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2024 (1) TMI 481 - AT - Income TaxDisallowance of interest claim u/s 36(1)(iii) - assessee had debited the interest on loans taken and not charged any interest on loans given and the assessee could not substantiate that the interest free loans/advances given were out of non interest bearing funds - CIT(A) deleted addition as assessee had more funds than that advanced without charging any interest - HELD THAT - In view of the facts decision of the Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT in this order that if there are funds available both interest free and over draft and/or loan taken then a presumption would arise that investment would be out of the interest free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. The ITAT, Mumbai in the case of the assessee itself for A.Y. 2014-15 2023 (9) TMI 1212 - ITAT MUMBAI after following the decision of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT held that such disallowance is not sustainable when the interest free advances given by the assessee to its suppliers were for less than interest free fund available with the assessee. No merit in this grounds of appeal, therefore, this ground of appeal of the revenue is dismissed. Disallowance of Lease rental in respect of the unexpired period of lease - HELD THAT - During the course of appellate proceedings before us as discussed above, the assessee has filed additional evidences comprising copies of lease agreements and copies of security deposits ledger from the books of the assessee. After considering the submission of the assessee that relevant documents as referred above were not easily available because of cyber attack which affected the relevant record maintained on the computer system, we admit the additional evidences filed by the assessee vide its submission dated 28.09.2022 to decide the issue on merit. In view of the additional evidences filed by the assessee, we observe that this issue is required to be decided denovo after examination and verification of the additional evidences filed by the assessee, therefore, we restore this issue to the file of the AO for deciding fresh after examination of the documents filed by assessee as referred supra in this order Therefore, ground no. 1 to 4 of the assessee are allowed for statistical purpose. Nature of expenses - Software expenses - assessee has claimed that the software expenses incurred during the year under consideration were in respect of annual maintenance cost and licensing fees - HELD THAT - As perused the decision of ITAT in the case of assessee for A.Y. 2014-15 2023 (9) TMI 1212 - ITAT MUMBAI wherein the similar issue on identical fact has been decided in the favour of the assessee holding that expenses incurred as annual license fees and annual maintence of software were of revenue in nature. Following the decision of the ITAT, we direct the AO to treat software expenses as revenue expenses. Therefore this ground of appeal is allowed. Dividend distribution tax DDT Paid to Dutch Shareholders - MFN clause Applicability - assessee submitted that since there is MFN clause in the protocol of India Netherlands tax treaty therefore beneficial rate of 5% be considered in the case of the assessee as per Article 10(2) of India- Slovenia Treaty - HELD THAT - We find that the Hon ble Supreme Court in the case of ACIT (International Taxation) Vs M/s Nestle 2023 (10) TMI 981 - SUPREME COURT Supreme Court held that the specific notification u/s 90/1 is necessary for effecting benefit under MFN clause.
Issues Involved:
1. Disallowance of interest claim under Section 36(1)(iii) of the Income Tax Act. 2. Disallowance of lease rental expenditure for the unexpired period of lease. 3. Disallowance of expenditure under Section 40(a)(ia) for non-deduction of TDS. 4. Disallowance of software expenses as capital expenditure. 5. Additional grounds related to Dividend Distribution Tax (DDT) and education cess. Summary: Issue 1: Disallowance of Interest Claim under Section 36(1)(iii) The Revenue challenged the deletion of disallowance of interest claim of Rs. 4,95,57,893 by the CIT(A). The AO had charged notional interest on interest-free loans/advances given by the assessee, which was disallowed as expenditure not incurred for business purposes. The CIT(A) allowed the appeal, noting that the assessee had sufficient interest-free funds. The Tribunal upheld CIT(A)'s decision, citing the Bombay High Court's ruling in Reliance Utilities and Power Ltd., and dismissed the Revenue's appeal. Issue 2: Disallowance of Lease Rental Expenditure The AO disallowed lease rental expenditure of Rs. 42,70,000 for the unexpired lease period, as the assessee could not furnish supporting documents. The CIT(A) upheld this disallowance. The Tribunal admitted additional evidence submitted by the assessee, citing a cyber attack that affected record maintenance. The Tribunal restored the issue to the AO for fresh examination and verification of the additional evidence, allowing the assessee's grounds for statistical purposes. Issue 3: Disallowance of Expenditure under Section 40(a)(ia) The AO disallowed lease rental expenditure for non-deduction of TDS under Section 194I. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO for fresh examination and verification of additional evidence, as the assessee claimed the amount was paid for early vacation of lease premises, not for using land or building. Issue 4: Disallowance of Software Expenses The AO treated software expenses of Rs. 17,58,125 as capital expenditure. The CIT(A) upheld this decision. The Tribunal, following its own decision for AY 2014-15, directed the AO to treat software expenses as revenue expenses, allowing the assessee's appeal on this ground. Additional Grounds: Dividend Distribution Tax (DDT) and Education Cess The assessee raised additional grounds regarding the application of MFN clause in the India-Netherlands tax treaty for a beneficial DDT rate. The Tribunal, following the Supreme Court's decision in M/s Nestle SA, held that a specific notification under Section 90(1) is necessary for effecting benefit under the MFN clause. Consequently, this additional ground was dismissed. The additional grounds related to education cess were not pressed by the assessee and were dismissed. Cross Objection by the Assessee The cross objection related to the disallowance of notional interest was dismissed as infructuous, following the dismissal of the Revenue's appeal on the same issue. Conclusion The appeal filed by the Revenue and the cross objection filed by the assessee were dismissed. The appeal filed by the assessee was partly allowed.
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