2012 (9) TMI 1181 - AT - Income Tax

Summary

Issues Involved:
1. Deleting the disallowance of depreciation on intangible assets.
2. Deleting the disallowance of expenditure u/s 14A.
3. Directing the AO to verify the contentions regarding foreign expenses and to delete the addition.

Summary:

Issue 1: Deleting the disallowance of depreciation on intangible assets

The assessee, a Private Limited Company engaged in software development, claimed depreciation on intangible assets. The AO disallowed the depreciation, questioning the value of the intangible assets. The CIT(A) deleted the disallowance, noting that the software was registered as a trademark and used for business purposes, thus qualifying for depreciation u/s 32. The Tribunal upheld the CIT(A)'s decision, referencing similar cases and rulings, including the ITAT Ahmedabad decision in DICT Vs M/s. Bhagawati Banquets and Hotels Ltd., which supported depreciation on intangible assets.

Issue 2: Deleting the disallowance of expenditure u/s 14A

The AO disallowed expenses related to exempt income u/s 14A, applying Rule 8D. The CIT(A) deleted the disallowance, stating that Rule 8D operates prospectively from AY 2008-09 and no nexus was established between interest-bearing funds and investments earning exempt income. The Tribunal upheld the CIT(A)'s decision, finding no justification to interfere.

Issue 3: Directing the AO to verify the contentions regarding foreign expenses and to delete the addition

The AO disallowed foreign travel expenses due to lack of evidence proving they were incurred for business purposes. The CIT(A) directed the AO to verify the contentions and delete the disallowance if justified. The Tribunal remitted the matter back to the AO for de novo consideration, instructing the assessee to provide necessary details and the AO to pass an appropriate order based on the evidence.

Other Appeals:

For AY 2004-05, 2005-06, 2006-07, 2007-08, and 2008-09, the Tribunal followed the decision for AY 2003-04, dismissing the revenue's appeals on similar grounds. The appeals for AY 2003-04 and 2004-05 were partly allowed for statistical purposes, while the appeals for other years were dismissed.

Conclusion:

The Tribunal upheld the CIT(A)'s decisions on depreciation and expenditure disallowances, remitting the issue of foreign travel expenses back to the AO for verification. The appeals for AY 2003-04 and 2004-05 were partly allowed for statistical purposes, and other appeals were dismissed.