TMI Blog2017 (12) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... O. towards disallowance of amortization of software expenditure. Therefore, we are of the view that the ground raised by the Revenue challenging deletion made by the CIT(A) becomes infructuous and hence the same is dismissed. - ITA No. 506/Coch/2016 - - - Dated:- 14-12-2017 - Shri George George K, JM And Shri Manjunatha G, AM Appellant by : Sri. A. Dhanaraj, Sr. DR Respondent by : Sri. Mathew Joseph, CA ORDER Per Manjunatha G, AM This appeal filed by the Revenue is directed against the order of the Commissioner of Income-tax (A)-I, Cochin, dated 30th September, 2016 and it pertains to assessment year 2009-2010. 2. The Revenue has raised the following grounds of appeal:- A. The order of the Commissioner of Income tax (Appeals)-I, Kochi, in appeal No: ITA-84/R- 1/E/CIT(A)-II/2011-2012 dated 30.09.2016, is opposed to law, weight of evidence, facts and circumstances of the case. In the facts and circumstances of the case 1. the learned Commissioner of Income Tax (Appeals) erred in holding that the disallowance u/s 14A of ₹ 25,65,496/- is unjustified. 1.2 the learned Commissioner of Income Tax (Appeals)-I, Kochi is not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance of expenditure incurred in relation to exempt income, on the ground that the A.O. was erred in disallowance interest expenditure under Rule 8D(2)(ii) without appreciating the fact that the assessee has invested in shares of subsidiary companies out of its own funds and no interest bearing fund has been diverted. Insofar as the disallowance of amortization of software development expenses, the assessee has submitted that the A.O. has erred in disallowing amortization software expenses without appreciating the fact that the assessee has developed in-house software and the life of the software is expected to go five years. Therefore, the assessee has rightly amortized 1/5th software development expenses. The CIT(A) after considering the relevant submission of the assessee and relying upon plethora of judicial pronouncements including the decision of the Hon ble Supreme Court in the case of CIT v. Walfort Share Stock Brokers [(2010) 326 ITR 1 (SC)] deleted the addition made by the A.O. towards disallowance of expenditure incurred in relation to exempt income u/s 14A, by holding that the assessee has demonstrated with clear evidences that interest paid to term loan and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer disallowed a portion of the interest alleging that the loan funds were used for investment. Interest expenses comprises of interest on term loan and cash credit and such loans have been used for acquisition of fixed assets as well as working capital requirements. Therefore, there is no reason for A.O. to disallow interest by invoking Rule 8D(2)(ii). Insofar as the disallowance of 0.5% of average value of investment towards expenditure is concerned, the A.O. without considering any nexus between the expenditure incurred in relation to exempt income, disallowed 0.5% of average value of investment, despite the fact that the assessee has proved beyond doubt that there is no specific expenditure incurred to earn exempt income. 8. We have heard the rival submission and considered the material on record. The A.O. disallowed the expenditure in relation to exempt income u/s 14A by invoking Rule 8D(2)(ii) of the Income-tax Rules, 1962. According to the A.O., from the assessment year 2008-2009 onwards disallowance contemplated u/s 14A is mandatory in nature and also to work out such disallowances a prescribed methodology rule provided under Rule 8D of the Income-tax Rules, 1962. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The window for disallowance for invoking the provisions of section 14A is only to the extent of disallowing expenditure incurred by the assessee in relation to the exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount. In this case, admittedly, the assessee has earned dividend income of ₹ 4,000 from investment in shares of Canara Bank, whereas the A.O. has determined disallowance of expenditure at ₹ 3,23,520. Therefore, we are of the view that the disallowance determined u/s 14A cannot exceed the exempt income. This legal proposition is supported by the decision of the Hon ble Delhi High Court in the case of Joint Investment Private Limited v. CIT [(2015) 372 ITR 694 (Del.)], wherein it was observed as under:- 9. In the present case, the O has not firstly disclosed why the appellant / assessee s claim for attributing ₹ 2,97,440 as a disallowance under s.14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee s claim or explanation. The second aspe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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