 -TMI - 78448 - BOMBAY HIGH COURT) wherein it has been held that Rule 8D is prospective in operation - The assessee, however, submitted that the directions of the ld. CIT(A) do not need any modification as his directions are in conformity with the view taken by the Hon'ble Bombay High Court or making the disallowance on reasonable basis as Rule 8D is not applicable for the present assessment year - Decided in favour of assessee. - ITA Nos. 5098 and 5099/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in directing the AO to allow expenditure of Rs.4,44,059/- on purchase of software as revenue expenditure. She has failed to appreciate the fact that the expenditure was for changing the basis system which is capital in nature. This expense is not for running the system. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting proportionate disallowances amounting to Rs.24,50,380/- made by the AO from the income on tax free bonds." 5. Brief facts apropos ground no. 1 are that the AO required the assessee to inform the quantum of broken period interest claimed and to explain how this has been claimed as expenditure. The assessee submitted that the broken period interest cannot be regarded as part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show as to why the method adopted by the assessee ought to be rejected; the Department had not shown why the broken period interest received ought to be taxed whereas the interest for the broken period paid by the assessee should be disallowed. Right from the inception the Department had brought to tax such amounts only as business income under section 28. Further, the Tribunal had found that the securities were held by the assessee as trading assets. The assessee's method of accounting did not result in loss to the Revenue and there was no need to interfere with the method of accounting adopted by the assessee." (258 ITR 601) Therefore, in view of the above decision of the Hon'ble Bombay High Court, we confirm the decision of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonds in view of the provisions of sec. 14A inserted by the Finance Act, 2001, with retrospective effect from April 1, 1962. Before the ld. CIT(A), it was, inter alia, submitted that the expenditure sought to be disallowed from the computation of assessee's taxable income by virtue of sec. 14A would be the actual expenditure incurred by the assessee for earning the exempt income and the section does not envisage any estimate of expenditure or attribution of any notional expenses to earning such exempt income. Section 14A does not permit any apportionment of expenditure. What can be disallowed u/s. 14A is only that expenditure which has a clear nexus to the earning of the income. It was further submitted that judicial precedents have held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before us. 10. The ld. D.R. submitted that the matter needs to be restored back to the file of AO in view of the decision of the Hon'ble Bombay High Court in the Godrej and Boyce Mfg. P.Ltd. vs. ACIT (328 ITR 81) wherein it has been held that Rule 8D is prospective in operation. 10.1 The ld. counsel for the assessee, however, submitted that the directions of the ld. CIT(A) do not need any modification as his directions are in conformity with the view taken by the Hon'ble Bombay High Court (supra) for making the disallowance on reasonable basis as Rule 8D is not applicable for the present assessment year. 11. We have considered the rival submissions and find merit in the argument of the ld. counsel for the assessee. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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