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2016 (12) TMI 1799 - AT - Income TaxDisallowance of claim loss due to fall in value of investments, held as stock in trade - HELD THAT - As decided in own case disallowance 2015 (11) TMI 861 - ITAT DELHI we decide this issue in favour of the assessee by deleting the additions. Disallowance u/s. 14A - HELD THAT - Sufficient funds are available to make the investments and the appellant's submission that the investments were made out of interest free funds available, therefore, AO is required to indicate cogent reason on the basis of the accounts that the claim of the appellant is not correct. In the absence of any finding on the basis of accounts that interest expenditures are incurred in relation to exempt income and considering the fact that sufficient interest free funds are available, therefore, no disallowance of indirect interest expenditure can be made under Rule 8D(2)(ii). Disallowance of software expenses and AMC expenses - HELD THAT - AMC expenses mentioned are to be treated as revenue expenditure and the remaining expenses are capital in nature. AO is directed to recompute the depreciation allowable on the above items of capital expenditure on acquisition of software. Assessee claimed depreciation @ 60% on LAN, WAN as applicable to the block of computers - It is not in dispute that the ITAT in the case of assessee itself for A.Y. 2006-07 has considered the LAN and WAN as integral part of computer and eligible for higher depreciation @ 60%. Addition of interest on overdue deposits - HELD THAT - Claim of assessee, in our opinion, is not acceptable until it is ascertained that the actual payment of the provision has been made to the customers or not. We, therefore, restore this issue to the file of AO for the limited purpose to verify whether actual payment of the provision has been made to the customers or not and to decide the same accordingly as per law. Needless to say, the assessee shall be given reasonable opportunity of being heard.
Issues Involved:
1. Loss due to fall in value of investments held as stock-in-trade. 2. Disallowance under Section 14A of the Income Tax Act, 1961. 3. Expenditure on software. 4. Depreciation on LAN/WAN equipment. 5. 100% depreciation on temporary wooden structures. 6. Interest on overdue deposits. Issue-wise Detailed Analysis: Issue No. 1: Loss due to fall in value of investments held as stock-in-trade The assessee claimed depreciation on the fall in value of investments held as stock-in-trade, which included losses due to the shifting of securities from the AFS (available for sale) category to the HTM (held to maturity) category. The AO disallowed these losses, terming them as notional losses. However, the Tribunal reversed this decision, citing precedents from the Karnataka High Court and Bombay High Court, which allowed such losses as actual and deductible. The Tribunal decided in favor of the assessee, allowing the losses of ?209.99 crores and ?119.55 crores for AY 2008-09 and 2009-10, respectively. Issue No. 2: Disallowance under Section 14A of the Income Tax Act, 1961 The assessee did not make any disallowance under Section 14A in respect of expenditure incurred for earning exempt income. The AO disallowed expenditures of ?49.15 crores and ?62.33 crores for the respective years. The CIT(A) reduced these amounts, allowing only ?3.63 crores and ?4.30 crores as disallowance under Rule 8D(2)(iii). The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds to cover the investments and that the AO had not provided cogent reasons for disallowing indirect interest expenditure. Issue No. 3: Expenditure on software The assessee claimed software expenses as revenue expenditure, which the AO treated as capital expenditure. The CIT(A) allowed AMC expenses as revenue but treated the remaining software expenses as capital. The Tribunal upheld the CIT(A)'s decision, stating that the assessee failed to establish that the software licenses were for a specific period, thus justifying their classification as capital expenditure. Issue No. 4: Depreciation on LAN/WAN equipment The AO restricted the depreciation on LAN/WAN equipment to 15%, treating them as part of plant and machinery. The CIT(A) allowed 60% depreciation, considering them integral to the computer system. The Tribunal upheld this decision, referencing the Delhi High Court's ruling that computer peripherals, including LAN/WAN, are eligible for higher depreciation. Issue No. 5: 100% depreciation on temporary wooden structures The AO disallowed the claim for 100% depreciation on temporary wooden structures, amortizing the expenses over five years. The CIT(A) deleted the addition, but the Tribunal restored the issue to the AO for fresh verification, as the nature of the structures (whether furniture or building) was not clear. Issue No. 6: Interest on overdue deposits The assessee made a provision for interest on overdue deposits as per RBI guidelines, which the AO disallowed, citing a lack of identification of customers and periods. The CIT(A) accepted the provision, but the Tribunal restored the issue to the AO to verify actual payments to customers, ensuring compliance with the RBI circular. Conclusion: Both the assessee's and the Revenue's appeals were partly allowed, with specific issues remanded for further verification by the AO. The Tribunal's decisions were based on established legal precedents and thorough examination of the facts and applicable laws.
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