TMI Blog2017 (7) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AO pursuant to the restoration of the matter by the ld. CIT(A) for computing disallowance u/s 14A on some reasonable basis. As per this order dated 30.3.2013, the AO has computed the fresh disallowance at ₹ 2 lac. In our considered opinion, the sustenance of disallowance at this level is quite reasonable, which does not require any further interference. Disallowance of remaining expenses - Held that:- AO made disallowance of ₹ 16.12 crore simply by means of a mathematical exercise carried out by him. If he found the expenditure incurred by the assessee to be on higher side, it was incumbent upon him to specifically point out as to which expenses were not incurred for the purposes of business. No such exercise worth the name has been carried out. In our considered opinion, the ld. CIT(A) was fully justified in deleting this addition made by the AO on ad hoc basis. This ground is, therefore, not allowed. Disallowance of depreciation allowable on licence to use software @ 60% and not at 25% - Held that:- Once it is found that the software used by the assessee were of standard nature to be used in computer hardware and not meant for any independent usage, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r making an itemwise analysis of the nature of expenses claimed by the assessee under this head and, thereafter, make disallowance, to the extent permissible as per law. Disallowance of receipt of advances - Held that:- The assessee was following matching principle in recording income as well as expenses under the mercantile system of accounting. Paper book indicates that not only the income pertaining to the succeeding year, but, received in the year under consideration was taken as deferred revenue income, but, the expenditure incurred during the year not pertaining to the year under consideration, was also similarly accounted for. This unearned income of ₹ 1.55 crore was taken as income for the succeeding year and accepted by the Revenue as such in the assessment u/s 143(3) of the Act. In view of the fact that this income did not pertain to the year under consideration, we hold that the ld. CIT(A) was justified in deleting this disallowance. - ITA no. 2333/Del/2011, ITA Nos.2986, 4130, And 4132/Del/2011 - - - Dated:- 21-10-2016 - SHRI R.S. SYAL, ACCOUNTANT MEMBER, AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER For The Assessee : Shri Salil Agarwal, Advocate Shri Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lessor company to the effect that the premises were, in fact, handed over to the assessee on 1.4.2005, it was incumbent upon the authorities either to accept this proposition or rebut the same with some cogent reasons. No such rebuttal has been done in the instant case. In our considered opinion, the user of the premises by the assessee for a full period of one year coupled with the fact of having made payment of rent for similar period, clearly entitle the assessee to deduction of the rent for the whole of the year. The impugned order is set aside to this extent. We allow this ground of appeal. 5. Ground no. 2 of the assessee s appeal and also of the Revenue s appeal are against the disallowance u/s 14A of the Income-tax Act, 1961 (hereinafter also called `the Act ). The facts of this ground are that the assessee earned exempt dividend income of ₹ 2,06,02,786/-. On being called upon to explain as to why no disallowance u/s 14A was offered, the assessee submitted that it had not incurred any direct expenditure to earn the tax free dividend income. The AO noticed that the assessee did not maintain any separate details of expenses incurred for investing in the units ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before invoking the mandate of Rule 8D, we have no hesitation in holding that the AO properly recorded the satisfaction in terms of sub-sections (2) and (3) of Section 14A. On a hypothetical basis and for a minute presumably accepting the argument of the ld. AR that the AO did not record any satisfaction, we find that the ld. CIT(A) repeated such satisfaction and made good the deficiency. In this view of the matter, there cannot be any embargo on the making of disallowance u/s 14A of the Act. 9. In so far as the contention of the ld. AR about the Department not filing any appeal against the deletion of similar disallowance for the assessment year 2005-06 before the Tribunal and, hence, the entire disallowance be deleted, in our considered opinion, is no more a valid proposition in view of the insertion of section 268A by the Finance Act, 2008 with retrospective effect from 1.4.1999. Sub-sections (2) and (3) of this section read as under :- `(2) Where, in pursuance of the orders, instructions or directions issued under sub-section (1), an income-tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in Maxopp Investments Ltd. Vs. CIT (2012) 347 ITR 272 (Del), has held that the provisions of Rule 8D are applicable only from the assessment year 2008-09. It has further been held that in the period anterior to that, the disallowance is required to be made on some `reasonable basis . In view of the judgment of the Hon ble jurisdictional High Court on the point, we cannot approve the view taken by the AO in computing the disallowance u/s 14A as per the mandate of Rule 8D of the Income-tax Rules. 13. In the normal circumstances, we would have set aside the impugned order on this issue and restored the matter to the file of the AO for making disallowance u/s 14A on some `reasonable basis as has been held by the Hon ble jurisdictional High Court in the afore noted case. However, in this case, the ld. AR has placed on record a copy of the consequential order passed by the AO pursuant to the restoration of the matter by the ld. CIT(A) for computing disallowance u/s 14A on some reasonable basis. As per this order dated 30.3.2013, the AO has computed the fresh disallowance at ₹ 2 lac. In our considered opinion, the sustenance of disallowance at this level is quite rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not at all carried on by the assessee, the percentage of expenses increased to 107.8%. The AO inferred that though: there is no income on account of these two businesses to the assessee, but, still, it is incurring expenses for these two businesses. Applying the percentage of expense at 62.8% as relevant for the A.Y. 2004-05, the AO made disallowance for the remaining expenses of ₹ 16,12,31,000/-. This disallowance was deleted in the first appeal. The Revenue is aggrieved against such deletion. 15. Having heard the rival submissions in the light of the material placed on record, it is observed that the AO made the disallowance by retaining the percentage of expenses to the revenue at 62.8%. This was done in accordance with the percentage of expenses incurred by the assessee for the A.Y. 2004-05, when the assessee was having these businesses from its holding company. Such businesses were withdrawn by the holding company from the assessee w.e.f. 1.10.2004. The opinion of the AO that though there was no income to the assessee from these businesses, still it was incurring expenses for them, is unfounded. On a specific query, the ld. DR failed to draw our attention towards an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lain as to why depreciation be not allowed @ 25% as against 60% claimed by the assessee on the ground that such expenditure was for acquisition of licence, the assessee contended that these were standard software meant for use in the computer hardware. Not convinced, the AO restricted depreciation on such software at 25% per annum. This resulted into disallowance at ₹ 32,79,872/-. The ld. CIT(A) deleted this addition. 20. Having heard the rival submissions and perused the relevant material on record, we find that the assessee explained to the ld. CIT(A) vide its written submission, whose copy is available on record, that the software used by the assessee were of standard nature meant for use in the computer hardware and had no independent utility or usage. The ld. DR has not controverted the reasoning by the ld. CIT(A) in deleting the addition. Once it is found that the software used by the assessee were of standard nature to be used in computer hardware and not meant for any independent usage, such software qualify for depreciation @ 60%. Appendix I to the Income-tax Rules under the broader head III Machinery and plant at Sl. no. (5) provides : Computers including co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 443/- on account of expenses towards Telecom web support. The assessee claimed expenditure on Telecom web support at ₹ 1.16 crore towards provision for copyright RTS made to M/s Virtual Marketing Pvt. Ltd. and ₹ 5.31 crore towards provision for copyright RTS to Sound Buzz India Pvt. Ltd., which amount was treated as revenue. The AO capitalized such expenditure totaling to ₹ 6.48 crore. After allowing depreciation @ 12.5%, he made disallowance for the remaining sum of ₹ 5.67 crore. The ld. CIT(A) deleted the addition. The Revenue is in appeal against such deletion. 26. After considering the rival submissions and perusing the relevant material on record, it is noticed that the AO treated the expenditure of ₹ 6.48 crore as capital by noting that it was a provision for copyright. The assessee submitted before the ld. CIT(A), whose copy is available on record, that it started a new business by the name of telecom web service during the preceding year. Receipts from this business were classified under the head Revenue from SMS services. The revenue from this service was earned to the tune of ₹ 22.33 crore for the year under consideration. This Tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails. 29. Ground no. 9 is against the deletion of disallowance of ₹ 20,82,501/- comprising of capital expenditure in relation to computers, furniture, fixtures, etc. The factual matrix of this ground is that the assessee, inter alia , incurred expenditure of ₹ 6,51,000/- in relation to computers. The AO capitalized such expenditure and, after allowing depreciation @ 60%, made addition of ₹ 4,55,700/-. Similarly, the assessee claimed Repairs of furniture and fixtures to the tune of ₹ 17,12,422/-. After allowing depreciation, the AO made disallowance for a sum of ₹ 16,26,801/-. This resulted into total disallowance of ₹ 20,82,501/-. The ld. CIT(A) deleted this addition. 30. After considering the rival submissions and perusing the relevant material on record, we find that the first component of the disallowance made by the AO is a sum of ₹ 4,55,700/- which is the expenditure claimed by the assessee under the head Computer repairs. A detail of such expenditure is available on page 562 of the paper book from which it can be seen that this amount represents AMC charges of computers. Annual maintenance cost is undoubtedly revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 1.55 crore was taken as income for the succeeding year and accepted by the Revenue as such in the assessment u/s 143(3) of the Act. In view of the fact that this income did not pertain to the year under consideration, we hold that the ld. CIT(A) was justified in deleting this disallowance. 34. In the result, the appeal of the assessee is partly allowed and that of the Revenue is partly allowed for statistical purposes. Assessment Year 2007-08 35. This appeal filed by the Revenue is directed against the order passed by the CIT(A) on 6.6.2011. The appeal of the Revenue for the A.Y. 2006-07 was extensively argued by both the sides and it was fairly admitted that the facts and circumstances of the instant appeal are, mutatis mutandis , similar to those for the A.Y. 2006-07. In fact, no separate arguments were advanced in respect of the grounds taken for the year in question and the arguments so made for the A.Y. 2006-07 were adopted by the respective sides. We have passed our order for the A.Y. 2006-07 in earlier paras. Following the view taken for the immediately preceding year, the grounds of the Revenue are disposed of as under :- 36. Ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w taken by us for the A.Y. 2006-07 42. Ground no. 7 is against the deletion of disallowance of ₹ 80,140/. This ground is similar to ground nos. 6, 7 and 8 of the Revenue s appeal for the A.Y. 2006-07. Following our view on these grounds in the earlier year, we dismiss this ground of appeal. 43. In the result, the appeal is partly allowed for statistical purposes. Assessment Year 2008-09 44. This appeal filed by the Revenue is directed against the order passed by the CIT(A) on 13.6.2011. The appeal of the Revenue for the A.Y. 2006-07 was thoroughly argued by both the sides and it was fairly admitted that the facts and circumstances of the instant appeal are, mutatis mutandis , similar to those for the A.Y. 2006-07. In fact, no separate arguments were advanced in respect of the grounds taken for the year in question and the arguments so made for the A.Y. 2006-07 were adopted by the respective sides. We have passed our order for the A.Y. 2006-07 in earlier paras. Following the view taken for the immediately preceding year, the grounds of the Revenue for the extant year are disposed of as under :- 45. Ground no. 1 against the deletion of disallowance of ͅ ..... 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