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2010 (9) TMI 1117 - AT - Income Taxdisallowance of expenses - increase of share capital - software expenses - HELD THAT - By placing reliance in the case of Life Insurance Corporation of India vs. CIT 1963 (12) TMI 5 - SUPREME COURT , we find that there is no dispute that assessee company is engaged in the business of Life Insurance and the assessee has filed auditors report supported by actuarial valuation appearing at 1-44 of assessee's paper book, therefore, the provisions of sec. 044 read with rules in the first Schedule to the l apply and the AO has no power to do anything not contained u/s.44 of the Act. The actual computation of profits and gains of insurance business shall have to be computed in accordance with Rule-5 of the First Schedule. In the light of these special provisions having non obstante clause, the AO is not permitted to travel beyond these provisions and accordingly the disallowance of ₹ 11.00 lacs on account of expenses for increase of share capital and ₹ 2,65,112/- of software expenses made by the AO and sustained by the ld. CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed.
Issues Involved:
1. Disallowance of expenses under section 14A for dividend income. 2. Disallowance of expenses for increase of share capital. 3. Disallowance of software expenses. Analysis: Issue 1: Disallowance of expenses under section 14A for dividend income - The assessee, engaged in life insurance business, filed a return declaring a total loss. The assessment disallowed expenses incurred on dividend income, increase of share capital, and software expenses. - The Assessing Officer disallowed expenses of Rs. 30,18,496 for earning dividend income under section 14A, which was upheld by the ld. CIT(A). - The Tribunal, considering previous decisions, held that the Assessing Officer cannot go beyond the provisions of sec. 44 and Schedule-I to make disallowances under sec. 14A. - The Tribunal deleted the disallowance of Rs. 30,18,496, as it was not permissible for the Assessing Officer to apply sec. 14A in this case. Issue 2: Disallowance of expenses for increase of share capital - The Assessing Officer disallowed expenses of Rs. 11.00 lacs for the increase in authorized capital, which was added to the total income of the assessee. - The ld. CIT(A) upheld this disallowance, rejecting the assessee's claim under sec. 44 of the Act. - The Tribunal, citing the Supreme Court judgment in Life Insurance Corporation of India case, held that the Assessing Officer cannot go beyond the provisions of sec. 44 to make such disallowances. - The disallowance of Rs. 11.00 lacs for the increase of share capital was deleted by the Tribunal. Issue 3: Disallowance of software expenses - The Assessing Officer disallowed software expenses of Rs. 2,65,112 as capital expenditure for bringing in an intangible asset. - The ld. CIT(A) confirmed this disallowance, following a decision of the Rajasthan High Court. - The Tribunal, considering the special provisions for computing profits in the insurance business under sec. 44, ruled that the disallowance of software expenses was not permissible. - The disallowance of software expenses was deleted by the Tribunal. In conclusion, the Tribunal allowed the assessee's appeal, deleting the disallowances made by the Assessing Officer and upheld by the ld. CIT(A) regarding expenses related to dividend income, increase of share capital, and software expenses. The Tribunal emphasized the limitations on the Assessing Officer's authority to make such disallowances beyond the specific provisions of the Income Tax Act.
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