TMI Blog2014 (5) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... essee so as to see whether there was investment in shares/mutual funds out of the borrowed funds or non borrowed funds. In the light of the above directions, this ground of the assessee may be treated as allowed for statistical purpose only. Depreciation on the assets leased back to Rajasthan Electricity Board (RSBB) is to be allowed as per law. Expenditure in respect of a sale of a capital asset - allowable Revenue expenditure u/s.37 - Held that:- The accepted factual position was that the LPG Division was sold by the assessee in earlier years as a “slump sale”. We have been informed that on sale of the said LPG Division the assessee had offered to tax a ‘capital gain’ in the past. The assessee’s only argument is that the additional stamp duty was demanded in the year under consideration, therefore, the liability had crystallized during the year; hence, allowable only in this year. We are not convinced with the argument of learned AR because under the provisions of Section 37 of IT Act an expenditure which is incurred wholly and exclusively for the purpose of the business can be allowed as an expenditure. The expenditure of additional stamp duty being not an expenditure for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company is engaged in the business of processing, distribution and transmission of natural gas. It was noted by the AO in respect of above ground that the assessee had made total investment in equity shares of ₹ 13817.27 lacs. However, it was also noted that during the year under consideration the investment in shares and mutual funds had increased from ₹ 7363.45 lacs to ₹ 1322.956 lacs. The assessee had earned dividend income of ₹ 10,09,43,566/-. The entire income was claimed as exempted income u/s.10(33) of IT Act. The AO has invoked the provisions of Section 14A on the ground that expenses incurred for earning the exempted dividend income could not be allowed as deduction. According to AO, the interest expenses incurred against the investment could not be allowed business expenditure. Likewise, he has pointed out that the administrative expenses have been incurred for monitoring the investment in shares and mutual funds. After detailed discussion, the AO has applied the following formula; for reference reproduced below from page 11 of the Assessment order, and made a disallowance of ₹ 517.70 lacs as under: Interest to be disallowed = 1014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er order of ITAT A Bench in assessee s own case for A.Y. 1998-99 and 2001-02 bearing ITA No.2211/Ahd/2004 and ITA No.134/Ahd/2005 wherein, as well, the matter was restored for reconsideration as per law. In the said order, the Respected Co-ordinate Bench has mentioned an order of Punjab Haryana High Court pronounced in the case of Hero Cycle, 323 ITR 518 wherein it was observed that disallowance u/s.14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance u/s.14A could not be made. Consistent with the view taken in the past by the Tribunal in assessee s own cases, we deem it proper to restore this ground back to the stage of the AO to be decided denovo after taking into account the latest decisions on the issue of the applicability provisions of Section 14A. The AO is required to examine the balance-sheet and related accounts of the assessee so as to see whether there was investment in shares/mutual funds out of the borrowed funds or non borrowed funds. In the light of the above directions, this ground of the assessee may be treated as allowed for statistical purpose only. 2 Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, the aforesaid decision of Hon ble jurisdictional High Court in the case of Dhall Enterprise and Engineers P. Ltd. (supra). With these directions, ground no.v) in the appeal of the Revenue is disposed of. 2.2 We have also been informed that in A.Y. 2001-02 in assessee s own case supra vide paragraph 55.1 the Tribunal has followed the order of A.Y. 2000-01 and restored the matter of bad debt back to the file of the AO for re-adjudication in terms of the provisions of law. Being consistent with the view already taken in the past, we deem it proper to restore this ground as well, back to the file of the AO to be decided denovo as per the provisions of law applicable. This ground of the assessee may be treated as allowed for statistical purpose only. 3. Ground No.3 is reproduced below: 3. The learned Commissioner of Income-Tax(Appeals) erred in confirming the action of the learned Assessing Officer in not granting depreciation of ₹ 69,99,834/- being the depreciation on the assets leased back to Rajasthan State Electricity Board (RSEB). It is submitted that since the entire transaction of sale and lease back to RSEB being at arm's length and genuine one, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per detailed discussions in the assessment order of the AY 1999-2000. On appeal, relying upon his own order dated 22.3.2004 for the AY 1995-96 and the decision of Hon'ble Karnataka High Court in the case of Avarsala Automation Ltd v. CIT (268 ITR 178) and the decision of the Mumbai Special Bench of the ITAT in the case of ICICI Ltd v. DCIT SR 36, in ITA No.3300/Mum/97, the learned CIT(A) upheld the disallowance made by the AO for the year under consideration. 4.1 Before us, the learned AR on behalf of the assessee contended that there is no justification in not granting deduction of ₹ 1,24,44,150/- being the depreciation on the assets leased to Rajasthan State Electricity Board (RSEB). He submitted that the assessee had purchased the various assets from RSEB and leased back those assets to the RSEB under a lease agreement and is regularly receiving the lease rent from RSEB. According to the learned AR, the assessee has offered the lease rent so received to tax. He also submitted that the assets are owned and used for the purpose of the business and therefore, the assessee is entitled to depreciation. The learned AR of the assessee further contended that on similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e holding that the necessary evidences/details were not filed before the learned Assessing Officer and hence genuineness of the claim of the appellant is not established. Your appellant submits the disallowance is unjustified particularly when the learned Assessing Officer as well as the learned CIT (Appeals) do not dispute the factum of sale of Surya Flats and Director's residence. It is submitted that it be so held now and disallowance confirmed be deleted. 4.1 Learned AR has expressed not to contest this ground; hence, dismissed being not pressed. 5. Ground No.5 is reproduced below: The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of ₹ 10,01,542/- being the amount of sundry debit balances written off. Your appellant submits that such debit balances represent deposits given to various Government Authorities in connection with the laying of pipeline, road crossing and for various projects undertaken by the appellant. The learned Commissioner of Income-tax (Appeals) further erred in assuming that the appellant might not have performed the work to the satisfaction of the Government and hence these amounts of deposits must h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debit balances written off, we have noted that from serial nos.9 to 13 the assessee had made deposits to various parties ranging from ₹ 3 lac upto ₹ 5 lac. Since, those deposits were in the nature of capital involvement and it was not related to any expenditure having a charge on the income of the assessee either for the year under consideration or for any of the past years, therefore, we hold that if at all it was a loss then it was not a business loss but it was in the nature of capital loss . We, therefore, approve the findings of the AO/CIT(A). As far as the two amounts as per serial nos.7 and 8 are concerned those were found to be in the nature of accrued interest of ₹ 3229/- and ₹ 6812/-. In respect of these two amounts, we hereby hold that if the said accrued interest was offered to tax in the past and if that was not realized by the assessee then only the same can be allowed being written off during the year under consideration. For rest of the parties as appearing at Serial nos.1 to 6 we hereby hold that considering the details the same appears to be a capital loss; hence, not an allowable deduction for the year under consideration. Before we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said LPG Division the assessee had offered to tax a capital gain in the past. The assessee s only argument is that the additional stamp duty was demanded in the year under consideration, therefore, the liability had crystallized during the year; hence, allowable only in this year. We are not convinced with the argument of learned AR because under the provisions of Section 37 of IT Act an expenditure which is incurred wholly and exclusively for the purpose of the business can be allowed as an expenditure. The expenditure of additional stamp duty being not an expenditure for the purpose of the business of the assessee but pertained to a capital gain which was shown in the past years, therefore, not to be allowed u/s.37 of IT Act for the year under consideration. Resultantly, this ground of the assessee is hereby dismissed. 7. Ground No.7 is reproduced below 7. The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the disallowance of ₹ 8,30,017/- being fees paid for carrying out due diligence on the ground that the same is capital expenditure. The appellant submits professional fees for due diligence in connection with exploring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby reversed and this ground is allowed. 8. Ground No.8 is reproduced below: 8(i). The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the disallowance of ₹ 20,90,051/- out of ₹ 22,36,196/- being the expenditure incurred on software licenses and software development. Your appellant submits that these expenses being of recurring nature, the use of licensed copy of different programmes in form of software are to be treated as revenue expenditure. 8(ii). The learned Commissioner of Income-tax (Appeals) erred in holding that computer software are eligible as depreciation @ 25% and not @ 60%. It is submitted that computer software are eligible @ 60% and the same may be allowed now. 8.1 The assessee has incurred software development and software license expenditure of ₹ 22,36,196/-, as per AO, debited to P L a/c. The assessee has furnished the details and the explanation as follows: a) License copy of MS Office, Antivirus Solution, Antigen for MS Exchange Mail Server, Other softwares, Oracle Server totaling to ₹ 1875851/- b) Migration of application from power builder and data from oracle ₹ 125 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax (Appeals) erred in law and on facts in confirming disallowance of ₹ 3,15,500/- out of the payment of ₹ 5,32,500/- made to different entities as donation. The learned CIT(Appeals) erred in holding that such amounts are not incurred wholly and exclusively for the business purpose, they tare in the nature of charities which have no nexus with the business. Your appellant submits that these expenses are incurred for the promotion of the social cause in respect of the people at the place of business and also in respect of the employees of the appellant which are good business practices. Your appellant therefore submits that such payments are business expenditure and even they are termed as charities are incurred for the purpose of the business and deduction u/s.37 be granted to the appellant. 9.1 The AO has noticed that under the head donation the following expenditure was claimed by the assessee. Sr. No. Name of Party Description Amount 1. CEPT Stund Council Sponsorship for CEPT Annual Festival Roots 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 5,32,500/-, this amount of ₹ 1,75,000/- is deleted and remaining amount of ₹ 3,57,500/- is hereby confirmed. This ground is partly allowed. 9.3 Before us, learned AR has placed reliance at Navasari Cotton and Silk Mills, 135 ITR 546 (Guj.). However, we have noticed that in the said case, the contribution to Municipality was for the purpose of lying under ground pipelines in municipal land; therefore, to create a good will the assessee had contributed the amount in question. On those facts, the Hon ble Court has held that the amount contributed was allowable as business expenditure; however, as against that the assessee s explanation is that merely to create good image in the locality the expenditure was incurred. However, the assessee has not established that the expenditure was incurred either in the course of the business or in any way it was incidentally to the business. The assessee had not procured any business from the Corporation. We have also noted that the assessee had failed to produce the requisite certificate before the AO. The assessee has submitted an alternative plea that in the business of 80G Certificate the expenditure of donation would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the assessee. The matter was carried before the First Appellate Authority who has affirmed the action of the AO. 10.2 Heard both the sides. The assessee has furnished the copy of the contract and on that basis tried to explain that following the AS7, as issued by Institute of Chartered Accountants, the assessee was not required to declare profit at percentage completion method considering the nature of project in hand. According to us, the AO has estimated a notional profit on work in progress without analyzing the situation that the assessee has regularly offered the tax, on each project, as and when it was required as per law. We are, therefore, not in favour to tinker with the regular method adopted by the assessee in the regular course of business. The view taken by the lower authorities is hereby reversed and this ground is allowed. 11. Ground No.11 is reproduced below: The learned Commissioner of Income-tax (Appeals) erred in law and on facts in confirming the disallowance of ₹ 1,35,557/- being the expenditure incurred towards replacement of defective meters holding such expenditure as capital in nature and not related to maintenance of meters. Your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to be decided accordingly. Ground may be treated as allowed for statistical purpose only. 12. Ground No.12 is reproduced below: The learned Commissioner of Income-Tax (Appeals) erred in law and on facts in upholding the method of set off of Long Term Capital Losses as done by the learned Assessing Officer whereby the first sets off the Long Term Capital Loss against the Long Term Capital Gain as opposed to the claim of the appellant for adjusting the Long Term Capital Loss firstly against the Short Term Capital Gain. Your appellant submits that it is entitled to the above method of set off as there is no bar implicit or explicit in the provisions of the Act against the same. Your appellant submits that it be so held now and the set off of the Long Term Capital Loss of ₹ 93,33,608/- be allowed first against Short Term Capital Gain of ₹ 93,33,194/-. 12.1 The company had shown Long Term Capital Loss of ₹ 93,33,608/-. Simultaneously, the assessee had shown Short Term Capital Gain of ₹ 93,33,194/-. The company had adjusted the Long Term Capital Gain against the Short Term Capital Gain . Reliance was placed on the provisions of Section 74 r.w.s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60/- in respect of F.Ds. made with various Government Authorities. The income corresponding to these trade debts were offered for taxation in the earlier years. Your appellant further submits that all these accounts have been written off as bad in the books of the appellant during the year under consideration and are genuine claims. Your appellant thus fulfills the conditions laid down u/s.36(1)(vii) read with section 36(2) for getting the deduction of the bad debts. Without prejudice to the above, your appellant submits that the amount of ₹ 2,60,960/- which is in respect of F.Ds. written off be considered to be a trading loss and may be allowed u/s.28/29 of the I.T. Act. It is submitted that it be so held now and the disallowance confirmed be deleted. 13.1 While deciding Ground No.2 in A.Y. 2002-03 hereinabove, vide paragraph 2.2 we have restored the issue of bad debts back to the file of the AO for readjudication. On the same lines, it is hereby directed to decide as per law hence this ground may be treated allowed for statistical purpose only. 14. Ground No.2 is reproduced below: 2. The learned Commissioner of Income-tax (Appeals) erred in law and on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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