2013 (9) TMI 119 - AT - Income Tax

Disallowance u/s 14A - Held that - The Assessing Officer while making the disallowance under section 14A has worked out the disallowance as per rule 8D of the Income-tax Rules, 1962 which according to the decision in the case of Godrej and Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT is not applicable for the assessment year 2007-08. However, before the learned Commissioner of Income-tax (Appeals) the assessee has filed working of disallowance under section 14A amounting to Rs. 31,69,778. The learned Commissioner of Income-tax (Appeals) in violation to rule 46A of the Income-tax Rules, 1962 and without giving any finding on the examination of the working given by the assessee has accepted the working submitted by the assessee. Therefore, in the interest of justice, it is fair and reasonable that the matter should go back to the file of the Assessing Officer and accordingly we set aside the order passed by the Revenue authorities on this account and restore the same to the file of the Assessing Officer to examine the same afresh - Decided in favour of assessee. Disallowance of service tax under section 43B of the Act. - Held that - as per the law prevailing during the previous year, the liability to pay the same arises only on receipt by the assessee. Since the liability to pay service tax does not exist in the present case, the service tax cannot be said to be payable and therefore provisions of section 43B of the Act could not also be invoked - Following the decision in Chowringhee Sales Bureau P. Ltd. v. CIT 1974 (6) TMI 5 - CALCUTTA High Court , Asst. CIT v. Real Image Media Technologies P. Ltd. 2007 (12) TMI 263 - ITAT MADRAS-C decided in favor of assessee. Capital expenditure or revenue expenditure - Held that - In the absence of any contrary material placed on record by the Revenue against the above factual matrix, we are of the view that the Assessing Officer was not justified in treating the maintenance of software expenses as capital expenditure and the learned Commissioner of Income- tax (Appeals) has rightly deleted same. However, it has been agreed by learned counsel for the assessee that if the said expenditure is treated as revenue expenditure, the depreciation is not allowable and he agreed for the disallowance of the same and accordingly to this extent the order passed by the learned Commissioner of Income-tax (Appeals) is modified.

Summary

Issues Involved:
1. Disallowance under section 14A of the Income-tax Act.
2. Disallowance of service tax under section 43B of the Act.
3. Disallowance of payment of software charges.
4. Computation of book profit under section 115JB of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A of the Income-tax Act:
The Assessing Officer (AO) observed that the assessee had earned dividend income, which was exempt under section 10(34) of the Act, and allocated an expenditure of Rs. 1,13,676 against such exempt income. The AO, using section 14A read with rule 8D, computed the disallowance at Rs. 99,56,933. On appeal, the Commissioner of Income-tax (Appeals) (CIT(A)) accepted the assessee's calculation and restricted the disallowance to Rs. 31,69,778. The Tribunal found that the AO's application of rule 8D was not applicable for the assessment year 2007-08 as per the decision in Godrej and Boyce Mfg. Co. Ltd. [2010] 328 ITR 81 (Bom). The Tribunal set aside the order and restored the matter to the AO for fresh examination in light of the Godrej and Boyce decision.

2. Disallowance of service tax under section 43B of the Act:
The AO disallowed Rs. 90,08,661, comprising Rs. 48,10,998 and Rs. 41,97,663, as service tax payable, presuming it was unpaid. The CIT(A) deleted the disallowance, noting that Rs. 41,97,663 was paid before the due date of filing the return and the remaining Rs. 48,10,998 was not payable as the amounts were not received from the parties. The Tribunal upheld the CIT(A)'s decision, referencing the Tribunal's consistent view that service tax is only payable upon receipt by the assessee, thus section 43B could not be invoked.

3. Disallowance of payment of software charges:
The AO treated the software charges payment of Rs. 26,70,405 as capital expenditure, allowing depreciation and disallowing Rs. 10,68,162. The CIT(A) deleted the disallowance, noting that the payments were for maintenance and technical support, not for software purchase. The Tribunal agreed with the CIT(A) that the maintenance of software expenses should be treated as revenue expenditure. However, the Tribunal also agreed to disallow depreciation on this expenditure, modifying the CIT(A)'s order accordingly.

4. Computation of book profit under section 115JB of the Act:
The AO added Rs. 99,56,933 disallowed under section 14A to the book profit under section 115JB. The CIT(A) directed the AO to restrict the addition to Rs. 31,69,778. The Tribunal found merit in the Departmental representative's plea to set aside the issue to the AO in light of the Godrej and Boyce decision. The Tribunal directed the AO to re-examine the computation of book profit under section 115JB afresh, considering the relevant decisions and providing reasonable opportunity to the assessee.

Conclusion:
Both appeals were partly allowed for statistical purposes, with directions to the AO to re-examine the issues afresh in light of the relevant judicial decisions and after providing a reasonable opportunity of being heard to the assessee. The Tribunal's order was pronounced on October 31, 2012.