TMI Blog2014 (12) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... ically found gross profit earned from the trading division of the assessee is reasonable and has also examined the vouchers of purchase and sale of goods made by the assessee on a sample basis and has found same is to be correct – the order of the CIT(A) is upheld – Decided against revenue. Restriction of addition u/s 14A r.w. Rule 8D – Held that:- The dividend which is exempt from taxation is earned on account of investment made in share in the earlier years - The additional shares allotted to the assessee's company in the current AYs were on account of amalgamation of subsidiary companies - Therefore, no portion of the interest expenses incurred was in relation to investments in shares - the AO has not established any nexus between the investment and the borrowed funds - the assessee had enough interest free funds in the form of reserves and surplus and there was no relation between the interest expenditure and the dividend income - therefore, disallowance of interest expenditure, by invoking the provision of Section 14A, was uncalled for and the order of the CIT(A) I s upheld – Decided against revenue. Disallowance of repair and maintenance expenses related to building and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure - the expenditure incurred on up-gradation of existing softwares or payment of license fee for new softwares for additional users cannot be said to be capital in nature – Decided in favour of assessee. - ITA No. 5453/Del /2011, ITA No. 5089/Del/2011 - - - Dated:- 21-11-2014 - J. S. Reddy, AM And George George K, JM,JJ. For the Petitioner : Smt. Parminder Kaur, Sr. DR Shri Ajay Vohara, Sr. Adv. For the Respondent : Ms. Gaurav Jain, Adv. ORDER Per Shri George George K, JM: 1. These are cross appeals directed against the CIT (A)'s order dated 14.09.2011. The relevant Assessment Year is 2006-07. 2. We shall first take up Revenue's appeal for adjudication. In Revenue's appeal, the following effective grounds are raised:- i). On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 4,48,01,000/- made on account of disallowance of expenses under the heads manufacturing, trading and other expenses. ii) On the facts and circumstances of the case and in law, the CIT(A) has erred in restricting the addition of ₹ 33,23,000/- to ₹ 1,26,710/- made u/s 14A read wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations of the assessing officer that no details of expenses were filed to be incorrect inasmuch as the assessee had filed details of' major expenses during the course of assessment proceedings and no defect in same has been pointed out by the assessing officer in the assessment order. The main reason for disallowing expenses was, thus, low profitability and non-furnishing of item-wise sale-purchase vouchers. It is seen that the assessee deals in, approximately 25,000 items and for that reason could not furnish the details as desired by the assessing officer during the course of assessment proceedings within the short available time. However, the assessee has filed the aforesaid details on sample basis during the appeal proceedings, which were even sent to the assessing officer for comments/verification. Since the main reason of the assessing officer for disallowing the expenses is on the aforesaid ground only, in the interest of justice it is necessary to admit the aforesaid details filed by the assessee in the appeal proceedings. In view thereof, the aforesaid evidences are admitted and are considered hereunder for adjudication of the ground of appeal as above. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucity of time (details called on 26.12.2007 and the assessment was completed on 31.12.2007). However, in appellate proceedings, on queries raised by the CIT(A), the assessee had furnished item wise details of the trading division along with vouchers for purchase and sale thereof on sample basis, vide letter dated 30.03.2010. The details furnished by the assessee as per the CIT (A) direction was forwarded to the AO for his comments. The AO furnished a report vide his letter dated 30.04.2010. In the report, the Assessing Officer did not raise any objection to the assessee's case on merits but technical objections were raised by placing reliance on Rule 46A of the I.T. Rules, 1962. Admittedly, in this case, the books of account were accepted by the Assessing Officer and no adverse inference in maintenance thereof was pointed out. The entire expenses incurred during the year was duly vouched and supported by necessary documents. The Assessing Officer could not have made any ad-hoc disallowances without pointing out even a single instance of inflation of expenditure. Another reason, for making the above said disallowance was on account of low profit in trading division. As mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its contention and stated that no disallowance u/s 14A is applicable in the case of the assessee. The AO, however, rejected the contentions of the assessee. The Assessing Officer applied the provision of Section 14A of the Act and computed the disallowance of ₹ 33.23 lakhs out of the total interest and administrative expenses incurred in the current assessment year. The amount disallowed was arrived at by applying the following method: i) Interest expense was apportioned in the ratio of investment on which exempt dividend income was received during the year to total funds available for investment; ii) Administrative expenses were apportioned in the ratio of 0.5% percent of the average value of investment which had resulted in exempt dividend income. 8. The calculation of disallowance made by the AO is as under:- (A) Interest paid (Rs.75.17 lacs) Rupees in lakhs Dividend 447.30 Amount invested in shares to earn such dividend (A) 2,942.47 Share capital + Reserve surplus 7,925.48 Loans (secured + unse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for controlling stakes would be taken by the management. After consideration of the case in its totality, it would be fair and reasonable to restrict the disallowance to .05% of the average value of investments in shares (2,534.21X0.05%) which works out to ₹ 1,26,710/. Therefore, the addition to this extent is confirmed. 10 The Revenue, being aggrieved, is in appeal before us. 11. We have heard both the parties and perused the material on record. Admittedly, the dividend which is exempt from taxation is earned on account of investment made in share in the earlier years. The additional shares allotted to the assessee's company in the current assessment year were on account of amalgamation of subsidiary companies. Therefore, no portion of the interest expenses incurred was in relation to investments in shares. As rightly pointed out by the CIT (A), the AO has not established any nexus between the investment and the borrowed funds. On the facts and circumstances of the case and perusal of the cash flow statement, the CIT(A) has categorically found that the assessee had enough interest free funds in the form of reserves and surplus and there was no relation between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76,419 Repair of meter room 92,995 Renovation at Ballabgarh 1,01,985 Renovation at Ballabgarh 1,16,197 Renovation at Ballabgarh 1,46,908 Painting work at Ballabgarh 1,50,000 Sub-Total 6,84,504 Repair Maintenance Expenses Office Equipment Particulars Amount in Rs. Annual Maintenance Charges 1,10,200 Up-gradation Charges 1,14,535 Fee paid for installation of licenses for additional users in existing software 89,482 Fee paid for installation of licenses for additional users in existing software 96,777 Fee paid for installation of licenses for additional users in existing software 1,45,600 Bandwidth usage charges 2,43,542 License fee for Citrix P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 1979 on which factory building was constructed and, accordingly, capitalized in the books on the year ending 31.3.1981 for an aggregate amount of ₹ 85,99,124/-. It was also a fact that since then the building was put to use in the course of business carried on by the assessee and for the continuous use of the building for a long period of over 20 years, the factory building had naturally required certain repairs and alterations for uninterrupted and smooth operations of the business in the said building. Considering the life of the building and the total amount of expenditure of ₹ 6,84,504/- incurred on repair of the aforesaid factory during the year was nominal compared to the total construction cost of building of ₹ 85,99,124/- in the year 1981. As argued by the learned AR during the course of hearing, the aforesaid expenses were incurred towards repair and renovation of the existing factory building which did not result in acquisition of any new capital asset nor increase in production capacity of the factory. The aforesaid repair expenses at the factory building only facilitated smooth functioning of the existing operations carried out at the factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 177 ITR 377 (SC) . 17. In respect of expenditure on Software Licenses, we find that the CIT (A) had held that such expenditure to be capital expenditure on the ground that the assessee had acquired capital asset, viz., software by relying on the decision of the Special Bench of this Tribunal in the case of Amway India Enterprises v. DCIT reported in 111 ITD 112 . In this connection, we would like to point out that the said finding of the Special Bench has since been modified by the Hon'ble jurisdictional High Court in the case of CIT vs. Asahi India Safety Glass Ltd.: 346 ITR 329 (Del) . In that case, the Hon'ble Court had held that the expenditure incurred towards purchase of application software, which does not add to the profit-earning apparatus of an assessee, nor vests ownership rights to an assessee and further considering that the same has to be up-dated from time to time, cannot be said to be an expenditure incurred on capital account. Thus, the Court held that expenditure on purchase of software is allowable revenue expenditure. Various High Courts have also taken a similar view on the issue. To illustrate further, in the following cases, the Hon'ble Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
