2018 (2) TMI 1144 - AT - Income Tax

Sale of software - assessee claimed sale as a capital receipt thereby resulting into short term capital loss - assessee s case was that three parties had sponsored the above software. Former two of them denied any such sponsorship and third entity namely M/s. R. R. Agency filed its confirmation of sponsorship - Held that - We notice that there is no elaborate discussion either in assessment or during lower appellate proceedings as to how three parties could have allegedly sponsored the same relevant software. No justification as to how the resultant capital loss would be disallowed as the same would prima facie indicate a double addition of the very amount i.e. acquisition cost as well as loss arising from sale of the relevant capital asset. We therefore deem it appropriate that ld. CIT(A) needs to adjudicate this entire three folded issue once again as per law after affording adequate opportunity of hearing to the assessee to place on record all details. These three substantive grounds are therefore treated as accepted for statistical purposes. Section 14A r.w. Rule 8D disallowance - Held that - We notice that the assessee s stand throughout has been that it had re-invested dividend receipt from already invested mutual funds for the purpose of deriving exempt income in question. It emerges that a co-ordinate bench of this tribunal in M/s. Academy for Computer Training (Guj) Pvt. Ltd. vs. DCIT 2016 (11) TMI 1527 - ITAT AHMEDABAD as decided holds that the impugned disallowance is not to be made in case of mutual funds. Thus delete the impugned disallowance pertaining to assessee s exempt income. - Decided in favour of assessee

Summary

Issues involved:
1. Treatment of software CT-Angio amount as unexplained receipt and disallowance of short term loss.
2. Adjudication of sponsorship claim under section 28(iv) of the Income Tax Act.
3. Challenge against Section 14A r.w. Rule 8D disallowance.

Detailed Analysis:
1. The first issue in this judgment revolves around the treatment of the software CT-Angio amount as an unexplained receipt and the disallowance of short term loss. The assessee claimed sale of the software received from M/s. Vibgyor Scientific Research Pvt. Ltd. as a capital receipt, resulting in a short term capital loss. The Assessing Officer concluded that the assessee failed to prove relevant sponsorship from three entities, leading to the treatment of the amount as unexplained and disallowance of the capital loss. The CIT(A) upheld this decision without detailed discussion. The tribunal found a lack of justification for disallowing the capital loss, indicating a potential double addition of the acquisition cost and the loss from the asset's sale. As a result, the tribunal directed the CIT(A) to re-adjudicate the issue after affording the assessee an opportunity to present all relevant details.

2. The second issue pertains to the adjudication of the sponsorship claim under section 28(iv) of the Income Tax Act. The tribunal noted that only one entity supported the assessee's sponsorship claim for the CT-Angio software, highlighting a lack of detailed discussion on how three parties could have sponsored the same software. The tribunal found the need for the CIT(A) to re-examine this issue, emphasizing that even if the sponsorship claim was not accepted, the disallowance of the capital loss lacked justification. The tribunal directed the CIT(A) to conduct a thorough review of the sponsorship claim and related capital loss, ensuring compliance with the law and providing the assessee with a fair hearing.

3. The final issue concerns the challenge against the disallowance under Section 14A r.w. Rule 8D. The Assessing Officer and the CIT(A) applied Rule 8D to disallow a specific amount in the assessee's hands, related to interest and administrative expenditure. However, the tribunal referred to a precedent where it was held that the disallowance should not apply to mutual funds if certain conditions are met, such as the own capital exceeding the corresponding investment. Relying on this precedent, the tribunal deleted the disallowance related to the exempt income, thereby accepting the assessee's challenge against the Section 14A r.w. Rule 8D disallowance. As a result, this aspect of the appeal was allowed in favor of the assessee.