2013 (9) TMI 1096 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 14A of the Income Tax Act.
2. Disallowance of software license expenses as capital expenditure.
3. Disallowance u/s 40(a)(ia) for non-deduction or short-deduction of tax at source.

Summary:

1. Disallowance u/s 14A of the Income Tax Act:
The first issue pertains to the disallowance u/s 14A of the Act. The assessee earned exempt dividend income but did not show any inadmissible expenditure against it. The Assessing Officer (AO) applied Rule 8D of the Income Tax Rules, 1962, and disallowed Rs. 1,15,20,158/-. The CIT(A) set aside this application, noting that Rule 8D was applicable only from the assessment year 2008-09 as per the Bombay High Court judgment in Godrej Boyce Mfg. Co. Ltd. vs. DCIT. The CIT(A) directed the AO to recompute the disallowance, ensuring it was not less than Rs. 20,96,382/-, which the assessee had offered. The Tribunal upheld the CIT(A)'s decision to not invoke Rule 8D but found the assessee's computation of Rs. 20,96,382/- reasonable and directed the AO to disallow this amount.

2. Disallowance of Software License Expenses as Capital Expenditure:
The second issue involves the disallowance of Rs. 33,85,562/- for software licenses, treated as capital expenditure by the AO. The CIT(A) allowed Rs. 3,86,545/- as revenue expenditure and treated the remaining Rs. 33,85,562/- as capital expenditure. The Tribunal, referencing the Bombay High Court judgment in CIT vs. Raychem RPG Ltd., concluded that Rs. 23,08,305/- for 'Office pro win 32 Licenses' should be considered revenue expenditure as it facilitated trading operations. The remaining Rs. 10,77,255/- was deemed capital expenditure as it pertained to manufacturing activities.

3. Disallowance u/s 40(a)(ia) for Non-Deduction or Short-Deduction of Tax at Source:
The third issue concerns the disallowance of Rs. 39,22,912/- u/s 40(a)(ia) for non-deduction of tax at source. The Tribunal addressed several components:
- Director Sitting Fees: The Tribunal, following its earlier decision, held that no tax was required to be deducted u/s 194J, thus deleting the disallowance.
- Testing Inspection Fees: The Tribunal upheld the deduction under Section 194C, not 194J, and deleted the disallowance.
- Crane Hire Charges: The Tribunal found the tax was correctly deducted u/s 194C, not 194J, and deleted the disallowance.
- Die Repairs and Motor Rewinding Expenses: The Tribunal noted that Section 40(a)(ia) applies to non-deduction, not short-deduction of tax, and set aside the disallowance.

Conclusion:
The appeal was partly allowed, with the Tribunal providing specific directions on each issue. The order was pronounced on 30th September 2013.