2016 (4) TMI 704 - AT - Income Tax

Disallowance of fine paid to National Securities Clearing Corporation u/s.37(1) - AR submitted payment as fine is in lieu of non submission charges levied and partially collection of margin and argued that as per the terms of contract with NSCCL such payments are always compensatory in nature - Held that - We are of the opinion on the basis of the debit note and debit advices though in debit advice it was referred as penalty for initial margin summary statement they take the characteristic of business transaction wholly and exclusively incurred in trading of securities and compensatory in nature. Considering the apparent facts, we set aside the order of Commissioner of Income Tax (Appeals) on this ground and we direct the Assessing Officer to delete the addition - Decided in favour of assessee Disallowance u/Sec 14A - Held that - The ld. Assessing Officer applying the provisions of Sec.14A r.w.r. 8D(iii) has calculated the disallowance and considered B16,770/- and made an additional disallowance of B2,57,857/-. The ld. Authorised Representative reiterated his submissions and argued that the total exempted income received by the assessee is B88,252/- and assessee has voluntarily disallowed B16,770/- whereas the ld. Assessing Officer calculated disallowance under Rule 8D B2,57,857/- which is at higher side on comparison with income received and prayed deletion. We after considering the apparent facts and judicial decision of M/s.Joint Investments P. Ltd vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT were held that disallowance should be restricted to the extent of exempted income. Therefore, we set aside order of the Commissioner of Income Tax (Appeals) on this ground and remit the issue in dispute to the file of the Assessing Officer, who shall verify and examine the disallowance on the ratio of judicial decision.

Summary

Issues involved:
1. Disallowance of fine paid to National Securities Clearing Corporation Ltd as business expenditure.
2. Disallowance of 5% of exempt income under Sec. 14A.
3. Disallowance of software expenses as capital expenditure.

Detailed Analysis:
1. The first issue pertains to the disallowance of a fine paid to National Securities Clearing Corporation Ltd. The Assessing Officer disallowed the fine of B21,000 treating it as a violation of law, but the assessee argued that it was compensatory in nature and should be allowed as a business expenditure under Sec. 37(1) of the Income Tax Act. The Tribunal found that the fine was compensatory in nature based on the contractual terms with NSCCL, and directed the Assessing Officer to delete the addition and allow the expense as claimed by the assessee.

2. The second issue involves the disallowance of 5% of exempt income under Sec. 14A. The Assessing Officer disallowed B3,22,670 being 5% of dividend income as per judicial decisions. However, the Tribunal referred to a High Court decision directing the disallowance of 2% of exempted income as per Sec. 14A. Consequently, the Tribunal partly allowed the assessee's ground on this issue.

3. The third issue concerns the disallowance of software expenses as capital expenditure. The Assessing Officer treated the software expenses as capital in nature, disallowing excess claims. The Tribunal noted that the software had a validity period of one year and directed the Assessing Officer to verify and allow deduction if the expenses were revenue in nature. The Tribunal partly allowed the assessee's ground related to software expenses.

Additionally, in the assessment year 2010-2011, the Tribunal addressed issues related to the disallowance of computer software expenses and the disallowance of net profit from hedging transactions. The Tribunal directed the Assessing Officer to treat certain software expenses as revenue expenditure and to verify the disallowance of net profit from hedging transactions. The Tribunal partly allowed the appeals of the assessee for statistical purposes in this assessment year.