2022 (1) TMI 537 - AT - Income Tax

Carry forward of Long Term Capital Loss arising from sale of equity shares - eligible to set off against Long Term Capital Gain (LTCG) of any subsequent assessment year which do not form part of total income as envisaged in the provisions of section 10(38) of the Income Tax Act - HELD THAT - Following the decision in case of Raptakos Brett Co. Ltd. 2015 (6) TMI 529 - ITAT MUMBAI has attained finality as the appeal preferred by the department against the said decision has been dismissed by the Hon ble Jurisdictional High Court, though, due to non-prosecution. Thus, we do not find any infirmity in the order of the Ld.CIT(A) in allowing the claim of carry forward of Long Term Capital Loss of ₹.17,86,21,665/- arising from sale of equity shares. With regard to case law relied by Ld. DR she relied on Apollo Tyres Ltd., v. DCIT 2021 (9) TMI 708 - KERALA HIGH COURT the issue involved in that case was whether long term capital loss incurred on which STT paid could not be set off against long term capital gain arising out of sale of land, the issue is distinguishable. With regard to Nikhilsawhney 2020 (8) TMI 508 - ITAT DELHI this case was pronounced on 17.08.2020 and subsequently Coordinate Bench has decided the issue in favour of the assessee. Aggrieved, when revenue preferred appeal before Hon'ble Jurisdictional High Court, the same was dismissed. Therefore, the issue under consideration reached finality. Accordingly, ground raised by the revenue is dismissed. Disallowance u/s 14A r.w.r. 8D - disallowance of the expenditure even where taxpayer in particular year has not earned any exempt income - HELD THAT - Assessee has earned exempt income to the extent of ₹.49,23,544/- whereas the Assessing Officer calculated the disallowance u/s. 14A r.w. Rule 8D to the extent of ₹.67,13,465/- which is more than the exempt income earned by the assessee. The various courts have held that disallowance u/s. 14A of the Act cannot be more than the exempt income earned by the assessee. Therefore, we are in agreement with the finding of the Ld.CIT(A) and we do not find any reasons to interfere with the finding of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. Nature of expenditure - expenses on Software renewal license - revenue oR capital expenditure - HELD THAT - We observe from the record that Ld.CIT(A) allowed the software licence charges expenses claimed by the assessee by relying on the Coordinate Bench decision in the case of DCIT v. Integrated Technology Solutions Pvt. Ltd. 2016 (4) TMI 30 - ITAT MUMBAI - After considering the detailed findings of the Ld.CIT(A) we do not find any reason to interfere with the findings of the Ld.CIT(A). Therefore, the grounds raised by the revenue is dismissed. Disallowance on account of travelling expenses - assessee could not establish the business relevance of such expenses - HELD THAT - We observed that the Coordinate Bench in own case after considering the facts in the case of the assessee has allowed 1/7th of the expenses incurred by the assessee as personal. Ld.CIT(A) has relied on the above finding and accordingly, allowed the appeal filed by the assessee before him. After considering the finding of the Ld.CIT(A) we do not find any reason to disturb or interfere with the above finding. Accordingly, ground raised by the revenue is dismissed.

Summary

Issues Involved:

1. Carry forward of Long Term Capital Loss (LTCL).
2. Disallowance under Section 14A of the Income Tax Act.
3. Treatment of Software Renewal License expenses.
4. Disallowance of Traveling Expenses.

Issue-wise Detailed Analysis:

1. Carry forward of Long Term Capital Loss (LTCL):

The primary issue was whether the assessee's claim of carry forward of LTCL arising from the sale of equity shares, exempt under Section 10(38) of the Income Tax Act, could be set off against LTCG of subsequent years. The Assessing Officer (AO) contended that since the gains from such shares are exempt, the losses should also be considered "dead losses" and not eligible for carry forward. The assessee argued, citing ITAT decisions, that the loss should be allowed to be carried forward. The ITAT upheld the assessee's claim, referencing the case of M/s. Raptakos Brett & Co. Ltd., which established that only the income portion is exempt and not the entire source of capital gains. Therefore, the LTCL can be carried forward and set off against future LTCG.

2. Disallowance under Section 14A of the Income Tax Act:

The second issue was whether the CIT(A) erred in deleting the disallowance under Section 14A without appreciating the CBDT Circular No. 5 of 2014, which mandates disallowance even if no exempt income is earned in a particular year. The AO had disallowed ?67,13,465 based on Rule 8D, which was more than the exempt income earned by the assessee. The CIT(A) restricted the disallowance to the extent of the exempt income earned, which was ?49,23,544. The ITAT upheld the CIT(A)'s decision, agreeing that disallowance under Section 14A cannot exceed the exempt income earned by the assessee, as supported by various court decisions.

3. Treatment of Software Renewal License expenses:

The third issue was whether the expenses on software renewal licenses should be treated as revenue or capital expenditure. The AO treated these expenses as capital, while the assessee claimed them as revenue, arguing that they were recurring expenses for maintaining and upgrading existing software. The CIT(A) allowed the expenses as revenue expenditure, relying on the decision in DCIT v. Integrated Technology Solutions Pvt. Ltd., which stated that software expenses for upgradation and maintenance, which do not provide long-term enduring benefits, should be treated as revenue expenditure. The ITAT upheld the CIT(A)'s decision.

4. Disallowance of Traveling Expenses:

The fourth issue for the A.Y. 2016-17 involved the disallowance of helicopter expenses claimed by the assessee. The AO disallowed 25% of the expenses as personal or non-business use, while the CIT(A) restricted the disallowance to 1/7th of the total expenses, based on the assessee's own case in earlier years. The ITAT agreed with the CIT(A)'s decision, noting that the 1/7th disallowance was consistent with the findings in the assessee's earlier cases.

Consolidated Findings:

The ITAT dismissed the revenue's appeals for all the assessment years under consideration, upholding the CIT(A)'s decisions on all the issues. The judgments emphasized the principles of consistency, the applicability of precedents, and the correct interpretation of the Income Tax Act provisions. The appeals for the A.Y. 2018-19 and 2015-16 for Amit Avinash Bhosale were also dismissed, following the same rationale as in the case of Avinash Nivriti Bhosale.

Conclusion:

The ITAT concluded that the revenue's appeals lacked merit and upheld the CIT(A)'s decisions on all grounds, thereby dismissing the appeals for all assessment years under consideration.