TMI Blog2014 (7) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... he records a finding that he was not satisfied with the correctness of the claim of the assessee in respect to the expenditure incurred in relation to earning of the exempt income, having regard to the account of the assessee. The AO was obligated to record a satisfaction with regard to the incorrectness of assessee's claim, having regard to the accounts of the assessee, a requirement which is quite clear from a perusal of section 14A(2) of the Act - the reasoning advanced by the AO is based on mere surmises and conjectures and is not in compliance with the requirements of section 14A(2) of the Act - the AO has not recorded an objective satisfaction in regard to the correctness of the claim of the assessee which is a mandatory requirement of section 14A(2) of the Act and therefore, his action of invoking rule 8D of the Rules in order to compute the disallowance is untenable – thus, the order of the CIT(A) is set aside and the AO is directed to retain the disallowance u/s 14A of the Act – Decided in favour of Assessee. Computer Software Expenses - Capital expenditure OR Revenue expenditure – Held that:- The decision in CIT vs. Raychem RPG Ltd. [2011 (7) TMI 953 - Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany incorporated under the provisions of the Companies Act, 1956 which is, interalia, engaged in the business of manufacture and sale of steel forgings, finished machine crankshafts, axle beams, couplings and general engineering products, etc. It is also engaged in the business of generation of power by installing Wind Generation Towers, etc. For the assessment year under consideration, the total income declared by the assessee included a sum of ₹ 26,05,53,164/- which represented dividend income that was claimed as exempt u/s 10(35) of the Act. In the return of income filed, the assessee company determined a sum of ₹ 30,23,852/- as having been incurred in relation to such exempt income and accordingly the same was added back to the total income on account of section 14A of the Act. Notably, section 14A of the Act prescribes that for the purposes of computing the total income, no deduction shall be allowed in respect of any expenditure incurred by the assessee in relation to an income which does not form part of the total income under the Act. In the course of assessment proceedings, the Assessing Officer, however, computed the amount disallowable on account of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that even the Assessing Officer has not made any disallowance out of interest expenditure and the position canvassed by the assessee that there are no interest costs incurred in relation to the earning of exempt income stands accepted. The learned counsel vehemently pointed out that no error in the working of disallowance made by the assessee has been pointed out by the Assessing Officer in terms of the prescription contained in section 14A(2) of the Act and therefore the mechanical invoking of rule 8D of the Rules to compute the disallowance is erroneous in law and also on facts. 5. On the other hand, the learned Departmental Representative appearing for the Revenue submitted that the Assessing Officer has considered the disallowance computed by the assessee and was not satisfied with the working and therefore he has computed the disallowance in terms of rule 8D of the Rules. 6. We have carefully considered th4e rival submissions. In the case before us, it is not in dispute that the assessee has incurred certain indirect expenditure in relation to an income which does not form part of the total income under the Act. Therefore, a disallowance is quite justified on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning of the exempt income, having regard to the account of the assessee. In coming to the aforesaid conclusion, apart from being guided by the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. (supra) as well as the decision of the Pune Bench of the Tribunal in the case of Kalyani Steels Ltd. (supra), we are also conscious that similar view has been expressed by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. Ors. vs. CIT, (2012) 247 CTR 162 (Del) also. 7. In the above background, now we may examine the facts of the present case. The relevant discussion is contained in para 8.4 of the assessment order wherein the Assessing Officer has brought out his reasoning as to why he disagreed with the expenditure of ₹ 30,23,852/- specified by the assessee of having been incurred in relation to the exempt income. We have carefully perused the said discussion and find that the only reasoning advanced is that the expenditure specified by the assessee is very meagre as compared to the tax free dividend received by the assessee. In our considered opinion, the Assessing Officer was obligated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IC PACK (NETWORK LIC.) MSC SOFTWARE CORPORATION 1,825,167 This information technology software 4 FCA2214 2GB FC HBA FOR LINUX WINDOWS PHOEBUS TECHNOLOGIES PVT. LTD. 260,000 Network component used for Fibre connectivity 5 UG NS SOFTWARE TATA CONSULTANCY SERVICES LIMI 2,288,000 Unigraphic Software used for design application 19,258,207.48 11. On this aspect, the learned counsel for the assessee has made a solitary plea based on the judgement of the Hon'ble Bombay High Court in the case of CIT vs. Raychem RPG Ltd. (2011) 64 DTR 57 (Bom), which according to him has been applied by the Tribunal in the assessee's own case for preceding assessment year 2007-08 vide ITA No.340/PN/2012 order dated 30.09.2013. In terms of the said judgement where the software acquired by the assessee did not form part of the profit-making apparatus such expenditure was liable to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n placed on record, we hold that the disallowance under Section 40(a)(ia) of the Act is not warranted. and the same is directed to be deleted. 15. For the balance disallowance of ₹ 47,27,902/-, it is pointed out that the Assessing Officer has invoked section 40(a)(ia) of the Act on the ground that assessee has short deducted the tax at source. The learned counsel explained the tax deducted at source in respect of Testing and Inspection, Misc. Hire Charges, Die Repairs and Motor Rewinding Expenses was deducted by the assessee in terms of section 194C of the Act whereas as per the Assessing Officer, the same was required to be deducted in terms of section 194J of the Act. According to the learned counsel, the Tribunal in the assessee's own case for assessment year 2007-08 vide order dated 30.09.2013 (supra) has upheld the position that section 40(a)(ia) can be invoked only in cases of non-deduction of tax at source but not in cases where some short deduction tax at source is involved. In this connection, the following discussion in the order of the Tribunal dated 30.09.2013 (supra) has been referred:- 17. We have carefully considered the rival submissions. Ostens ..... X X X X Extracts X X X X X X X X Extracts X X X X
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