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2017 (11) TMI 1715 - AT - Income TaxDisallowance u/s 14A in respect of expenditure incurred for setting up STPI unit at Chennai - contention of the assessee that no disallowance can be made u/s 14A, when there is no exempt income - Held that - As decided in the case of Cheminvest Ltd vs CIT 2015 (9) TMI 238 - DELHI HIGH COURT has observed that when there is no exempt income, disallowance of expenditure u/s 14A cannot be made. Therefore, we direct the AO to delete addition made towards expenditure incurred for setting up of STPI unit u/s 14A of the Act. We further direct the AO to delete adjustment made towards book profit computed u/s 115JB of the Income-tax Act, 1961. As a result, grounds raised by the assessee are allowed. Nature of expenditure - Disallowance of expenditure incurred in respect of legal and professional fees and stamp duty - expenditure incurred is in the nature of capital expenditure OR revenue expenditure - Held that - We find that the expenditure incurred is in the nature of professional expenditure for Oracle migration and accounting software for STPI unit and annual membership fees paid to STPI, a government of India undertaking are in the nature of recurring expenditure which does not give any enduring benefit to the assessee. Stamp duty incurred for registration of lease agreement is also revenue expenditure irrespective of period of lease. This legal proposition is supported by the decision in the case of CIT vs Cinecita (P) Ltd 1982 (2) TMI 58 - BOMBAY HIGH COURT wherein it was held that expenditure on registration fee, stamp duty and solicitor s fee incurred in connection with registration of lease deed is revenue expenditure irrespective of period of lease. Therefore, we are of the view that the AO was erred in treating the expenditure as capital in nature. Also AO has made addition towards total expenditure incurred for setting up of STPI unit at Chennai u/s 14A and also made separate addition towards capital expenditure. Though relief is granted in the rectification order dated 10- 03-2011, there is no clarity on the issue as to whether the relief was allowed towards addition made u/s 14A or addition made under the head legal and professional charges . Therefore, we are of the view that the issue needs to be re-examined by the AO and hence, we set aside the issue to the file of the AO and direct him to give a finding as to whether relief is given towards addition made under the head legal and professional charges or disallowance u/s 14A of the Act. TDS u/s 194C/194J - professional fees, purchase of samples, hall hire charges and food charges for failure to deduct tax at source - According to the assessee, all these expenses are reimbursement of expenditure incurred by third parties on behalf of the assessee without any profit element - Held that - . Though the assessee claims to have reimbursed the expenditure, on perusal of the details filed by the assessee it appears that most of the expenditure like hall hire charges and food charges are incurred for the purpose of conducting interview are directly incurred by the assessee. Insofar as reimbursement of interview charges to certain parties, the assessee has filed some confirmation letters to prove that these are reimbursement of expenses. Therefore, we are of the view that the issues need to be re-examined by the AO afresh; hence we set aside the issue to the file of the AO and direct him to consider the issue afresh after affording an opportunity to the assessee. Set off of business loss - Held that - As pre condition of continuation of business has been dispensed by the Finance Bill, 1999 and, therefore, the provisions of section 72 would be applicable but not provisions of section 71 as held by the AO and the first appellate authority. We are of the view that the AO was erred in restricting set off of brought forward business losses; hence, we direct the AO to allow brought forward losses as claimed by the assessee. Disallowance of miscellaneous hardware expenditure - revenue or capital expenditure - depreciation claim - Held that - We find force in the arguments of the assessee for the reason that once a particular expenditure has been disallowed as capital expenditure, the AO is bound to allow depreciation allowable on such capital expenditure as per the provisions of the Act. Therefore, we direct the AO to allow depreciation on miscellaneous hardware expenditure treated as capital expenditure. Hence, the ground of assessee is dismissed. MAT computation - adjustments towards provision for fringe benefit tax for book profits computed u/s 115JB - Held that - We find that though the assessee has taken a ground on the issue, on perusal of the assessment order of AO as well as directions of the DRP u/s 144(5), the AO has not made any adjustments to book profit computed u/s 115JB of the Act. The AO has accepted book profit computed by the assessee without any modification except addition made u/s 14A in respect of expenditure incurred for STPI unit at Chennai. Therefore, we are of the view that the issue is not emanating from the orders of lower authorities; hence, there is no merit in the ground raised by the assessee.
Issues Involved:
1. Disallowance under section 14A. 2. Disallowance of legal and professional fees and stamp duty expenses. 3. Disallowance under section 40(a)(ia). 4. Restriction of set-off of business loss. 5. Disallowance of miscellaneous hardware expenses and depreciation. 6. Adjustment for Fringe Benefit Tax in book profits. 7. Non-granting of credit for tax deducted at source and advance tax paid. Issue-wise Detailed Analysis: 1. Disallowance under section 14A: The first issue pertains to the disallowance of ?2,24,57,168 under section 14A for expenditure incurred in setting up the STPI unit at Chennai. The AO disallowed the expenditure, stating that the auditor quantified the disallowance and the assessee did not provide an explanation. The assessee argued that no exempt income was generated, and the STPI unit had not commenced operations, thus no deduction under section 10A was claimed. The Tribunal found merit in the assessee's arguments, citing the Delhi High Court's decision in Cheminvest Ltd vs CIT, which held that disallowance under section 14A cannot be made in the absence of exempt income. Consequently, the Tribunal directed the AO to delete the disallowance and the corresponding adjustment to book profits under section 115JB. 2. Disallowance of legal and professional fees and stamp duty expenses: The next issue involved the disallowance of ?10,12,848 for legal and professional fees and ?12,74,100 for stamp duty, treating them as capital expenditure. The assessee contended that these were revenue expenditures. The Tribunal agreed, noting that the expenses were for Oracle migration and membership fees to STPI, which did not provide enduring benefits. The Tribunal also referenced the Bombay High Court's decision in CIT vs Cinecita (P) Ltd, which classified similar expenditures as revenue. However, due to a lack of clarity on whether relief was granted for these expenditures or under section 14A, the Tribunal remanded the issue to the AO for re-examination. 3. Disallowance under section 40(a)(ia): The third issue involved the disallowance of ?16,13,260 under section 40(a)(ia) for non-deduction of tax at source on various expenses. The assessee argued that these were reimbursements, not subject to TDS, citing the Supreme Court's decision in GE India Technology Centre (P) Ltd vs CIT. The Tribunal found the arguments reasonable but noted that the facts were unclear and remanded the issue to the AO for fresh examination. 4. Restriction of set-off of business loss: The fourth issue concerned the restriction of set-off of business loss to ?4,27,10,713 against the claimed ?10.51 crores. The Tribunal referenced its earlier decision in the assessee's case, which held that the pre-condition of business continuation was dispensed with by the Finance Bill, 1999. Thus, the Tribunal directed the AO to allow the set-off as claimed. 5. Disallowance of miscellaneous hardware expenses and depreciation: The fifth issue involved the disallowance of ?8,61,215 for miscellaneous hardware expenses, treated as capital expenditure. The assessee did not press this ground but requested depreciation if treated as capital expenditure. The Tribunal directed the AO to allow depreciation accordingly. 6. Adjustment for Fringe Benefit Tax in book profits: The sixth issue related to the non-reduction of ?7,50,000 for Fringe Benefit Tax while computing book profits under section 115JB. The Tribunal found no adjustments made by the AO in this regard and deemed the ground without merit. 7. Non-granting of credit for tax deducted at source and advance tax paid: The final issue involved the non-granting of credit for TDS and advance tax paid. The Tribunal noted that the AO had allowed these credits in a rectification order, rendering the grounds not pressed. Conclusion: The appeal was partly allowed for statistical purposes, with several issues remanded to the AO for re-examination and others decided in favor of the assessee. The Tribunal provided detailed directions on each issue, ensuring clarity and adherence to legal precedents.
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