2018 (8) TMI 2112 - AT - Income Tax

Disallowance u/s 14A - computation of deduction - AO observed that assessee has not properly worked out the disallowance therefore the assessee was asked to explain why not the disallowance should be worked out as per section 14A - HELD THAT - As noticed that as on 31st March 2011 the assessee was having its own fund of Rs. 158.57 crores (share capital of Rs. 69.44 crores reserves of Rs. 89.14 crores). It is explained that borrowed funds were utilized for construction of hospital building and the interest amount was capitalized as evident from rule 19 of annual accounts - identical issue on similar facts in the case of the assessee has been decided for assessment year 2010-11 on 08.08.2017 in favour of the assessse. DR was fair enough not to controvert these facts and findings. Accordingly the appeal of the revenue on this issue is dismissed. Depreciation on system software of the computer - @ 60% or 25% - as per AO application software are not integral part of the computer and held that the application software is intangible assets and they are eligible for depreciation u/s. 32 of the act @ 25% - HELD THAT - Special Bench in the case of Datacraft India Ltd 2010 (7) TMI 642 - ITAT MUMBAI held that any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression computer. Decided against revenue.

Summary

Issues:
1. Disallowance of Rs. 78,84,214/- u/s 14A of the Income Tax Act
2. Disallowance of Depreciation @ 60% instead of @25%

Issue 1: Disallowance of Rs. 78,84,214/- u/s 14A of the Income Tax Act:
The assessing officer disallowed an amount of Rs. 78,84,214/- under section 14A of the Income Tax Act, 1961, as the assessee had earned exempt income in the form of dividends and had not properly worked out the disallowance. The assessing officer applied rule 8D(2)(1) of the act to calculate the disallowance. However, the CIT(A) allowed the appeal of the assessee, stating that the assessee had its own funds and had not used borrowed funds for investments, which was supported by the decision of the Coordinate Bench of the ITAT in a previous year's case. The ITAT upheld the CIT(A)'s decision, emphasizing that the own funds of the assessee were far more than the investments, and thus, disallowed the revenue's appeal.

Issue 2: Disallowance of Depreciation @ 60% instead of @25%:
The revenue appealed against the decision of the CIT(A) allowing depreciation @ 60% instead of @25% on system software of the computer. The assessing officer considered application software as intangible assets eligible for depreciation @ 25%. However, the CIT(A) relied on a previous decision of the ITAT in a different case and allowed the appeal of the assessee, stating that the Income Tax Act does not differentiate between system software and application software for depreciation purposes. The ITAT noted that the Special Bench held that devices integrated with a computer are considered part of the computer, supporting the higher rate of depreciation. The ITAT, following the decision of the Coordinate Bench in a previous year's case, dismissed the revenue's appeal, concluding that the assessee was entitled to depreciation @ 60%.

In conclusion, the ITAT dismissed both grounds of appeal raised by the revenue, upholding the decisions of the CIT(A) in favor of the assessee in both issues. The judgments were based on the interpretation of relevant provisions of the Income Tax Act and previous decisions of the ITAT and Special Bench, ensuring consistency in the application of tax laws.