2012 (8) TMI 1155 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance u/s 14A of the Income-tax Act, 1961.
2. Disallowance of expenditure incurred on leasehold premises.
3. Disallowance of provision for doubtful advances written off.
4. Disallowance on account of investment written off.

Summary:

1. Disallowance u/s 14A of the Income-tax Act, 1961:

The assessee, M/s HCL Comnet Ltd., contended that no expenses were incurred to earn the exempt dividend income. However, the AO attributed 25% of the exempt income as expenditure incurred in earning the dividend income and added Rs. 20,73,610 to the total income. The CIT(A) upheld this disallowance, emphasizing that investments in mutual funds require monitoring and are not akin to bank deposits. Similarly, in the case of HCL Comnet Systems & Services Ltd., the AO attributed 25% of the exempt income as expenditure incurred, but the CIT(A) reduced the disallowance to Rs. 13,530. The Tribunal set aside the orders of the CIT(A) and restored the matter to the AO for fresh adjudication in light of the decision in Maxopp Investment Ltd., directing the assessee to furnish all relevant details and accounts of expenditure.

2. Disallowance of expenditure incurred on leasehold premises:

The AO disallowed the expenditure of Rs. 43,95,598 incurred on leasehold premises, treating it as capital in nature and allowing depreciation at prescribed rates. The CIT(A) upheld the disallowance, categorizing the expenses into those related to renovation/improvement of the leased building and those independent of the leased building. The Tribunal, following the decisions in Hi Line Pens Pvt Ltd. and Talathi and Panthaky Associated (P.) Ltd., held that expenditure incurred on false ceiling, partition, and civil works should be treated as revenue expenditure and allowed the assessee's claim to that extent.

3. Disallowance of provision for doubtful advances written off:

The AO disallowed the provision for doubtful advances written off amounting to Rs. 20,46,474, treating it as capital loss. The CIT(A) deleted the disallowance, holding that the loss incurred had a direct and proximate connection with the business operations and was allowable as a deduction. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide any material to controvert the findings.

4. Disallowance on account of investment written off:

The AO disallowed Rs. 1,76,996 on account of investment written off, treating it as capital loss. The CIT(A) upheld the AO's decision but allowed the benefit of carry forward of long-term capital loss. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh adjudication, noting that there was no material or finding to suggest a transfer of the right to the assets.

Conclusion:

The appeals of the assessee in HCL Comnet Ltd. and the Revenue in HCL Comnet Systems & Services Ltd. were partly allowed for statistical purposes, with directions for fresh adjudication by the AO on specific issues.