TMI Blog2012 (9) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for earning of exempt income and all investments were made from own resources of the assessee and investments related to earlier years and no interest cost was incurred for earning of exempt income - Held that:- Sub section (2) of section 14A deals with the cases where assessee specifies a positive amount of expenditure and sub section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. AO in the present case has not made such findings and he only proceeded on the basis of assumptions that some expenditure must have been incurred for earning of exempt income. Matter restored back - ITA No.5887/Del/2011 - - - Dated:- 20-7-2012 - Rajpal Yadav, T S Kapoor, JJ. For Appellant: Shri KVSR Krishna, Adv. For Respondent: Shri Satpal Singh, CIT-DR ORDER Per: T S Kapoor: This is an appeal filed by the assessee against the order of Ld CIT(A) dated 19.10.2011. The grounds raised by the assessee are as under:- 1. The Ld CIT(A) has erred in law and on facts in upholding the disallowance of Rs.4,13,912/- being repairs maintenance expenses as capital expenditure. The said expenditure by their very natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 3. The Assessing Officer noted that assessee had claimed an amount of Rs.15,28,527/- as repairs maintenance expenses. On going through the details of repairs maintenance, the Assessing Officer took an opinion that some of the expenses claimed were in fact of capital nature. Therefore, in all the Assessing Officer treated an amount of Rs.6,66,774/- as being of capital nature and added the same to the income of assessee. However, he allowed depreciation on alleged items of capital assets. Disallowance of Share issue expenses: 4. The Assessing Officer noted that assessee had increased its authorized share capital from Rs. 5 crores to Rs.20 crores and had incurred an expenditure of Rs.10,08,468/- as as ROC fees and stamping charges. The Assessing Officer disallowed the same considering it to be of capital nature. While disallowing the expenses, the Assessing Officer relied upon in the case of Punjab State Industrial Development Corporation Ltd. v. CIT (1997) 225 ITR 792 (SC) and in the case of Brooke Bond India Ltd. v. CIT (1997) 225 ITR 798 (SC) . The assessee has not raised objection to this addition before Ld CIT(A). Disallowance of Interest on Service Tax: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses which included batteries for UPS, computer cable, flexible pipes, switch board which has the multipins plug, renewal of software updates of expenses and renewal of charges of oracle data. The Ld CIT(A) further noted that out of above an amount of Rs.2,52,862/- was for purchase of software updates where the license was for one year and thus allowed this sum as revenue expenditure and upheld the addition for the remaining amount. Disallowance of Interest on Service Tax:- 11. The Ld AR submitted that assessee had made late payments of service tax and accordingly has to pay interest u/s 75 of the Finance Act, 1994 under the Service Tax Provisions. The amount of interest paid for delayed payment of service tax is compensatory in nature and has the same character a service tax and it is not in nature of any penalty or fine disallowable as expenses u/s 37 of the Income Tax Act, 1961 . Reliance was placed on the judgments of following cases:- 1. Mahalaxmi Sugar Mills Co. v. CIT (1980) 123 ITR 429 (SC) . 2. Prakash Cotton Mills Pvt. Ltd. v. CIT (1993) 201 TTS 684 (SC) . 3. DCIT v. Messee Duysseldorf India (P) Ltd. (2010) 129 TTJ 81 T(Del.) . 12. The Ld CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d were of revenue in nature and these cannot be said to be capital in nature. In this respect, he explained each item, of repair maintenance from ld CIT(A) s order and drew our attention to the fact that these were petty and small items which cannot be described as capital assets. In respect of Rs.60,000/- paid to M/s Momento Infocare Pvt. Ltd., he argued that the same was for Snap Shop Documentation System Admn. Training and therefore were service charges and service tax has also been paid on the above. As regards other items of expenditure he argued that all items are in the nature of purchase of computer accessories which are necessary for running computer and therefore should be allowed as business expenditure. 17. The Ld DR, on the other hand, reiterated the stand taken by the Assessing Officer and Ld CIT(A) and argued that these items may be small but in normal practice expenses such as purchase of switch board, batteries, computer cables are not revenue in nature and all these items carry benefits of enduring nature. 18. We have heard the rival submissions of both the parties and have gone through the material available on record. From the details filed by the Ld A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR we find that interest on service tax is compensatory in nature and not in the nature of penalty and disallowance cannot be made u/s 37(1) of the Act. Therefore, ground No.3 4 is decided in favour of the assessee. 22. As regards disallowance u/s 14A read with Rule 8D of IT Rules, 1962, the Ld AR argued that no expense was incurred for earning of exempt income and all investments were made from own resources of the assessee and investments related to earlier years and no interest cost was incurred for earning of exempt income. Reliance was placed in the case of Maxop Investment Ltd. v. CIT in I.T.A. No.687 of 2009 (Del.) in which it was held that the Assessing Officer having regard to accounts of the assessee has to first satisfy himself with correctness of claim of the assessee in respect of such expenditure which means that Assessing Officer will determine such expenditure only if he returns a finding that he is not satisfied with the correctness of claim of assessee in respect of such expenditure. In other words, sub section (2) of section 14A deals with the cases where assessee specifies a positive amount of expenditure and sub section (3) applies to cases where the ass ..... 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