2022 (5) TMI 1591 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee company has made certain investments in shares/mutual funds/bonds etc. out of the funds either borrowed by the assessee or from company own sources - HELD THAT - In the absence of any material change and legal proposition in assessee own case 2021 (9) TMI 168 - ITAT DELHI .for A.Y. 2014-15 we hereby direct that only the investments which yielded the exempt income be considered for disallowance u/s 14A. Claim of Depreciation on software - @ 25% or 60% - HELD THAT - This issue has been dealt by the Co-ordinate Bench of ITAT in assessee s own case in. 2021 (9) TMI 168 - ITAT DELHI for A.Y. 2014-15 wherein held since the matter of software utilized in content production the software embedded with hardware is an integral part of the computer equipment the issue has been repetitively held in favour of the assessee - claim depreciation on software claimed @ 60% by the assessee allowed. Interest on Late Deposit of FBT penalty on service tax and interest on late deposit of service tax - HELD THAT - Hon ble Apex Court observations in this regard in the case of Lachmandas Mathura Vs. CIT 1997 (12) TMI 16 - SUPREME COURT held that interest on arrears of tax is compensatory in nature and not penal. Thus interest on late deposit of FBT penalty on service tax and interest on late deposit of service tax is allowable Decided in favour of assessee.

Summary

Issues:
1. Disallowance u/s 14A
2. Claim of Depreciation
3. Interest on Late Deposit

Disallowance u/s 14A:
The appellant contested the disallowance of Rs. 14,98,610 under Section 14A, arguing that the disallowed amount exceeded the actual dividend income earned. The appellant also highlighted that the Assessing Officer (AO) did not adequately justify the disallowance, especially considering the appellant's submission regarding related expenses. The appellant emphasized that the investments were not solely for earning dividends, and the entire investment portfolio was not appropriately considered for disallowance. The ITAT directed that only investments yielding exempt income should be considered for disallowance under Section 14A.

Claim of Depreciation:
Regarding the claim of depreciation, the appellant challenged the AO's decision to allow depreciation at 25% instead of the claimed 60% on software assets, arguing that the software was integral to the business application. The ITAT referred to a previous case where the depreciation claim was upheld at 60% due to the software's essential nature in content production. The ITAT affirmed the decision of the CIT(A) based on the consistency of earlier tribunal orders and declined to interfere with the depreciation claim at 25%.

Interest on Late Deposit:
The appellant disputed the disallowance of Rs. 1,53,048 towards interest on late deposits, arguing that such expenses were compensatory and not penal in nature. The CIT(A) relied on a Madras High Court judgment from 1998, which the appellant contested by citing a Karnataka High Court judgment from 2008. The ITAT referred to a Supreme Court case emphasizing the compensatory nature of interest on late deposits and allowed the interest on late deposit of FBT, penalty on service tax, and interest on late deposit of service tax. Consequently, the ITAT allowed the appeal of the assessee.

In conclusion, the ITAT ruled in favor of the appellant, allowing the appeal and setting aside the disallowances made under Section 14A, depreciation claim, and interest on late deposits. The judgment emphasized the importance of considering investments yielding exempt income for disallowance, recognizing the integral nature of software assets for business operations, and acknowledging the compensatory nature of interest on late deposits.