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2014 (5) TMI 1135 - AT - Income TaxDisallowance u/s 14A computation - Held that - We are also of the view that the basic facts about the details of the investment as well as the source of the investment in shares and mutual funds for the purpose of earning exempted dividend has not been properly explained to the lower authorities. As decided in assessee s own case for A.Y. 1998-99 and 2001-02 wherein as well the matter was restored for reconsideration as per law as relied upon Hero Cycle 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT wherein it was observed that disallowance u/s.14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred disallowance u/s.14A could not be made. Consistent with the view taken in the past by the Tribunal in assessee s own cases we deem it proper to restore this ground back to the stage of the AO to be decided denovo after taking into account the latest decisions on the issue of the applicability provisions of Section 14A. The AO is required to examine the balance-sheet and related accounts of the assessee so as to see whether there was investment in shares/mutual funds out of the borrowed funds or non borrowed funds. In the light of the above directions this ground of the assessee may be treated as allowed for statistical purpose only. Depreciation on the assets leased back to Rajasthan Electricity Board (RSBB) is to be allowed as per law. Expenditure in respect of a sale of a capital asset - allowable Revenue expenditure u/s.37 - Held that - The accepted factual position was that the LPG Division was sold by the assessee in earlier years as a slump sale . We have been informed that on sale of the said LPG Division the assessee had offered to tax a capital gain in the past. The assessee s only argument is that the additional stamp duty was demanded in the year under consideration therefore the liability had crystallized during the year; hence allowable only in this year. We are not convinced with the argument of learned AR because under the provisions of Section 37 of IT Act an expenditure which is incurred wholly and exclusively for the purpose of the business can be allowed as an expenditure. The expenditure of additional stamp duty being not an expenditure for the purpose of the business of the assessee but pertained to a capital gain which was shown in the past years therefore not to be allowed u/s.37 of IT Act for the year under consideration. Expenditure for acquiring license to use software applications would be applicable as Revenue expenditure. Adjustment of capital gain - whether a short term capital gain/loss can be adjusted against the long term capital gain/loss - Held that - We are of the view that the long term capital gain is to be adjusted against the long term capital loss and likewise the short term capital gain is to be adjusted first against the short term capital loss. The provisions of the Act has prescribed the intra-head adjustments therefore the Revenue Authorities have correctly held that the appellant had wrongly adopted the method of adjustment of capital gain. Further we have also noted that although not in the ground of appeal the question of cost as per index cost was directed to be computed by AO as per Section 48 vide paragraph 16.2.1 of the order of learned CIT(A). Therefore the assessee should not have any grievance in this regard. This ground of the Assessee is hereby dismissed.
Issues Involved:
1. Disallowance of interest and administrative expenses under Section 14A of the Income Tax Act. 2. Disallowance of bad debts/advances written off. 3. Disallowance of depreciation on assets leased back to Rajasthan State Electricity Board (RSEB). 4. Disallowance of brokerage charges. 5. Disallowance of sundry debit balances written off. 6. Disallowance of additional stamp duty as capital expenditure. 7. Disallowance of fees paid for due diligence. 8. Disallowance of software licenses and software development expenses. 9. Disallowance of donation expenses. 10. Estimation of profit on work in progress for Mahanagar Gas Project. 11. Disallowance of expenditure on replacement of defective meters. 12. Method of set off of Long Term Capital Losses. Detailed Analysis: 1. Disallowance of Interest and Administrative Expenses under Section 14A: The assessee challenged the disallowance of Rs. 5,17,07,000/- out of interest payment and Rs. 3,60,000/- out of administrative expenses. The AO invoked Section 14A, disallowing expenses incurred for earning exempt dividend income. The CIT(A) upheld the AO's decision, noting that the assessee had taken loans for investments in shares/mutual funds. The Tribunal restored the issue to the AO for re-computation as per statutory provisions, emphasizing the need to examine whether investments were made from borrowed or non-borrowed funds. 2. Disallowance of Bad Debts/Advances Written Off: The AO disallowed Rs. 36,71,471/- claimed as bad debts, stating the assessee failed to meet conditions under Section 36(1)(vii) read with Section 36(2). The CIT(A) upheld this view. The Tribunal, consistent with past decisions, restored the issue to the AO for reconsideration, allowing the assessee to furnish relevant evidence. 3. Disallowance of Depreciation on Assets Leased Back to RSEB: The AO disallowed depreciation of Rs. 69,99,834/- on assets leased to RSEB, viewing the transaction as a tax avoidance tool. The CIT(A) and past Tribunal decisions supported the AO. However, the Tribunal, following jurisdictional High Court and Tribunal decisions, directed the AO to allow the depreciation as claimed by the assessee. 4. Disallowance of Brokerage Charges: The assessee did not contest the disallowance of Rs. 13,150/- and Rs. 46,200/- for brokerage on the sale of properties, leading to dismissal of this ground. 5. Disallowance of Sundry Debit Balances Written Off: The AO disallowed Rs. 10,01,542/- claimed as write-offs, viewing them as capital losses. The CIT(A) upheld this view. The Tribunal agreed, noting the deposits were capital in nature and not business losses. However, it allowed write-off of accrued interest if previously taxed. 6. Disallowance of Additional Stamp Duty as Capital Expenditure: The AO disallowed Rs. 3,26,171/- for additional stamp duty on the sale of an LPG Bottling Plant, treating it as capital expenditure. The CIT(A) upheld this view. The Tribunal agreed, stating the expenditure related to a past capital gain, not current business expenses. 7. Disallowance of Fees Paid for Due Diligence: The AO disallowed Rs. 8,30,017/- for due diligence fees, treating it as capital expenditure. The CIT(A) upheld this view. The Tribunal reversed this, recognizing the expenditure as necessary for business expansion and allowable under Section 37. 8. Disallowance of Software Licenses and Software Development Expenses: The AO treated Rs. 22,36,196/- spent on software as capital expenditure, allowing depreciation at 25%. The CIT(A) agreed. The Tribunal reversed this, treating the expenditure as recurring and necessary for business, thus allowable as revenue expenditure. 9. Disallowance of Donation Expenses: The AO disallowed Rs. 5,32,500/- in donations, lacking 80G certificates. The CIT(A) partially allowed relief, deleting Rs. 1,75,000/-. The Tribunal upheld the disallowance, noting the expenses were not proven to be wholly and exclusively for business purposes. 10. Estimation of Profit on Work in Progress for Mahanagar Gas Project: The AO estimated a 10% profit on work in progress, adding Rs. 16,79,700/-. The CIT(A) upheld this. The Tribunal reversed this, accepting the assessee's regular accounting method. 11. Disallowance of Expenditure on Replacement of Defective Meters: The AO disallowed Rs. 1,35,557/- for meter replacement, viewing it as capital expenditure. The CIT(A) upheld this. The Tribunal restored the issue to the AO for fresh consideration, requiring evidence of actual replacement and sale as scrap. 12. Method of Set Off of Long Term Capital Losses: The AO adjusted Long Term Capital Loss against Long Term Capital Gain, not Short Term Capital Gain as claimed by the assessee. The CIT(A) upheld this. The Tribunal agreed, stating intra-head adjustments as per the Act were correctly applied by the Revenue Authorities. B. A.Y. 2003-04 (ITA 4487/Ahd/2007): 13. Disallowance of Bad Debts/Advances Written Off: Following the decision for A.Y. 2002-03, the Tribunal restored the issue to the AO for re-adjudication. 14. Estimation of Profit on Work in Progress for Mahanagar Gas Project: Following the decision for A.Y. 2002-03, the Tribunal allowed the assessee's method of accounting. Conclusion: The appeals were partly allowed, with several issues remanded to the AO for reconsideration as per law.
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