2011 (1) TMI 1380 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 14A.
2. Disallowance of allocated regional overheads.
3. Disallowance of software expenses.
4. Disallowance of advertisement expenses.
5. Deletion of disallowance of rent paid towards sharing of garden space.

Summary:

1. Disallowance u/s 14A:
The issue pertains to the disallowance of Rs. 13,45,013/- u/s 14A. The Assessing Officer (AO) disallowed 10% of the dividend income, citing necessary expenditure for managing investments. The CIT(A) directed the AO to verify the claim as per Rule 8D. The Tribunal, referencing the Hon'ble Jurisdictional High Court's judgment in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, set aside the orders and remanded the matter to the AO for fresh determination following the High Court's directions.

2. Disallowance of Allocated Regional Overheads:
The AO disallowed Rs. 23,39,857/- due to lack of supporting evidence for expenses debited as allocated regional overheads. The CIT(A) confirmed this disallowance. The Tribunal upheld the disallowance, referencing its earlier decision in the assessee's own case, allowing the assessee to take remedial action in the subsequent year if the same amount was offered for taxation.

3. Disallowance of Software Expenses:
The AO disallowed Rs. 9,46,032/- on software expenses, treating them as capital in nature. Both parties agreed that the issue is covered by the Special Bench decision in Amway India Enterprises vs. Dy. CIT. The Tribunal set aside the orders and remanded the matter to the AO to decide afresh in light of the Special Bench's criteria, allowing due depreciation if deemed capital expenditure.

4. Disallowance of Advertisement Expenses:
The AO disallowed Rs. 10,49,722/- out of Rs. 1,35,35,020/- claimed as advertisement expenses, citing non-business purposes. The CIT(A) confirmed the disallowance. The Tribunal, following its earlier decision in the assessee's case for AY 2003-04, set aside the issue to the AO for fresh verification and decision.

5. Deletion of Disallowance of Rent Paid Towards Sharing of Garden Space:
The AO disallowed Rs. 38,56,963/- paid for garden space, considering it a diversion of income. The CIT(A) deleted the disallowance, following the Tribunal's earlier orders in the assessee's case. The Tribunal upheld the CIT(A)'s order, referencing consistent Tribunal decisions and the Special Bench's decision in JCIT vs. ITC Ltd.

Assessment Year 2005-06:
The issues of disallowance of regional overhead expenses Rs. 24,17,890/-, software expenses Rs. 21,07,024/-, and advertisement expenses Rs. 5.00 lacs were similar to AY 2004-05. The Tribunal confirmed the disallowance of regional overhead expenses and remanded the software and advertisement expenses issues to the AO for fresh decision.

Conclusion:
The assessee's appeals for AY 2004-05 and 2005-06 were partly allowed for statistical purposes, and the revenue's appeal for AY 2004-05 was dismissed.