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2016 (9) TMI 1522 - AT - Income TaxDisallowance of software expenditure - nature of expenditure - revenue or capital expenditure - HELD THAT - It is not disputed by the Revenue that type of software acquired had maximum life of two to three years only. These were not system software but application software. In view of the judgment of case of Asahi India Safety Glass 2011 (11) TMI 2 - DELHI HIGH COURT we are of the opinion that claim had to be allowed. We therefore, delete the disallowance - expenditure incurred for acquiring software which did not give enduring benefit could only be considered as Revenue expenditure. Upfront lease rent - claim disallowed by the lower authorities as capital expenditure - HELD THAT - facts show that the assessee had obtained leasehold right for 99 years over the land which was definitely in the nature of acquisition of a capital asset. Therefore, we are of the opinion that the disallowance was righty done by the lower authorities. No interference is required. Ground Nos. 5 to 8 of the assessee stand dismissed. Denial of TDS and TCS claimed in the Return of income - HELD THAT - We are of the opinion that whether the claim for tax credit was correctly made by the assessee is the issue need to be examined afresh by the ld. Assessing Officer. If the assessee is able to show evidence for TDS/TCS AO is directed to give such credit. Accordingly, ground of the assessee is treated as allowed for statistical purpose. Disallowance u/s.14A - CIT-A restricted addition to 2% of the dividend income - HELD THAT - By virtue of judgment of Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd 2010 (8) TMI 77 - BOMBAY HIGH COURT Rule 8D cannot be applied for the impugned assessment year. However, Sec.14A of the Act was very much there in statute for the impugned assessment year. Hence, disallowance under the said section could be made dehorse the rules. Co-ordinate Benches of the Tribunal are taking consistent view that disallowance of 2% of the exempt income would suffice for the years were Rule 8D were not applicable - no error in the order of CIT(Appeals) in restricting disallowance 2% of the dividend income claimed by the assessee as exempt. Accordingly, we dismiss the ground of the Revenue. Disallowance of notional interest - interest free loans granted by the assessee to its subsidiary - HELD THAT - Apex Court in the case of S.A. Builders Ltd 2006 (12) TMI 82 - SUPREME COURT the lordship had remitted the matter back to the Tribunal for enquiry whether interest loans were given to the sister concern was as a measure of commercial expediency. Their lordship took a view that once nexus was established between the expenditure and the purpose of the business, which need not necessary be business of the assessee itself, Revenue could not disallow the claim assuming what was reasonable - lower authorities failed to verify whether loans given by the assessee to its subsidiaries were commercially expedient. The amount that were given as loans was not stagnant. Therefore, we set aside the order of the lower authorities and remit the issue regarding allowability of pro-rata interest on interest free loans granted to subsidiaries, back to the file of the AO for consideration of fresh in accordance with law. TDS u/s 195 - non deduction of tds on export commissions paid to Non Resident Agents - HELD THAT - It is true that by virtue of Explanation to Section 9, substituted by Finance Act, 2010 with retrospective effect, it was not necessary for a non-resident to have a place of business or business connection in India for being fastened with a tax liability in India. However, the said Explanation applies only to income by way of interest, income by way of Royalty and income by way of fees for technical services. There is no case for the Revenue that earning of the foreign agent fell in any of these three categories. In such a situation, we are of the opinion that agent having rendered services only outside India, assessee was required to deduct tax at source on payments made to them. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) in deleting addition Disallowance of additional depreciation - usage of asset - HELD THAT - There is no dispute, that the additional depreciation claimed by the assessee was balance of what remained out of such depreciation claimed in the immediate preceding year. There is also no dispute that such claim was restricted to 50% of the eligible amount for use less than 180 days. The issue whether such additional depreciation to the extent not allowed due to restriction placed on account of usage for a period less than 180 days could be allowed in the succeeding year had come up for hearing before Jurisdictional High Court in the case of Rittal India Pvt. Ltd 2015 (1) TMI 1248 - KARNATAKA HIGH COURT had held in favour of the assessee. Accordingly, we are of the opinion that claim of additional depreciation has to be allowed. Disallowance of the claim is deleted. Levy of interest u/s.234D - liable to pay interest on the refunded amount - HELD THAT - As decided in INFRASTRUCTURE DEVELOPMENT FINANCE CO. LTD. 2011 (9) TMI 591 - MADRAS HIGH COURT applicability of provisions of section 234D, the date of assessment is relevant and not the year of assessment therefore/ when once the regular assessment is completed after the amended proviso of law (i. e 1.6.2003) came into operation the assessee is liable to pay interest on the refunded amount as contemplated u/s 234D of the Act. Claim of the assessee has to be allowed. The ld. Assessing Officer is directed to rework interest levied u/s.234D of the Act Admission of additional ground - assessee did not file revise its return claiming either Long Term Capital Loss on redemption of units of ICICI Venture Capital Fund and upfront lease rent - both claims disallowed - HELD THAT - It is true that assessee did not file revise its return either for claiming long term capital loss or for claiming the upfront lease rent. Nevertheless, the assessee has filed letter before AO making a claim for long term capital loss and had filed additional ground before CIT(Appeals) for claiming upfront lease rent. CIT(Appeals) relying on Goetze India Limited 2006 (3) TMI 75 - SUPREME COURT dismissed both these claim. In our opinion by virtue of judgment of Apex Court in the case of National Thermal Power Corporation vs. CIT 1996 (12) TMI 7 - SUPREME COURT the Appellate authorities could consider such claims. Hon ble Apex Court in the case of Goetze India Limited (supra) only limited the powers of the ld. Assessing Officer. We are therefore of the opinion that ld. Commissioner of Income Tax (Appeals) fell in error in not considering both these grounds on merit. Expenditure claimed as prior period - year of assessment - HELD THAT - The claim of the assessee that bills for the expenditure claimed as prior period was received by the assessee only in the previous year relevant to assessment year 2009-2010. The assessment year 2009-2010 is subsequent to the impugned assessment year. If the expenditure was incurred in the previous year relevant to the impugned assessment year, assessee ought have shown it only as a provision and not as prior period of expenditure. We are, therefore of the opinion that assessee failed to justify its claim, and it was rightly disallowed by the lower authorities.
Issues Involved:
1. Disallowance of software expenditure. 2. Disallowance of upfront lease rent. 3. Failure to give credit for TDS and TCS. 4. Disallowance under Section 14A of the Income Tax Act. 5. Disallowance of notional interest on interest-free loans to subsidiaries. 6. Disallowance under Section 40(a)(ia) for export commissions paid to non-resident agents. 7. Disallowance of additional depreciation. 8. Levy of interest under Section 234D. 9. Disallowance of long-term capital loss and upfront lease rent. 10. Disallowance of prior period expenditure. 11. Inclusion of tax-free interest income. Detailed Analysis: 1. Disallowance of Software Expenditure: The assessee challenged the disallowance of software expenditure amounting to ?15,61,995/-. The assessee argued that the software acquired did not result in any enduring benefit and were for renewing licenses and antivirus systems. The Tribunal noted that the software had a maximum life of two to three years and were application software. Citing the Delhi High Court judgment in Asahi India Safety Glass, the Tribunal allowed the claim, deleting the disallowance. 2. Disallowance of Upfront Lease Rent: The assessee contested the disallowance of upfront lease rent of ?5,96,80,000/- as capital expenditure. The Tribunal observed that the lease rent was for obtaining leasehold land for 99 years, which constituted a capital asset acquisition. Hence, the Tribunal upheld the disallowance, referencing the Supreme Court judgment in Enterprising Enterprises vs. DCIT. 3. Failure to Give Credit for TDS and TCS: The assessee raised the issue of not receiving credit for TDS and TCS claimed in the return of income. The Tribunal directed the Assessing Officer to verify the evidence for TDS/TCS of ?28,81,980/- and give the necessary credit, allowing the ground for statistical purposes. 4. Disallowance under Section 14A: The Revenue's grievance was the restriction of disallowance under Section 14A to 2% of the dividend income. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, noting that Rule 8D was not applicable for the assessment year, and a 2% disallowance was consistent with Tribunal views for such years. 5. Disallowance of Notional Interest: The Revenue challenged the deletion of notional interest disallowance related to interest-free loans to subsidiaries. The Tribunal remitted the issue back to the Assessing Officer to verify the commercial expediency of the loans, referencing the Supreme Court judgment in S.A. Builders Ltd vs. CIT. 6. Disallowance under Section 40(a)(ia): The Revenue contested the deletion of disallowance for export commissions paid to non-resident agents. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, noting that the commission was for services rendered outside India and did not fall under the categories requiring tax deduction at source as per the explanation to Section 9. 7. Disallowance of Additional Depreciation: The assessee's claim for additional depreciation of ?99,57,900/- was disallowed on the grounds that it was admissible only in the year of machinery use. The Tribunal allowed the claim, referencing the Karnataka High Court judgment in CIT vs. Rittal India Pvt. Ltd, which permitted additional depreciation in the succeeding year if restricted to 50% due to usage for less than 180 days. 8. Levy of Interest under Section 234D: The Tribunal directed the Assessing Officer to recompute interest under Section 234D, aligning with the Madras High Court judgment in CIT vs. Infrastructure Development Finance Co. Ltd, which stipulated that interest should be computed on the tax payable from the date of refund to the date of regular assessment. 9. Disallowance of Long-Term Capital Loss and Upfront Lease Rent: The assessee's claims for long-term capital loss and upfront lease rent were dismissed by the Commissioner of Income Tax (Appeals) based on the Supreme Court judgment in Goetze (India) Ltd vs. CIT. The Tribunal remitted these issues back to the Commissioner of Income Tax (Appeals) for fresh consideration, emphasizing the appellate authority's power to consider such claims as per the Supreme Court judgment in National Thermal Power Corporation vs. CIT. 10. Disallowance of Prior Period Expenditure: The assessee's claim for prior period expenditure was disallowed as the bills were received in a subsequent year. The Tribunal upheld the disallowance, noting that the expenditure should have been shown as a provision if incurred in the previous year. 11. Inclusion of Tax-Free Interest Income: The Tribunal remitted the issue of tax-free interest income back to the Commissioner of Income Tax (Appeals) for fresh consideration, similar to the treatment of long-term capital loss claims. Conclusion: The Tribunal's judgment addressed multiple issues involving disallowances and claims for various assessment years, providing detailed reasons for its decisions and remitting certain issues for fresh consideration by the lower authorities. The appeals were partly allowed for statistical purposes.
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