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2021 (7) TMI 106 - AT - Income TaxDisallowance u/s 14A - assessee is contending that it is having own funds and interest free funds exceeding the value of investments and hence the decision rendered in the case of Micro Labs Ltd. 2016 (4) TMI 219 - KARNATAKA HIGH COURT and Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI is applicable - HELD THAT - The above said contentions urged before us require verification of facts prevailing in this case. Accordingly, we are of the view that this issue requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh by following the decision rendered in the case of Micro Labs Ltd. (supra) and Vireet Investments Pvt. Ltd. (supra). Disallowance made u/s 40(a)(ia) - payments for purchase of software without deducting tax at source - HELD THAT - Since the transactions of purchase of software has been completed prior to rendering of decision SAMSUNG ELECTRONICS CO. LTD. 2009 (9) TMI 526 - KARNATAKA HIGH COURT which have held that TDS is not required to be made out of payment made for software purchasesby Hon ble Karnatak, following the above said decision we hold that the TDS liability cannot be fastened upon the assessee retrospectively and accordingly disallowance u/s 40(a)(i) is not called for even if the software purchases is treated as revenue expenditure. Accordingly, we are of the view that there is no reason to treat the cost of software capitalized by the assessee as revenue expenditure. Accordingly we set aside the order passed by Ld. CIT(A) and direct the AO to treat the cost of software as capital expenditure and delete the disallowance made on this issue. Addition of rental income due to the difference found out in form no.26-AS - difference in the income reported by the assessee under form No.26AS - DR submitted that the claim of the assessee requires examination at the end of the A.O - HELD THAT - We find merit in the submission made by Ld. D.R. Accordingly, we restore this issue to the file of the AO for examining the explanations furnished by the assessee. After affording adequate opportunity of being heard to the assessee, the A.O. may take appropriate decision in accordance with law.
Issues Involved:
1. Disallowance made u/s 14A of the Act. 2. Disallowance made u/s 40(a)(ia) of the Act. 3. Addition of rental income due to the difference found out in form no.26-AS. Issue-Wise Detailed Analysis: 1. Disallowance made u/s 14A of the Act: The first issue pertains to the disallowance under Section 14A of the Income Tax Act. The Assessing Officer (A.O.) noticed that the assessee received exempt income in the form of share income from a partnership firm amounting to ?1.63 crores and did not make any disallowance under Section 14A. Consequently, the A.O. computed a disallowance of ?13.56 lakhs out of interest expenditure under Rule 8D(2)(ii) and ?6.91 lakhs out of general expenses under Rule 8D(2)(iii), totaling ?20.47 lakhs. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance. The assessee argued that its own funds and interest-free funds exceeded the value of investments, referencing the Karnataka High Court decision in CIT Vs. Micro Labs Ltd. (383 ITR 490). The assessee also contended that no expenditure was incurred to earn the share income and alternatively suggested that only investments yielding exempt income should be considered for disallowance under Rule 8D(2)(iii), citing the Special Bench decision in ACIT Vs. Vireet Investments Pvt. Ltd. (50 ITR (Trib.) 313). The Tribunal found merit in the assessee's contentions, noting that these required verification of facts. The Tribunal set aside the CIT(A)'s order and remanded the issue back to the A.O. for fresh examination in light of the decisions in Micro Labs Ltd. and Vireet Investments Pvt. Ltd. 2. Disallowance made u/s 40(a)(ia) of the Act: The second issue involves the disallowance under Section 40(a)(ia) for non-deduction of tax at source on software purchase payments. The A.O. disallowed the depreciation claimed on the software, treating the payment as royalty based on the Karnataka High Court decision in Samsung Electronics Company Ltd. (2011) 203 Taxmann 477. The CIT(A) directed the A.O. to treat the software purchase as revenue expenditure and disallow the entire cost under Section 40(a)(ia). The Tribunal, referencing the coordinate bench decision in DCIT Vs. Sangeeta Mobiles Pvt. Ltd. (ITA No.715/Bang/2017), held that Section 40(a)(i) cannot be invoked for disallowance of depreciation on capitalized software purchases. The Tribunal also noted that the ruling in Samsung Electronics was subsequent to the transaction and thus should not impose a retrospective TDS liability. The Tribunal cited the decision in M/s. Teekays Interior Solutions Pvt. Ltd. Vs. DCIT (ITA No.400/Bang/2017) to support this view. Consequently, the Tribunal set aside the CIT(A)'s order and directed the A.O. to treat the software cost as capital expenditure and delete the disallowance. 3. Addition of rental income due to the difference found out in form no.26-AS: The third issue concerns the addition of ?2,62,761 due to discrepancies between the income reported by the assessee and Form No.26AS. The CIT(A) provided partial relief, confirming an addition of ?1,65,375. The assessee claimed that this amount was offered in the subsequent assessment year (2012-13), arguing for deletion to avoid double taxation, referencing the Supreme Court decision in Excel Industries (299 ITR 1). The Tribunal acknowledged the need for verification and remanded the issue back to the A.O. for examination, directing the A.O. to consider the assessee's explanations and make a decision accordingly. Conclusion: The appeal filed by the assessee was allowed for statistical purposes, with the Tribunal remanding the issues back to the A.O. for fresh examination and appropriate action in accordance with the law.
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