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2018 (9) TMI 769 - AT - Income TaxDisallowance of expenses for purchase of application software - nature of expenditure - revenue or capital expenditure - Held that - If the revenue expenditure has been incurred in a particular year then same has to be allowed in that year itself, if the assessee has claimed the expenditure in that year and Revenue cannot deny the same. Thus, in view of earlier year precedence in assessee s own case 2016 (6) TMI 1240 - ITAT DELHI and also respectfully following the ratio laid down by the Hon'ble Apex Court in the case of Taparia Tools Ltd 2015 (3) TMI 853 - SUPREME COURT , we decide this issue in favour of the assessee Addition u/s 14A - Held that - AO should have first examined such a claim with regard to the accounts of the assessee and the nature of expenditure debited so as to prima-facie come to a satisfaction whether any expense can be attributed for the purpose of earning the exempt income. It is only when he finds certain discrepancies in assessee s claim, then only he can proceed with making of the disallowance. Here in this case, as discussed above, no such satisfaction has been recorded, and therefore, we hold that no disallowance u/s.14A should be made. The other plea taken by the parties before us, are not discussed, because at the threshold we have held that no disallowance should be made. Income on account of reversal of income as per RBI guide lines - Held that - this issue has been discussed by the Tribunal in assessee s own case for the Assessment Year 1999-00 in the case of its sister concern which has been confirmed by the Hon'ble Delhi High Court also. The ld. CIT (A) has held that since the issue is now settled by the Hon'ble Jurisdictional High Court in the case of the assessee and on the similar facts, he deleted the addition. - Revenue appeal dismissed.
Issues Involved:
1. Disallowance of expenditure on purchase of application software. 2. Addition under Section 14A related to disallowance of expenditure for earning exempt income. 3. Addition on account of reversal of income as per RBI guidelines. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure on Purchase of Application Software: The Revenue contested the deletion of the disallowance of ?13,02,49,286 incurred by the assessee for the purchase of application software, arguing it should be capitalized as it provides enduring benefits. The Assessing Officer (AO) disallowed the expenditure based on the Supreme Court's judgment in Madras Industrial Investment Corporation vs. CIT, which recognized the concept of deferred revenue expenditure. However, the CIT(A) and ITAT found that the expenditure should be treated as revenue in nature and allowed in the year incurred, citing the jurisdictional High Court's decision in CIT vs. Panacea Biotech Ltd. and the Supreme Court's ruling in Taparia Tools Ltd. vs. JCIT. The Tribunal upheld the CIT(A)'s decision, emphasizing that if revenue expenditure is incurred in a particular year, it must be allowed in that year if claimed by the assessee. 2. Addition under Section 14A: The AO made an addition of ?9,15,58,225 under Section 14A, arguing that the assessee failed to establish that borrowed funds were exclusively used for business purposes. The CIT(A) deleted the addition, noting that the assessee had sufficient interest-free funds and that the AO had not recorded the required satisfaction before making the disallowance under Rule 8D. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Godrej & Boyce Manufacturing Co. Ltd. vs. Dy.CIT and the Delhi High Court's decision in HT Media Ltd. vs. Pr.CIT, which mandate the AO to record satisfaction regarding the correctness of the assessee's claim before applying Rule 8D. The Tribunal concluded that no disallowance under Section 14A should be made in the absence of such satisfaction. 3. Addition on Account of Reversal of Income as per RBI Guidelines: The AO added ?6,60,185 to the assessee's income, arguing that the reversal of income as per RBI guidelines contradicted the mercantile system of accounting. The CIT(A) deleted the addition, citing the Tribunal's decision in the assessee's own case for the Assessment Year 1999-00, which was upheld by the Delhi High Court. The Tribunal confirmed the CIT(A)'s decision, noting that the issue was settled in favor of the assessee by the jurisdictional High Court. Assessment Year 2009-10: For the Assessment Year 2009-10, the issues were identical to those in the Assessment Year 2008-09. The Tribunal applied the same findings, dismissing the Revenue's appeal and confirming that the expenditure on debenture issuance should be treated as revenue in nature and that no disallowance under Section 14A should be made without the AO recording the required satisfaction. Conclusion: Both appeals of the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues. The Tribunal emphasized the importance of recording satisfaction by the AO before making disallowances under Section 14A and reiterated that revenue expenditure should be allowed in the year it is incurred if claimed by the assessee. The judgment was pronounced in the open Court on 11th June 2018.
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