2010 (10) TMI 689 - AT - Income Tax

Disallowance -software maintenance - the issue relating to the treatment of expenditure of Rs.17,62,000/- incurred by the assessee towards software expenditure has to go back to the file of the Assessing Officer for fresh adjudication in the light of the decision of the Special Bench of the Tribunal in the case of Amway Enterprises (2008 -TMI - 64346 - ITAT DELHI-C). Accordingly, this issue is restored to the file of the Assessing Officer for fresh adjudication in accordance with law and after giving due opportunity of being heard to the assessee. interest charged u/s 234C - tax can be levied on income which has been received by the assessee or accrued to it. Tax cannot be levied on an assessee on the ground that other person would have paid to bank higher rate of interest. By saving of income by a third party, the assessee, in our opinion, cannot be liable to pay tax. In this view of the matter and in view of acceptance of the order of the CIT(A) by the revenue on this issue in the preceding year, the order of the CIT(A) on this issue is upheld - the appeal filed by the revenue is partly allowed for statistical purpose.

Summary

Issues:
1. Disallowance of repair and maintenance expenses
2. Disallowance of club membership fees
3. Deletion of interest charged under section 234C
4. Addition of notional interest

Issue 1: Disallowance of repair and maintenance expenses
The Assessing Officer disallowed various repair and maintenance expenses as capital in nature, leading to a total disallowance of Rs. 1,59,09,572. The CIT(A) held some expenses as revenue and some as capital. The ITAT held that the software expenditure issue needed fresh adjudication based on a Special Bench decision. However, following their earlier decision, they held the remaining repair expenses as revenue in nature, partly allowing the revenue's appeal.

Issue 2: Disallowance of club membership fees
The revenue challenged the deletion of disallowance of club membership fees. The ITAT found this issue identical to a previous year's decision and dismissed the revenue's ground, maintaining consistency in their decision.

Issue 3: Deletion of interest charged under section 234C
The CIT(A) deleted the interest charged under section 234C, citing the absence of a direction in the assessment order. However, the ITAT allowed the revenue's appeal, following the consistent view that interest under section 234C is mandatory and consequential.

Issue 4: Addition of notional interest
The Assessing Officer added notional interest foregone on inter-corporate deposits to the total income, which the CIT(A) deleted. The ITAT upheld the CIT(A)'s decision, emphasizing that tax cannot be levied on an assessee based on what another party might have paid, leading to the dismissal of the revenue's ground.

In summary, the ITAT partly allowed the revenue's appeals for statistical purposes, addressing various disallowances and additions, emphasizing the distinction between revenue and capital expenditures and ensuring consistency in their decisions based on legal precedents and interpretations of tax laws.